You know those articles that promote buy and hold strategies and say “If you hold X stock since inception, you would have made an XXX% gain!”. Well, whenever I read those articles, I will silently curse them as they made it sound so easy. To me, Buy and Hold one of the hardest strategy to apply in investing.
This is the stock price chart of Jardine Matheson Holdings (SGX:J36) over the past 24 years (since March 1995). Point to point, the stock is up over 16x. (All charts in this post are taken from InvestingNote.com)
In hindsight, everyone would believe that buying and holding the stock since inception would have been an easy choice. After all, the only thing the investor would have done during these 19 years was to sit and do nothing.
I really wish it was just that easy.
Of course, the idea of buying and holding high-quality businesses over a long period of time is simple. Everyone knows that, and even those who don’t practice it appreciate that this works with most high-quality businesses as their out-performance relative to the index has been proven time and again.
However, it’s important to understand that the action of not doing anything over such a long period of time involves hundreds of decisions over months and years that lead to such inaction.
Anyways, let’s get back to the example of JMH. I have broken down JMH’s 24 year journey into charts that show how the stock price behaved within blocks of 4 years starting 1995 (1995-1999, 2000-2004, etc.)
Consider the countless, mostly invisible and forgotten, decisions the ultimate “buy and hold” investor, would have had to take to get to an 16-bagger.
Looking at the charts, this investor saw the stock go through extreme volatility during 1995-1999, but did not sell…
From 2001 to 2003, there was no movement in the stock, followed by a sharp rise where the stock achieved multi-bagger status.. and he still held on.
He may have then faced the continued temptation of selling the stock to shift to hotter stocks such as Keppel Corp during the 2003-2008 period, and then saw the stock melt down with the overall market in the 2008 crisis. All his gains for the past 4-5 years gone down the drain.. but he did not sell…
After the Financial Crisis, the investor then saw a great four years period between 2009-2013 when the stock went up more than 3x. Not wanting to repeat the same mistake in 2009, he may have thought that it had become overvalued, but still did not sell…
From then, he faced mini crisis such as the Oil Crisis at 2013, economic uncertainty due to trade wars which affected the company’s profitability. The performance of the company also seemed to stagnate with topline unable to hit 2012 levels, but still he did not sell…
In addition to the above, during these 24 years, apart from making a lot of such big decisions, there would have been hundreds of small decisions that the investor would have had to make to stay vested in the stock.
For instance, he or she would have fought the –
- Daily stock movements…and sometimes indicating that the price was down more than 10% or 20%,
- Fear of losing more after a crash in the stock’s price and to cash in on whatever profits that remained,
- Bragging rights from fellow investors who were making in larger and quicker gains from hot stocks,
- Temptations to book profits after sharp run-ups in the stock’s price,
- Thoughts of taking profit and reinvesting in other stocks that were rising faster,
- Thoughts of selling because analyst reports deemed the stock “overvalued”,
- Thoughts of selling after making the first 2x, or 5x, or 10x,
- News flows that suggested the next few quarters were bad for the business, etc.
In short, for the rare investor who held on to JMH (or similar such businesses) for these years to see huge wealth creation, it was not through adopting a simple buy-and-hold decision.
In fact, the act of ‘not acting’ on a longer timeframe was made up of hundreds of small decisions that led to the ultimate decision to hold on to the stock.
This is one great lesson for the investor who believes in long-term investing but also thinks that it’s often an easy decision to buy and hold high-quality businesses.
Businesses change from time to time, and so do emotions and the behaviours of other investors around us. Conditions in the stock market and overall performance of our portfolios will definitely affect our decisions. And that’s why the Buy and Hold is not as simple as it sounds. And that’s why patience is one of the most important yet difficult skills one must cultivate while investing in the stock market.
Patience is not an easy skill to develop no matter how easy experienced investors such as Warren Buffet may make it sound like. But if developed and practiced well, it pays off well in the long run.
That’s all that I would like to share on the Buy and Hold strategy. Just be prepared for the grind.
Sadly, Moss Piglet is not vested in JMH since 1995.