“Buy and Hold” = “Invest and Track”
Posted on 27. Mar, 2011 by TheFreeInvestor in General, Investing Philosophy
You might have heard of “Buy and Hold” approach to investing. In a nutshell, the approach advocates that once we analyze and invest in a stock, we should just hold and own the business for a long time and due to the compounding of returns over time and absence of panic driven trades, you will realize better investment results compared to day-trading.
Warren Buffett is one of the most prominent investors who is supposedly uses buy and hold approach. (though, as per his biographer, he is much more opportunistic than what we see in media. But, lets leave that for another discussion). He buys businesses and owns them for decades, with the intention of owning the businesses for ever, unless the business changes drastically.
But, I think, “Buy and Hold” conveys a passive meaning of buying and forgetting about the investment. As if the investor is shrugging off his/her responsibility to monitor the investment. In case of Buffett, he focuses on buying the entire business or substantial part of the business. He has mentioned that he doesn’t interfere in the day-to-day activities of the businesses he buys. He relies on the management in-charge to continue to run the businesses as they used to do before Buffett bought the company. Compared to private equity transitions where the buyer intents to improve the business and resell it for a profit in few years, you can see how Buffett’s approach fits neatly into “Buy and Hold” approach.
Most of us are not wealthy enough to buy entire businesses and don’t have direct access to management teams. So, for regular long-term investors, a more appropriate approach would be “Invest and Track”. Our approach to long-term investing should be to perform due diligence before buying the stocks in a company. But, the responsibility doesn’t end there with buying and holding. Once we like the business and price and invest in the company, we should continue to track how the business is doing – just like a store owner will keep an eye on how the store manager is running the business. It may not be possible to track every news about the company on a day-to-day basis. But, at least once a quarter or few times a year, we should look at the financials and management discussion to make sure the original investment thesis still holds or, if the thesis has changed, we still like the company with its new strategy.
I have been following this approach for most of my investments. To keep track of the investment thesis and keep an eye on how the thesis is playing out, I have added a “Thesis” page to this site. You can see all posts that I have written (if at all) about a stock by clicking on the ticker symbols on the page. I am hoping that this will add to the transparency and keep me honest !
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