Your money: Grow your investments over the long term


By Manish Goel

Long-term investing is a proven and effective way for retail investors to build wealth. Investment experts talk about investing in good stocks and forgetting about them. While this may have worked for some investors, that doesn’t mean you take the long-term investing approach for granted. Here are five things to keep in mind if you’re considering long-term investing:

Defining the long term

First, an investor may wish to define the duration of “long term”. For some investors the long term may be five years while for others it may be more than a decade. Based on this, you can allocate capital appropriately, align your goals, and set expectations. For example, if you are investing to build a corpus over the next five years that can be used for the down payment on a new home, your investment approach would be different than investing to build a corpus for retirement that could be two decades from now.

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Tracking companies in a stock portfolio

We do extensive research before investing in any business. But investing for the long term doesn’t mean you have to stop following the company after investing. You should review the transcripts of calls management has with analysts and annual reports to look for any red flags. By carefully analyzing the annual reports for the last five to seven years, you would be able to deduce whether the company is meeting its commitments and is on the right track.

Be aware of the CAGR

Investors talk about stock portfolios that have offered 2x, 4x or 10x returns. But you need to assess the compound annual growth rate (CAGR) of your portfolio to understand if the investment strategy has worked over the long term. For example, if your portfolio grows 3 times over 12 years, then such a portfolio has achieved a CAGR of only 9.59%. This portfolio would have even underperformed the index as Nifty has offered a CAGR of nearly 14% over the past two decades.

Avoid emotional attachment to actions

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Very often retail investors can become emotionally attached to a stock. This would prevent an investor from making rational decisions when it comes to selling the shares of such a company when it is underperforming. Worse still, if a retail investor needs funds, they may end up selling shares of a company that holds huge promise for growth rather than selling shares of an underperforming company they are emotionally attached to. attached.

Practice Sector Rotation

There could be certain sectors of your portfolio that could underperform during a specific period. For example, there have been phases of underperformance and high performance for companies in sectors such as pharmaceuticals, NBFC and capital goods. Therefore, you should watch these sectors closely if you plan to take relatively long-term positions in these stocks. If your investment thesis in these sectors does not pan out, you may need to replace stocks of companies in these sectors with those of companies in other sectors.

Long-term investing requires you to remain patient for your holdings to grow. It also forces you to never be complacent with your holdings and to keep monitoring the performance of your portfolio.

The author is Founder and Director, Research & Ranking


* Never settle for your assets. Continue to monitor the performance of your portfolio

* Make sure how you want to define the duration of “long term”

* Do not attach yourself emotionally to an action. Make rational decisions


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