Saturday, June 1, 2013

Investment Style Series: 1) set, forget, and do nothing

Let me kick off this series on various investment styles with the easiest of them all. That is to set, forget, and do nothing. We will use a twenty year old urban professional named Ben as our example. Let's say that Ben is absolutely convinced that the company he works for, Ayala Corp., has a bright future. He does his research, reads the annual reports, talks to people who have been with the company for a long time. He believes that it is an excellent company to own so he buys its stock. Recessions came and went, the 2nd and 3rd global financial crises passed, management and ownership of the company has moved on to the next generation, the stock price has moved to new lows and new highs. All these time, Ben did not sell his AC stock. Only when he retired at 65 years of age did he finally decide to sell. Holding on to a stock for 45 years would epitomize this investment style of set, forget and do nothing. We can also use other asset classes to illustrate this. Buying  a gold bar and locking it in a safe; a bank term deposit that rolls over automatically; that piece of real estate left by your grandmother. A do nothing else approach is simple, you believe in the long term  prospect of your investment and therefore feel comfortable with holding it forever. But bear in mind that this level of trust must stem from reason and not from emotions. Only by thoroughly analyzing a particular investment and having a good grasp of your own personality as an investor will this technique work. As Ben has shown above, he held unto his AC stocks for 45 years because he knows the company very well and is comfortable doing so even during a stock market crash. A warning though that this investment style is not to be equated with being lazy. Lazy people don't succeed. To sum it up: know thyself as an investor, thoroughly research and analyze a particular investment, put your money where your conviction is and stick with it come hell or high water. Happy investing!

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