Commentary (Page 444)

Too many people misinterpret “buy and hold” as “buy and hold no matter what.” A better phrase would be “buy to hold,” as this reflects the true intention of long-term investing. When you buy to hold, you hold the investment for as long as it makes sense to do so. You should consider each investment as a new investment for that day. Do not own an asset that does not make sense.

If something changes in the investment, market, or your goals, “bought and sold” is the way to go. As an investment strategy, “sell” is not a four-letter word.

If you make a mistake in your business analysis, or if the company moves in a different direction than you expected, you sell. In addition, if the reaction of the market agrees with your analysis, and the stock that was once a good deal with plenty of benefits is now just a solid stock that probably will not drop, you should divest your initial investment to let your earnings grow on their own.

Your goal should be to sell as infrequently as possible and only to minimize the inevitable drops in the market. Ultimately, “buy to hold” simply means you need to do your homework, find a great business to own for a while, and check it regularly to re-balance and re-evaluate.

I try to help you decide the right companies on this site. I use the tools that I teach in my book, The Confident Investor. If you really want to increase your wealth then your first investment should be to buy my book. You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in ebook formats for Nook, Kindle, and iPad.

Being a confident investor implies that you have enough money to invest. I am constantly getting requests from my site or via Twitter regarding how to get started investing. Many people appear to understand that it is important to invest but do not currently have the funds to do it.

If you read my book, The Confident Investor, you will learn that I recommend that you take 10% of your income out of your paycheck and move it to a separate savings account for investment purposes. I have also discussed this concept on this site. This 10% comes out before you spend a single dime on expenses. You are effectively cutting your income by 10%.

To cut your income by 10%, you will likely need to cut your expenses by at least that much. Recently, I read an article on CNN about the 10 biggest money wasters. These might be areas to consider for you:

1. ATM Fees
2. Lottery tickets
3. Gourmet coffee
4. Cigarettes
5. Infomercial impulse buys
6. Brand-name groceries
7. Eating out
8. Unused gym memberships
9. Daily internet deals
10. Bundled cable or phone services

In each of the above, CNN explains the common waste and suggests a way to save the money. Following all of these suggestions (if you were guilty of all of them) would probably knock of $50-100 per week. $100 per week means $5,000 per year towards your investment portfolio.

Much of what you read and hear from “experts” is that you should “Buy and Hold” stocks and have a fixed investment schedule. They recommend that you find a quality company (or mutual fund), buy fixed amounts of stock out of your paycheck every month, and hold that stock for quite some time (maybe even decades). As I pointed out in the example from my book, The Confident Investor, it is possible to improve on this expert advice.

The “Buy and Hold” and “invest regularly” philosophy seems easy. It also shows commitment to your favorite stocks, but it’s not the philosophy that the “experts” use when they buy a stock!

EXAMPLE: Warren Buffet is considered to be one of the smartest buyers of companies ever. In a two-week span at the end of September 2008, Mr. Buffet bought stock in General Electric (NYSE:GE) and Goldman Sachs (NYSE:GS). He did not buy just a little bit; he invested billions of dollars in each company in return for a large percentage of those companies. If GE and GS were such great investments, why did not he just put a regular installment system in place to buy the stock? Of course, they made him a special deal for the investment, but that only proves that when the price is right, you need to act.

EXAMPLE: Microsoft Corporation (NASDAQ:MSFT) acquired all of the stock of Skype in 2011. This acquisition did not happen slowly by Microsoft investing in the Skype stock every month until they owned it all. Rather, Microsoft went to Skype investors and offered to pay them more than the current market price of the company. They did this because they saw value in total ownership of the company immediately. Microsoft executives evidently felt that Microsoft would be more profitable by buying all of Skype at one time.

The pages of the Wall Street Journal and Investors Business Daily have stories almost every day of individuals and corporations buying substantial portions of a company. These are some of the brightest investors on the planet. They show by their actions that the prudent way to purchase stock is to find a company that is priced right and invest their cash in that company. So why should you listen to experts say to “buy and hold” on a regular basis, when many experienced investors make substantial investments?

This site and my book are dedicated to trying to give you a better methodology. If you really want to understand how to significantly increase your wealth, you should purchase my book, The Confident Investor. You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in ebook formats for Nook, Kindle, and iPad.