Saturday, September 13, 2014

THE CONVICTION TO HOLD





Courtesy: Full credit of this wonderful article goes to the original author Mr.Ian Cassel
-------------------------------------------------------------------------------------------------- Extraordinary returns follow extraordinary discipline. Discipline in buying and selling , and maybe the most important one of all, holding. Developing the conviction to hold is something that I’ve learned over time. It didn’t come easy. The basis of this article is to give some insight on how to develop the conviction to hold your winners. It is very tempting to sell along the way, and it’s okay to take a little off the table, but the big money is made by holding.
“It never was my thinking that made the big money for me. It always was my sitting.” — Reminiscences of a Stock Operator
Many of us, myself included, look at stocks that have made big moves and think to ourselves, “If I would have only knew about that company and bought it back then.” But would you really have developed the conviction to hold during the run up? The problem is that to achieve a multi-bagger in the portfolio, you have to hold a multi-bagger. And if you want it to change your life, you need to hold a lot of it.
Don’t bother finding the next multi-bagger if you aren’t going to develop the conviction to hold it.
 Over the last decade, I’ve been lucky enough to be invested in a few stocks that have gone up 5-10-20-30x over a multi-year time horizon.  From my experience, the only way to hold onto a big position after it makes a big move is to know the underlying company better than anyone else. Greed and fear will test your resolve, so you need to learn to keep these emotions in check. You need to believe in your due diligence and form an unwavering conviction.

So how do you develop the conviction to hold?
 
 A lot of due diligence is on the front-end of a buying decision, but it certainly doesn’t stop there. The maintenance due diligence following the buy decision is even more important. For me, I talk to management regularly and keep close watch of all the ancillary forces and trends that are driving the company’s business. My “edge” is knowing my positions better than anyone else. This doesn’t mean I’m going to be right, but the more I know the better.
I think many misperceive high conviction for close-mindedness, ignorance, and arrogance. The conviction I’m talking about is quite the opposite. You need to constantly assess your positions and openly listen to counter arguments. Only then will you have the conviction to hold multi-baggers because you will understand all sides to the story. You also need to develop a thick skin. If you are not ready to be criticized for your convictions than you aren’t ready to make real money.
I believe most investors focus too much on selling strategies and not enough time on knowing what they own. Selling strategies such as, “Sell half after a stock doubles” or “When a position reaches 10% of the portfolio, sell it down to 8%” are meant for lazy investors. These selling metrics-formulas-strategies sound great in academia or when selling an investment strategy to a bunch of lemmings who can’t think for themselves. The truth is if you know what you own at all times, you’ll know when to sell.
In many cases the stocks I’ve owned were better buys after they doubled then when I initially bought them. In many cases when a position became 30% of my portfolio there was a reason for it.  The underlying business was doing really well, or institutions were just starting to nibble on shares, so why would I sell it. Just because a stock doubles, triples, etc, doesn’t mean it should be sold. Stocks should be sold when your maintenance due diligence shows something has changed. If you know the story better than anyone, you’ll likely get clues well before the rest of the market. When a company performs, and the story hasn’t changed, stop trying to change it. Enjoy the ride.
When a stock goes on a multi-year run there will be long periods of time when nothing happens. These are consolidation periods when old shareholders are selling and new investors are buying in
A big part of successful investing is becoming content doing nothing. If you are in great companies, a lot of times your biggest risk is boredom. Warren Buffett’s famous quote, “Our favorite holding period is forever”. If he likes where the business is headed, he’ll continue to hold it and probably buy more. Don’t be active for activity sake. Remember, there are no day traders on the Forbes 400 list. Learn to be content holding and doing nothing.
“Patience is power.
Patience is not an absence of action;
rather it is “timing”
it waits on the right time to act,
for the right principles
and in the right way.”
– Fulton J. Sheen

As a microcap investor who invests in companies with little to no institutional ownership, I want to hold for the institutional rally. When a management continues to execute on a great story, at some point it’s going to attract institutional inflows. You will see this when an illiquid stock all of sudden gets propelled by a sustained period of above average volume. Hello Institutions!
A multi-year run is made up of a bunch of mini-cycles that can last weeks or months. During these times the stock can become undervalued or overvalued. Quite a few professional investors I know like to trade 10-20% of their full position during these swings. For my psyche I’ve found it to be counter productive. If I own a $5 stock and think it might go back to $4 before it goes to $10 in 12 months, I’m fine simply holding it through the mini-cycles.
I hope I’ve helped shed some light on a hard but lucrative topic. Many investors spend all their time trying to find great microcap companies only to sell them after quick paltry gains. If management is executing and the story hasn’t changed, hold on for the real money. Find great companies, develop the conviction to hold them, and it will change your life.
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62 comments :

  1. Really nice article sir.
    thanks for sharing it.

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  2. Dear VP sir

    Thanks for wonderful article. It is great help as you are sharing to normal small investors with out looking any personal benefits.
    In my view you are an ideal human being...where we cannot see in normal life.....

    best regards

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  3. Thanks vp once again. ...you have made us richer in past and will make us more richer in years to come

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  4. Nice article. More to learn from you.
    May god bless u ....

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  5. Excellent Article. Thanks VP Sir. I Salute you for the Great Job you are doing to us, the small investors.

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  6. I regret selling Granules,Astra MIcro,Sequent Scientific..:( Had I the conviction to Hold

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    Replies
    1. Me too regret selling Capita First at 235 levels... Thanks VP Sir...

      Delete
    2. But im still holding Liberty,Shakti,V2,EPC,Capital First,Basant.All your valuepicks sir..I wish one day i could really have a house for my own.Monthly salaries really dont work out.

      Delete
  7. Our Ancestor rightly said:
    TIME IS MONEY
    A real booster to inspire us to GO LONG

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  8. Great Article....like holding your stocks, Hold our relationship thru this blog "forever"

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  9. I too sold out Panasonic, Astra micro, VST Ttillers,
    Kkaveriseeds, Avanti feeds, Sequent Scientfic etc and etc... it goes on. I sold all these stocks at a meager profit of 20 % or 30 % . see now they all are grown up by more than 5X times. it is purely lack of my money management skills and it is because of my instinct to do some activity regularly on my share holds. Regards Ramana

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  10. The article really befits your own philosophy and helps me in understanding your "value pick" and "value hold" concepts.
    thanks.
    regards
    ajit

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  11. The Zeal of the Article lies in the below line

    " If you are in great companies, a lot of times your biggest risk is boredom"

    I am only three year old in stock market but most of times i just keep on sidelines watch shares goes to high and high after a long consolidation and that is where the above line fit. Pray to GOD to give all strength to face boredom and not exit stock

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  12. Puts on table exactly what you keep on telling to your followers. To be honest, I have developed a huge respect on your way of thinking. Your recommendations have always been long term and over the top. You are also very consistent and reliable though you are unknown to us. You are truly Mr. India wrt Stock Market and us investors.

    God bless you!
    May you live long and get good health and prosperity.

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  13. Very useful article indeed. I guess we should have a conviction to sell when you realize the stock is not doing good.

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  14. Hi sir,
    Thanks for the nice article. A good teacher can inspire hope, ignite the imagination, and instill a love of learning.. (brad henry)
    Hari

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  15. This article has convincingly opened my eyes on concept shared.

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  16. Very good article. one should only hold the winners not the laggards. for ex holding suzlon, unitech lanco and jp group may not hold good.
    i regret selling sequent but i am still holding the winners.
    one question-all the companies write all good in their annual report . how do we differentiate them.

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  17. Dear VP Sir, Salutations. A very educative article on conviction to Hold."If Management is executing and story has not changed, continue to hold". Super. Print and Electronic media is our source of Information; Sir, would you suggest a financial magazine which could be help in getting fair info on companies working. best warm regards

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  18. Thank you very much sir, for all your wonderful article, as simply thanks is a small word for me to you. your blog teaches me a lot and hope will learn more through your blog.

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  19. Thank you for your valuable guidance to the small investors. This is an excellent article which would boost our conviction towards good stocks and would be a morale booster.

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  20. Thanks a lot sir be a part of it and for the nice article. I think future is bright

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  21. Really great article for real investors who are looking for right path and right patience.

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  22. Thank you very much SIR, for such a nice article. YOU ARE THE ONLY PERSON WHO IS GIVING IDEAS AND INSPIRATION TO ALL THE FOLLOWERS WITHOUT ANY FAVOUR. May god give you GOOD HEALTH, PEACE OF MIND, AND ENJOYMENT.

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  23. Its an extraordinary article can help and guide small investors like us. Thanks a lot for your relentless support and help VP Sir.

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  24. Brilliant piece !!!!!

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  25. Sir your view on Mold tech packing, it's already 170, long term perspective

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  26. Hello V.P. Sir
    I have been following your blogs for the past 1 month. I think I have rightly understood your philosophy which is in favour of Investors following you. It is to do research when a recommendation is given by you, and as per the capacity invest in that stock. Once invested, do not hurry to sell it, but hold it for a considerable time period like months to years to rip unbelieavable returns.

    Sir, I wish to start investing from next month. The share prie of stocks recommended by you are now way up, so can you please suggest what should I do. I want to divide my investment into 20 scrips.

    I really look forward for a reply from your goodself at your convenience.

    Thank You

    hemalshah8177@gmail.com

    ReplyDelete
  27. Dear Respected VPji,

    Your Blog is Really proved as an Eye Opener for the small Ignorant Investor. Really I found myself Fortunate enough having came across such a wonderful, Knowledgeable Blog site. Thanks a TON !!!!

    ReplyDelete
  28. You are real guru. From bottom of my heart I can say ' GOD BLESS YOU'

    ReplyDelete
  29. Hello VP Sir,
    What a coincident, Last evening I was thinking to put you the following question, how long can I hold a stock when a stock runs up 30% in just a month of time since my buy?
    I’m a great believer of God, I believe just God only insisted you to think on this topic, as many of the small investors are waiting to learn from you.
    When you recommended Caplin point, Excel, MM forging at very cheap rate, I hesitated to buy it. Later when I see them going up in multiple folds. I wish I could have bought it at the recommended price. Including me, many of small investors are not buying at right time and holding it. Even if they buy at the right price, they sell in a 20% or 30% raise and do lot of post-mortem report after the stock runs up with many folds.
    Definitely this article will open the eyes of many small investors that stock market is not a gambling but more a business for long term.
    Now I’m holding EPC industries, Sequence scientific, Airtemp.... I will never think of selling it until any bad news breaks on them.
    Thanks for sharing this wonderful article and thanks to the original author too.
    Thanks for the Great work you do!!
    Antony.

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  30. Superb article for every investor. Vp sir ur are great.

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  31. Sir you are a real blogger I ever read to any.

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  32. While we do miss your every Saturday recommendations, articles like these are really the need of the hour. And we hope you do come out with more such articles so that people not only henceforth wait for your stock recommendations but also such articles.

    As VP ji rightly pointed out, many of us sell our holdings after making a profit of 20%, 30 % …which will definitely not derive us multibagger benefits. I remember getting tempted to sell Caplin point at Rs.170 levels wherein it stagnated for a long period. But for a moment, everytime I used to think of selling the stock, I would read value picks post once again which kind of tempted me to stay invested. And with the stock at 500 + plus, I am very thankful to value pick. Hats off!

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  33. Well this article of yours has changed my prespective..Impulse decision and attending brokers call 2/3 times a day make me trade .Over last 7 years I have become a additive trader and this is the most dangerous addiction ,more dangerous than cigarette,liquor or tobacco.

    Because of this additiction I have lost millions of Rupees and also Million of Rupess as notional profit. Even after visiting your site for last One year can you believe I have lost money because of my this addiction .Even though I know what I am doing is wrong but because of this addiction I am forced to make mistakes again and again.

    After reading this article I have told my brokers that you need not call me ,whenever I have to trade I would call you and you need not call me after the stock jumps 5% or 10% .

    I hope I am able to be more disciplined in my life and be able to do what I think is right and follow your steps. I hope many of your readers are having the same mental state as I have , to all of those please stop trading ....start investing..and believe in your decision.

    JUST SIMPLY HOLD ....

    Sir I need your blessing ..

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    Replies
    1. Hi VP

      Thanks for the article.

      After started watching your site for the past one and half years, just focusing only long term investments and benefited in many stocks,Really i am so happy.
      Many times i have mentioned here about my previous bad experience.....
      PATIENCE PAYS is the mandra strongly got from you VP. golden words.
      Really you are so genious helping investors like me without any expectations.
      By the way all these days we were looking only for your saturday recommendations, But now expecting your articles too, its really worth watching this site.
      Thank God & Thanks to you too VP.
      God Bless you and your family.
      Bhalaji

      Delete
  34. Sir ,
    simply great as i am following you from just 1 month & you have given concrete THEORY for ART OF HOLDING ....!!!!

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  35. Dear Sir,

    Simply awesome article!!. need to follow it diligently to get the actual benefit. One question I have..Where can we find your latest recommendations ?

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  36. Thanks for the article.....
    I use to tell my friends.....
    patient pays me in my medical profession and patience pays me in stock market

    ReplyDelete
  37. Very good article.
    What is your opinion about REI Agro, Guj NRE and Educomp?

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  38. Wonderful piece of article. I missed great opportunities selling Amara raja batteries, NATCO pharma, Divis lab, Indag rubber at 100% appreciation. Timely advise in a great bull market.
    Sumithrananda Reddy

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  39. But what if the market suddenly crashes as it happened when the IT bubble burst ? We will wipe out all our gains of bull market if we have not booked profits!!
    Sir, what is a practical exit strategy in such a scenario .!!
    Thanks for the reply in advance

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    Replies
    1. The IT bubble burst but companies like Infosys and TCS touched their life time high ( adjusted to bonus and stock split) only now .

      I think ,you got what I mean.

      Delete
    2. Subtle and straight to the point. Yes sir I got it . Have conviction in our picks and HOLD!!
      Thanks sir it was helpful.
      But we don't know anything about the one person who is helping turn around our lives for the better. Amazing!!
      THANKS

      Delete
  40. MM Forging Investment is doubled, still I would hold it for long time, till it becomes multibagger. Small sell by ICICI MF will not affect my conviction in MM Forging, as we see FY15 Revenue will jump 4X. Similarly holding Patels airtemp as they have huge order book to execute and conviction in this stock will help to retain it till it becomes multibagger.
    Mistake that I sold Capital First with only 30% returns.

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  41. VP sir, Your service for this community is really a dignity. Hats off to you for this article. We will follow you.

    ReplyDelete
  42. Sir,
    In the above article the writer would have a chance to meet up with the promoters do we have such an opportunity here?
    What to do if a company which we hold quotes at 50-90% discount after holding for 10 years? A bank fixed deposit in the same period would have given 4x returns how to face such situations?
    Thanks,

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  43. Dear Sir - Good Job. I find this Article to be quite a profound insight. It is rare to read something that makes you see the Investing Logic in a new light (The Correct Light :)) . Thanks a Million for Sharing this and Guiding us.

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  44. May God bless you and live healthy and happy and long life

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  45. Dear VP bro
    Fantastic write up on a term that is so underrated and misinterpreted HOLD.

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  46. sir ,
    In FY 2012-2013 patel airtemp had an order book of 40 crore while this year its around 136 crore .Does it mean the sales will come by end of FY14 or there is no boundary to execution timing?

    ReplyDelete
    Replies
    1. O dont think the entire orders will be executed in this FY , but the visibility is very good and the company is owned by very good people.One should Hold it for long term

      Delete
  47. Dear VP sir, thank you so much for your generosity, for sharing your valuable knowledge with us! For changing us into better investors.
    God bless you with everything you want!

    ReplyDelete
    Replies
    1. Thanks to all for your kind words .Just shared it for my readers since it matches with my investment philosophy.

      Delete
  48. Dear Sir,
    Where and when I could get new and latest sock recos from you Sir? Are you giving paid advise on subscription too ? If so kindly let me know ao that I could subscribe

    ReplyDelete

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