Does Long Term Investment In Stocks Always Profitable?

I stopped believing in the long term investment approach. You must be thinking – How can I say that, when all the other successful investors are betting on long term investment strategy, right? Well, I have different reasons as a retail or small investor.

When I entered into or say when I started investing in the stock market, I started with Intraday as most of the beginners do. After many failure attempts to be profitable in Intraday trading, I decided to switch the strategy. I started following the big shot investors who have built a fortune from the stock market. All these successful investors were strongly suggesting to invest for a very long time i.e. just buy and forget forever. Of course, they also advised to research and pick only stocks which are fundamentally strong and robust financial performance in history.

It makes sense when we see the stock which has given consistent profit over the years e.g. Infosys, Bajaj Finance, HDFC, etc. But can we catch such stocks on time? Is there any guarantee that, these stocks will continue the same momentum for more coming years? If you believe, these stocks will perform in the upward direction for the coming years as well and have visibility on the company’s financial condition then you can consider this strategy.

Why I Don’t Follow Long Term Strategy?

How long we should hold a stock to be considered as long term investment? If you listen to those big shot investors like Warren Buffet, Peter Lynch and famous Rakesh Jhunjhunwala in India – they all say to invest and never sell. I believe, they all were intelligent enough to catch the right stocks at the right time. They also have internal and transparent view to the company’s financial health but being a retail investor we hardly know what’s going on in company.

Stocks price does not necessarily behave as per the company’s fundamental or financial performance. The stock price movement is also dependent on the overall market condition, government rules & regulations, and other factors.

Being a retail or small investor, we have access to the company’s information that has been published on their website or any other portal. We cannot guarantee the authenticity of such information and use them as our only basis of investment strategy. On the other side the big players, foreign institutions have access to internal information.

It doesn’t mean these big investors or financial institutions are not selling. They sell when they reach their target or hear any negative news. They are always ahead and retail investors always stuck with huge losses. Irony is that, they advise you to stay invested in the market and accumulate more. This gives them the needed liquidity to exit from the market.

But Does It Happens All The Time?

I would say NO. There are many good companies listed in the stock exchange that are financially strong, good management, and stronghold in the market. They have good potential to go in an upward direction for several years but finding such companies is an art. Still, one should research companies, fundamentals, and most importantly but at the right time. Now, what does it mean? Well, you cannot buy any stock at any time and expect good returns even though they are the best ones.

Warren Buffet said, “Buy when there’s blood on the streets”. It means consider buying good stocks when the market has already fallen too much and stocks are available at dirt-cheap prices. Well, such incidents happen very rare but you would see almost all stocks correct from their high price and if you monitor them on a regular basis, you can get the opportunity to enter at the very right price.

No matter how good the stock is and how the future perspective looks in the long run, always consider selling in small quantities when you reach your target. Never hold all your position forever because you never know what’s cooking inside and when the southward journey could start. Following is the example of the well-known bank listed on the Indian Stock Exchange.

The stock was in an uptrend since the year 2010 and it was a well-known bank. No one ever imagined such a downfall. Think about the investment made at 5-10 years back with only a long term perspective. I am not saying, it is the case with all the companies but we never know the future.

No matter how good your stocks are, don’t stick to it forever and sell when your target prices have met. You can enjoy riding till the market sentiments are good and stock prices are moving along with it. But, be reasonable and exit when it’s the time. Also, consider keeping yourself out from the Intraday trading if you are a beginner.

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Long term is good until the market sentiments are good and the stocks you have invested in are moving as per the market. Don’t blindly follow any investor’s strategy rather observe and take action as per the situation. I hope you liked the article. Do let me know what you feel about it.

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