Short term gains and active portfolio management may seem a bit attractive but it’s a known fat that passive managements tend to deliver much higher returns in the long term. I must tell you that I am far from perfect when it comes to stock picking, but I believe in buy and hold approach more than any other investment methodology.
One key to this strategy is keeping faith and riding through tough times, unless the very basis of what made you buy a stock has been proven wrong. Later in this article I will share few names which I personally feel are good bets for the long term but first let me share the very basis of how to identify long term buy and hold stocks.
1. Look around for companies that are thriving on monopoly. Its rare to find such businesses, and sometimes companies with large market share appear to be in monopolistic competition. You should pick those companies which control the market through patented businesses or proprietary technologies, which others cannot possess legally.
2. Even monopolistic businesses with high profit margins need to show consistent growth for their stock prices to rise. Its always better to invest in companies with at least few years of consistent growth and rising margins.
3. If you believe you have bought a good company with a successful model, don’t even think of selling out when scepticism builds around. Such sentiment often builds-up around result announcements. And, when companies defy all the negativity surrounding their businesses stocks simply breakout. Such uncertain times are the key moments when you should stay invested as major rallies tend to happen when weaker hands are fearful and smart money is ready to make its move.
Those who have been holding this company since its IPO back in 2004, wouldn’t have a single doubt about how effective buy and hold still is. This search engine giant has grown so big, and the best part is that after so many years the profits are still growing. Last year Google posted 20% growth. So far, the company is a pioneer in search, but it is still a small player in digital advertising. I believe that going forward Google will tap a major share in digital advertising industry, and taking that into account it’s really surprising to see how cheap this stock is trading at present.
Despite fierce competition from software industry giant from Germany, SAP, Oracle has pursued growth path under the guidance of strong leadership from Larry Ellison. He took the company to next level by winning against the federal government and acquiring PeopleSoft. Then he again fast paced company’s growth by taking over Sun Microsystems. Now, this kind of a venturing into hardware manufacturing was a bit concerning for many, but so far it is going good for the company and the shareholders are minting money.
BHP Billiton ($BHP)
This company enjoys the title of being words largest player in natural resources. With the economies of scale in play, metals and minerals business is one area where no other competitor might ever threaten their growth. The only reason why investors don’t rush for this company is the cyclical nature of commodity businesses.Image Source:- CNN Money
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