I view investing in the stock market under the following terms: (1) about 75% of one’s investments should be dedicated to owning shares in the most dominant business holdings in the entire world, and the bulk of the wealth should come from the “sitting” as earnings per share growth marches onward and dividends get paid out for reinvested into additional shares that can also participate in the earnings per share growth and pay out dividends of their own, and (2) about 25% of one’s investments should be directed towards the purchase of undervalued securities that are selling for less than they are worth, and can deliver more rapid capital appreciation that is usually the result of earnings growth interacting with P/E expansion.
The best part of buy-and-hold investing, or Category #1 investing, is that you do the hard work amassing capital and researching the dominant business, and then you get to realize that owning a publicly traded stock is a lot like being the beneficiary under a trust fund–inaction can bring riches as the business is managed by others but reap the fruit as a virtue of providing capital and accepting the risk of permanent loss.
The hard part of category #1 investing is that the institutional managers and the rest of the professional class all know which companies are the best to own for a lifetime and price those stocks accordingly. The best opportunity to buy one of those Category #1 investments is when they encounter a solvable issue that temporarily drags down the price of the stock to undervalued territory, giving patient investors the chance to own a best-in-the-world business at a sale price. Because there are anywhere from three to five dozen businesses that can be classified as dream holdings, usually one of these businesses is attractively valued at a given point in time.
Originally posted 2018-10-28 22:33:35.