Are You Still Believing in “Just Buy and Hold” Theory in Stock Market?

By Ng Tzyy Loon

One of the mainstream beliefs in the stock market is that you can just buy a good stock, go hibernate for 8 to 10 years and you will wake up as a millionaire. This seems a bit exaggerated as the ideal concept is to persuade everyone to ignore the market volatility and hold the stock for a long horizon and trust that everyone will eventually be a winner.

Well…if you do believe this, good luck with your money.

I cannot doubt such an argument, but this is not the message I want to convey. What I am trying to tell everyone is that the ‘just buy and hold’ method can hardly be a successful strategy in Malaysia due to two main reasons:

Firstly, companies will change.

Whether you are a fundamental or value investor, the gist is always to analyse a company from its financials, industry outlook, track record, cost control, corporate governance, management integrity, etc, to reduce the probability of making a wrong decision. Still, things change every single day, from technology (such as Apple) to a super boring industry (such as TNB). The company will not always remain static.

This could be due to internal rivalry, technology disruption, mismanagement, or deteriorating outlook of the industry. When one does not continuously monitor the company’s development nor review his/her investment and naively think profit will come automatically, this is no different from believing that he/she can live happily ever after without caring for their partner. 

Secondly, companies cannot grow forever.

During the school exams, it is easy for one to improve his/her exam marks from 40 to 60 and from 60 to 80. The difficulty starts to kick in when we want to score 90 from 80, and it is even harder to reach 95 or even 100. Not only that the content is deeper, but it is also true that we are getting closer to the celling (100 marks).

The same goes for investment. For the strategy of “just buy and hold” to work, we need the company to show improvement continuously and tirelessly. Of course, there must be sufficient capacity to grow. 

Warren Buffett once said: “if you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.” Many like to use this famous quote to justify the “just buy and hold” theory, but many miss the point on the kind of companies that Warren Buffett invests in. 

Thus, we should pay more attention to the intrinsic value of the company and buy it when it is undervalued by the market. Forget about market volatility and whether or not we are practising the “just buy and hold” strategy.

This is the gist of long-term investing. 

The Hidden Truth of Stock Market

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