“I’m accustomed to hanging around with a stock when the price is going nowhere. Most of the money I make is in the third or fourth year that I’ve owned something.” – Peter Lynch
Stocks rarely perform in the time frames we predict, and it’s why the market only works for investors that have a long-term portfolio focus. Performance is never linear, up and to the right, year after year. 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.
Don’t bother finding the next multi-bagger if you aren’t going to develop the conviction to hold it
Most multi-baggers will have long periods of stagnation as fundamentals backfill, old shareholders give up or get bored, and new shareholders enter. A multi-baggers journey is filled with the corpses of highly intelligent articulate naysayers. Every investors strategy is different, so don’t waste a lot of time defending your positions to others. Do the work. Trust your work. Let company execution prove you right or wrong. Just like a fine wine, sustainable multi-baggers often take their time to ascend and develop. If you’re invested in great businesses that continue to grow and earn more money, don’t let lulls in stock price and boredom scare you out of them.
In many cases the stocks I’ve owned were better buys after they doubled then when I initially bought them. 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. 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. Remember, there are no day traders on the Forbes 400 list. Learn to be content holding and doing nothing. A multi-year run is made up of a bunch of mini-cycles that can last weeks or months. During thesetimes the stock can become undervalued or overvalued.
“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 principlesand in the right way.”— Fulton J. Sheen
Sustainable multi-baggers have three characteristics: Long-term revenue and earnings growth with little to no dilution. When you are holding onto a position ask yourself
- Is this business growing and making more money per share than it did a year ago, two years ago?
- In my real-life example above the company’s business is almost double the size it was 2.5 years ago.
Yes, the stock hasn’t gone anywhere but the business is doing really well. I have no problem holding this stock. If the business wasn’t performing, I would sell. Successful investors can differentiate business performance from stock performance and can take advantage of those investors who can’t.
“I don’t want to spend my time trying to earn a lot of little profits. I want very, very big profits that I’m ready to wait for.” – Phil Fisher
“One of the key requirements of staying invested in a big winner is to have (or cultivate) a high boredom threshold. The fact is, most of us will find it difficult to emulate the Connoisseurs because we feel the need to do something when we get to the office (or home trading desk) every day. We look at stock price charts, listen to the latest market news on Bloomberg TV, and fool ourselves into believing we could add value from making a few small trades here and there. It is very hard to do nothing but focus on the same handful of companies every year; only researching new ideas on the side. Many of us, seeing we have made a profit of 40% in one of our stocks, start actively looking for another company to invest the money into – instead of leaving it invested. This is precisely why lots of investors never become very successful.” – Lee Freeman-Shor
“Many people cannot find success because they lack the patience to go through the process to become who they want to be.” - Pastor T.D. Jakes
We all want fame and fortune, but the problem with instant success is you rarely have the power to keep what you haven’t earned. If you don’t have a firm foundation and understanding on how and why you received something, it’s really hard to keep it let alone duplicate it. Deep down we all know it’s not what we do randomly that will produce long-term returns; it’s what we do consistently. So the education begins to try to turn random luck into consistent skill.
2 more valuable lessons:
1- First, invest in quality because quality always pays you back first. Even before the bottom was put in the bear market, capital started flowing back to quality first. This is something I always remember to this day.
2- Second, invest in the best companies you can find that no one else owns because these companies can do well in any market environment. What does “No one else owns” mean. For me it means zero or very limited institutional ownership.rue conviction can only be obtained by trusting your own research over that of others.