Invest in Good Businesses for the Long Term

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

If you have invested long enough, you would have come across the above quote by Benjamin Graham. I am a believer of it and that has shaped how I invest over the years. Obviously I am not perfect and succumbed to my emotion often enough but in general this is the direction that I follow.

I would like to share some data from my portfolio to show that this is a sound strategy to get a reasonably good return. The information is based on absolute return that includes realised and unrealised gain/loss, and dividend received.

I am impressed by the stats myself! It shows that I am equally likely to pick a winner or loser in the short term but over a longer duration, the likelihood that I have stayed with a winner is high.

Why does this work for me?

There are two key phrases in the title – “Good Business” and “Long Term”. Just buy and hold does not work if you invest in poor businesses. It will also not work when a good business turn poor over the years and you just keep holding on to it.

Investing in good business might not work in the short term too as there are macro conditions (like the past few years) that a business needs to grapple with, which affects investors’ sentiment and hence share price. However, good businesses that can survive the headwind and ride on the tailwind, will eventually provide a positive return to the investment, either in the form of capital gain or dividend or both.

I am not smart enough to pick all the winners but I put in sufficient effort to maintain my portfolio. The regular monitoring helps me to get rid of the weaker businesses and add on to the stronger ones. I do not get all my decisions right but I think I am more right than wrong over these years.

Will this continue to work?

I would love it to be but the truth is I do not know. Will the stats still look as nice three years down the road or what I am seeing today is just true for the past decade?

I can’t predict the future but I can adapt to the new information when the time comes.