Why it is not safe to just invest long-term

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Proud member of the long-term investors club?

If you notice the patterns in many discussion threads in several investing forums, not a few are actually taking about waiting for support/resistance or waiting for down/ups so they can buy/sell.

In short, these people are doing some sort of market timing – or in simple terms, catching the “almost perfect” time to buy and sell stocks. And if you’ve been in the market, you’ll probably agree if I’d say that the excitement in trading only ends when you see find yourself at the losing side of the trade.

That’s why many later on go to the other investing approach – that of going long-term. In fact, many are strong advocates of this type of strategy.

But is it effective?

What happens if you stick to your long-term horizon and you don’t sell your stocks? Like you intend to keep it for minimum 5 years?

Do you believe that being focused on eyeing stocks that are good for long term generally safe?

The KEY to long-term investing

Well, the safest answer is: IT DEPENDS! 😀

You see, we’re now talking about one of the most important aspect of any investment – RISK!

So some few words first about this “risk”.

First, we need to agree  that there’s no investment that’s 100 % free from risks!

Even the money that you park in your bank which you believe is safe is actually exposed to the inflation risk!

If you don’t do anything about it, then you’re sure a loser every year because of the losing purchasing power of your money at hand.

Now going to the world of stock market, as with any investment, there is also no such thing as safe in any market.

The truth is, whether you’re investing for the long-term or a swift trader, you still should monitor your stocks with the current price trends and events, the frequency of which depending on your own style and goals.

More importantly, you simply can’t overstay in the stock market or invest blindly and hope you are up after 5 years. Stocks that keep on going down even if you keep it for several years are not unusual!

Long period of investing doesn’t guarantee profit

In fact, even the companies you may consider good now once didn’t have good return even for a 5-yr stockholder.

Take a look at stock MEG as an example. The chart is shown below.

MEGAWORLD in investing in philippine stock market

Imagine yourself buying this stock at the peak of 2007 when the price was more than Php4/share. After it reached its peak, it went down…and down… and down…

Guess what happened even after five loooong years?

The price was only around Php2+/share!

If you invested your life savings blindly that 2007, I don’t think you’ve had a good night sleep. Until after around 7 years, it still did not break the 2007 highs. (Now as of April 29 2015, its current price is only at 5.33).

So what’s the key to the so called investing for long-term?

If you want to go long term like more than 5 years then it’s important to choose companies with good long term fundamentals and those than can outlast even your lifetime. (I can honestly think of AC and SM)

Also, don’t forget growth potential as well to optimize your investment.

Once this careful stock selection is done, the next you need to manage is your attitude and discipline towards those investing goals.

Be vigilant in sticking to your horizon if the reason of your buying it is still intact!

Different strokes for different folks

Lastly, different persons have different risk profile and goals in investing.

Short, mid and long-term investing all have pros and cons, which any one investor should be aware of.

Again, if you go long-term, then the key is on choosing the companies that will have consistent growth earnings.

COL Financial even shared some studies that if you do long-term using Peso Cost Averaging, then carefully chosen individual stocks could give you 10-20% annual returns in 20 years span.

If there are people playing with resistance and support, that’s because it’s their chosen style. They decided to be active players, something you don’t really need to imitate if you’re not that type.

But then, market goes in cycles, which means theoretically if you want to maximize your returns, you should at least sell at the peaks of bull cycles and buy at the bottoms of bear cycles. The subject of technical analysis can help you recognize those market phases, something much easier said than done.

In the end, if you think of it, the price of the stock is the real king. Whether long- or short-termer, you’ll earn capital gains ONLY when you sell at a higher price than you bought it. If you’re able to time the bottom of the market, that I believe is the best scenario you can ever have in multiplying your money through stocks.

Enough said.

So… are you also going for long-term? Why or why not?

Share your comments below.

Have fun investing,

oMeng 🙂

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