Buy-and-hold works - up to a point

Buy-and-hold works - up to a point

SINGAPORE - It's very hard for us to think outside the environment we are in, a learned friend told me. In other words, many times, we are products of our environment.

Take someone who, early in his or her investment career, went through the boom years of the 1920s only to see everything wiped out during the Great Depression.

Most likely, such a person would have a rather pessimistic view of the stock market.

In contrast, a person who knows only of bull markets would have been conditioned to think that the market can only go up.

Hence, it is always instructive to study history, to talk to people with lengthy experience in their chosen fields.

I have this friend who I reckon is in his 60s. He used to run his own construction business and is now retired. He said he was an ignorant young man in the 1980s and lost money investing in a fund. He then resolved to educate himself about investment. Like most value investors, he idolises famed investor Warren Buffett.

Having experienced and seen the results of making wise investments, this friend is fervent about convincing others of the importance of learning that skill.

At his age, he still buys and reads books such as Trump Strategies For Real Estate: Billionaire Lessons For The Small Investor and Accounts Demystified by Anthony Rice.

Three years back, he asked me to help edit a two-page message that he wanted to circulate to the younger people around him. In it, he gave the example of his cousin.

Back in 1958, the cousin earned less than RM200 a month as a primary school teacher. But she put some savings away every month. By the early 1960s, she had accumulated a sum of money that she could invest in stocks.

"She did the 'right' thing in investment," wrote my friend. "She chose the 'good' stocks - companies with good businesses. She held on to the stocks for the long term."

Over the years, she bought more of the stocks with additional savings as well as the dividends received from the stocks she held. Her stockholding also grew as the companies distributed bonuses and issued rights.

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