Is Buy and Forget a Myth?

Buy and hold has worked for a lot of investors and will continue to do so going ahead also. But the key will always remain selection of the company suitable for this strategy. And periodic review about the strength of the moat of these kind of companies.

The big problem faced by a lot of investors is that they mistake the high quality companies of sector in current fancy as a buy and hold candidate. Recent examples in my mind are companies like GMM Pfaudler, Deepak nitrite, Laurus, etc. If you look at these companies, then there were very clear sector specific tailwinds associated with these kind of names and these tailwinds were expected to wane after a point of time to be replaced by headwinds. I have seen people wax eloquent about the merits of these companies and managements etc. And once the tide has turned, instead of blaming themselves, investors start blaming management, or anyone else convenient.

Compare the above companies to the likes of Nestle, Hind Unilever, Pidilite, Asian Paints, Colgate, Dabur, Marico, etc. The latter companies are suitable for buy and hold kind of strategy. There too say in case of Asian Paints, I can see some threat emerging in the form of entry of two deep pocketed business groups like Jsw and Grasim. How the threat plays out needs to be seen, but it is an angle definitely to be kept in mind.

The above list of stocks will probably give returns better than fixed deposits without being too exciting. For really exciting returns, one has to try to find out the next bunch of companies which can be buy and hold kind of companies. The first and only company that comes to my mind as of now is Zomato. I think its a duopoly market, with a lot of players having exited, and with a growing market. As of now its burning cash and we need to monitor when and how its cash burn phase gets over and it starts generating free cash flows. And a lot of froth is completely out of the stock with the kind of drubbing it has received. I have it in my watchlist but haven’t bought it.