Which Stocks are Good for 10 Years? Finally Answered!
Which stocks are good to hold for a very long term – 5,7 or even 10 years? This is one of the most-asked questions to me. So I decided to answer it here, once and for all. As a spoiler, there are no recommendations I am going to put out but would be writing my heart out here regarding what’s my personal take on this.
So, to answer this question in just 3 words – I don’t know 🙂 There’s absolutely no way for me to gauge how a company would do 10 years down the line. I can’t even predict what’s going to happen next hour let alone a 10-year time frame. For such a long time there’s so much to factor in which is beyond the capacity of humans. For eg, which government would be there, new policies, regulatory framework, interest rates, technological advancements, changes in the top management of the company, the competitive edge of the product, GDP of the country, geopolitical scenario, inflation rate and I can keep going on and on…
Ask yourself two questions. 1st – do these things not matter if you want to bet for 10 years and if they do, then can you gauge all of these variables (I have mentioned only a fraction of these) for 10 years down the line? If you can, go ahead with your picks but if you can’t then stop looking for such stocks. In my opinion, if you don’t want any hassle for 7-10 years, index funds are a good option.
In fact, even the index does not go up in the long run! Surprised? Ok, here’s a brief into this. There’s something called ‘index rebalancing’ that happens frequently in which the laggards of the index are thrown out and are replaced by stocks that are more robust. For. eg. Yes Bank (NS:) was once a part of the Nifty 50 index but as it kept falling, it was kicked out of the index (before it became a penny stock). Adani Enterprises (NS:) is the latest example, it was recently added to the Nifty 50 list and look at its past 3,5-year returns (4,277% up in 5 years). Although, this is not the exact criterion, but there are parameters on free-float market cap, liquidity, etc. through which fundamentally strong companies are added to the index and weak companies are kicked out and that’s how an index is ‘artificially’ maintained to ‘always go up’. If you want me to explain this in detail, do let me know in the comment section.
When the benchmark index itself kicks out laggards as soon as they stop fitting their criterion, what makes you think you can predict the next 10 years and pick a stock accordingly :). So what is the answer? Do what the index does.
Have your own set of rules and combine them into a robust process/system that can help you to keep selecting stocks and also help you to weed them out from your portfolio when they start to underperform, just like what an index does. A very simple example of this could be – I would buy companies when they show 3 consecutive quarters of at least 10% profit growth. Now you have added a fundamentally good company but it could also lose its charm in a few years. So, I would also exit when this company’s EBITDA turns negative for two consecutive quarters. This way you won’t have any accidents in your portfolio such as Yes Bank, RCom, PC Jewellers etc.
In my personal experience, a robust process of selecting and exiting stocks can help you go a long way rather than trying to be lucky and sitting on a few stocks for 10 years. It is my take and you can definitely have your own opinion. Rest, there are millions of ways to make money in the markets and one should do what suits him/her.
Which stocks are good to hold for a very long term – 5,7 or even 10 years? This is one of the most-asked questions to me. So I decided to answer it here, once and for all. As a spoiler, there are no recommendations I am going to put out but would be writing my heart out here regarding what’s my personal take on this.
So, to answer this question in just 3 words – I don’t know 🙂 There’s absolutely no way for me to gauge how a company would do 10 years down the line. I can’t even predict what’s going to happen next hour let alone a 10-year time frame. For such a long time there’s so much to factor in which is beyond the capacity of humans. For eg, which government would be there, new policies, regulatory framework, interest rates, technological advancements, changes in the top management of the company, the competitive edge of the product, GDP of the country, geopolitical scenario, inflation rate and I can keep going on and on…
Ask yourself two questions. 1st – do these things not matter if you want to bet for 10 years and if they do, then can you gauge all of these variables (I have mentioned only a fraction of these) for 10 years down the line? If you can, go ahead with your picks but if you can’t then stop looking for such stocks. In my opinion, if you don’t want any hassle for 7-10 years, index funds are a good option.
In fact, even the index does not go up in the long run! Surprised? Ok, here’s a brief into this. There’s something called ‘index rebalancing’ that happens frequently in which the laggards of the index are thrown out and are replaced by stocks that are more robust. For. eg. Yes Bank (NS:) was once a part of the Nifty 50 index but as it kept falling, it was kicked out of the index (before it became a penny stock). Adani Enterprises (NS:) is the latest example, it was recently added to the Nifty 50 list and look at its past 3,5-year returns (4,277% up in 5 years). Although, this is not the exact criterion, but there are parameters on free-float market cap, liquidity, etc. through which fundamentally strong companies are added to the index and weak companies are kicked out and that’s how an index is ‘artificially’ maintained to ‘always go up’. If you want me to explain this in detail, do let me know in the comment section.
When the benchmark index itself kicks out laggards as soon as they stop fitting their criterion, what makes you think you can predict the next 10 years and pick a stock accordingly :). So what is the answer? Do what the index does.
Have your own set of rules and combine them into a robust process/system that can help you to keep selecting stocks and also help you to weed them out from your portfolio when they start to underperform, just like what an index does. A very simple example of this could be – I would buy companies when they show 3 consecutive quarters of at least 10% profit growth. Now you have added a fundamentally good company but it could also lose its charm in a few years. So, I would also exit when this company’s EBITDA turns negative for two consecutive quarters. This way you won’t have any accidents in your portfolio such as Yes Bank, RCom, PC Jewellers etc.
In my personal experience, a robust process of selecting and exiting stocks can help you go a long way rather than trying to be lucky and sitting on a few stocks for 10 years. It is my take and you can definitely have your own opinion. Rest, there are millions of ways to make money in the markets and one should do what suits him/her.