Long-term investing has often been likened to a marriage, as we purchase great companies and go through thick and thin with them. This is akin to a long-term union where we stick by our spouse through good and bad times, getting to know them intimately during the process. With great companies, the faithful are rewarded with significant capital gains and also juicy dividends.
Questions and doubts do arise from time to time though and will make us wonder if we should indeed remain faithful to the companies we invest in. Would being faithful always reward us? Or could it actually penalise us and make us lose out due to opportunity costs? Investors need to have a system to assess if staying faithful is truly the right path to take.
I have personally witnessed instances of “blind faith” in investors, where love for their investment has made them ignore clear warning signs or red flags. Remember this – the stock does not know that you own it, and this is where it differs from a real marriage (with a human being). Blind faith may lead to investors sticking with their investments even when the business spirals downwards due to either mismanagement or aggressive competition.
When circumstances change, so should we
It’s important for investors to be able to take a step back and view the situation in a calm, rational and objective manner. Remember that when business circumstances change (as is common in the business world), so should our views. Being adaptable and open to differing views is the key to doing well in investing, as inflexibility would certainly get investors into deep trouble. Remaining faithful to your investments even when they stink and start to bleed is not the right way to invest; an investor’s job is simply to ensure that his portfolio is always optimised for performance.
Stay faithful, but also watchful
Investors should purchase all their investments to own them for the long-term. However, their attitude should be one of “buy and monitor“, rather than merely holding on to them without caring about how the underlying business is performing. Being faithful is a positive trait, but when carried to extremes, it may result in significant harm to our financial wealth.
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