Scared about holding stocks long term

[sss555sss]

Hi,

I'm looking to build my portfolio, mainly in my ISA account, by investing into some UK stocks over time. I've previously held ETFs and index funds but I'm looking to build some positions in companies that I will hold long term (years possibly till retirement). However, I've looked at some decent companies that just exhibit scary price action.

Here are 2 decent companies. Both of them have had seemingly random price crashes.

SMITHS GROUP PLC
LSE:SMIN
pasteboard.co/J2x8nJI.png


This is a medical company which makes ventilators amongst all else. The Ventilator Challenge UK Consortium is manufacturing some of their ventilators - Smiths opened their proprietary design to other manufacturers. They should be doing well in this environment yet they aren't really shining. Leave this aside, they seem to have had several stock crashes since 2008 out of the blue. I don't remember the economy doing that badly and whilst the NHS budget has been reduced since 2010, this does not justify these kind of sudden crashes of this size.

DS SMITH PLC
LSE:SMDS
pasteboard.co/J2xbIFW.png


This is a paper manufacturer. They seem to have been going very well then in 2018 - a crash. They went from 1700-something to 1200-something. I've looked at statements the company has made. Nothing easy to spot that can justify the crash. If anything they were flinging cash to buy other companies.


No matter what Warren Buffet says, these businesses should have been sold. Looking at the price action, buy and hold with both of these is scary even very long term. Yes, you would have made money in the past 10 years but in both cases, there are periods where during a very short time, you would have lost a substantial amount. How do you guys guard amongst such cases? In my opinion, both companies are decent.

[bluedonkey]

A few comments:

a) Don't forget dividend income in your calculations.
b) A portfolio behaves in a smoother way than individual stocks.
c) Try not to be a stock-picker but a portfolio-builder.
d) Be clear about your attitude to equity risk and your investment objectives (time span, income needs, capital needs).

[dealtn]

Looking at the price action, buy and hold with both of these is scary even very long term. Yes, you would have made money in the past 10 years but in both cases, there are periods where during a very short time, you would have lost a substantial amount. How do you guys guard amongst such cases? In my opinion, both companies are decent.

If you aren't of the temperament you can stand those kind of fluctuations then you shouldn't be invested in them.

[Shaker]

This is why at least 99% of investors should be buying index funds over and above individual stocks.

[sss555sss]

A few comments:

a) Don't forget dividend income in your calculations.
b) A portfolio behaves in a smoother way than individual stocks.
c) Try not to be a stock-picker but a portfolio-builder.
d) Be clear about your attitude to equity risk and your investment objectives (time span, income needs, capital needs).

There are many ways to build a portfolio I guess. What would you target? Diversify amongst sectors? Diversify amongst companies in the same sector? Both? I could build a VAR estimator but this is an overkill for a £100,000 portfolio.

I've got way more experience in trading than investing and my trading is mainly in futures. Investing in stocks is rather different but I want to start building a position in selected companies. I find investing in ETFs much easier and I've done well there but again - want to start investing in a few companies.

While I don't agree with everything Warren Buffet says, I do agree with him that diversification is a protection against not knowing what you're doing - at least when we're dealing with small sums of money.

[baldchap]

In reality you are taking a punt on two companies who have dived due to the current nonsense. A gamble in effect.
You are not confident by your own admission, and will react badly to the next down turn.
My humble, well intended, opinion would be to invest in one or more respectable IT's (not a fan of ETF's). Find one holding those companies if it makes you feel better.
Once invested, ignore for at least 5 years and pursue other interests.

[Dod101]

The OP could have chosen most companies and over the same timescale they would have lost 25/35%. This is not a very good time to be making judgements about any company. Neither I suspect is it a very good time for a novice in shares to be buying for LTBH. It may very well turn out to be a good time but there is bound to be a lot of volatility over the next few months.

If he is anxious to get stockmarket exposure, I think the advice to stick to investment trusts is probably a good one as they give instant diversification apart from anything else. Not to say that they are insulated from volatility because they are not. If he is scared about holding stocks long term then maybe he should not be in the market.

Dod

[TUK020]

to invest in one or more respectable IT's (not a fan of ETF's)

Be interested to hear your reasoning as to why ITs ahead of ETFs.

[Itsallaguess]

I'm scared of holding stocks for the short term...

The long term? Not so much...

Some good advice on the use of Investment Trusts being given here...

Cheers,

Itsallaguess

[BT63]

This is why at least 99% of investors should be buying index funds over and above individual stocks.

I'm a very experienced investor with a high proportion of assets in individual medium/high-yield shareholdings (e.g. GSK, AZN and NG. which are my largest three by market value) but I'm not brave/foolish/smart enough to be trying to pick individual shares to add to my portfolio in the current chaos.

However I think overall the FTSE offers good value for money so I'm buying heavily into tracker funds several times each month.

[baldchap]

to invest in one or more respectable IT's (not a fan of ETF's)

Be interested to hear your reasoning as to why ITs ahead of ETFs.

No hard science I am afraid , every time I have been tempted I remind myself that I don't want to own everything. With a human in charge I can tell myself they are avoiding the tat.
There is also behaviour in a downturn. Maybe another sharp leg down will convince me that ETF's cope just fine.
I have been tempted again recently in setting up a SIPP for my wife. Is it fair to foist an ETF experiment on her do you think ?

[Dod101]

This is why at least 99% of investors should be buying index funds over and above individual stocks.

I'm a very experienced investor with a high proportion of assets in individual medium/high-yield shareholdings (e.g. GSK, AZN and NG. which are my largest three by market value) but I'm not brave/foolish/smart enough to be trying to pick individual shares to add to my portfolio in the current chaos.

However I think overall the FTSE offers good value for money so I'm buying heavily into tracker funds several times each month.

I think that now is probably one of the few times that buying the market via a tracker is probably a good idea.

Dod

[tikunetih]

Scared about holding stocks long term

I've previously held ETFs and index funds but I'm looking to build some positions in companies that I will hold long term (years possibly till retirement).

However, I've looked at some decent companies that just exhibit scary price action.

No matter what Warren Buffet says, these businesses should have been sold.

Looking at the price action, buy and hold with both of these is scary even very long term.

How do you guys guard amongst such cases?

I've got way more experience in trading than investing and my trading is mainly in futures. Investing in stocks is rather different

Moving from shorter term trading to long term investing is a very large leap - the totally contrasting time horizons mean there's really not that much in common, except for the fact they involve markets and money at risk.

Sounds to me like you have a lot of reading to do about the theory and practices underlying long term investment. Plus, the need to formulate a very clear idea of what it is you'd be hoping to achieve from it and how you might realistically get there, ie. a realistic plan.

If you intend to short-term trade at the same time as manage a long term portfolio, be aware that that's quite hard to pull off: it can be very difficult(/impossible) to compartmentalise the two making it likely that your short term trading mindset will influence how you manage the long term portfolio.

Now if you're consistently skilled this might help in some regards (like finessing an entry point), but since the vast, vast majority of your time as a long term investor requires patience & inaction, these opportunities are few and of limited benefit. On the flip-side, the disbenefit is that a short-term mindset puts you at constant risk of meddling too frequently with your long term portfolio. Some of the time this will work out for you, but unless you're very, very skilled or lucky then the longer that you meddle the more likely it will have a negative effect, and the larger the negative will become.

I'd strongly recommend doing a lot of reading and thinking before embarking on this, and having a solid plan, based in reality, underpinning it. If you do, you'll succeed at it, but if not then you won't.

[bluedonkey]

Re: trading alongside LTBH, or as sometimes described: a long-term investment is a short-term trade that went wrong.

[sss555sss]

Scared about holding stocks long term

I've previously held ETFs and index funds but I'm looking to build some positions in companies that I will hold long term (years possibly till retirement).

However, I've looked at some decent companies that just exhibit scary price action.

No matter what Warren Buffet says, these businesses should have been sold.

Looking at the price action, buy and hold with both of these is scary even very long term.

How do you guys guard amongst such cases?

I've got way more experience in trading than investing and my trading is mainly in futures. Investing in stocks is rather different

Moving from shorter term trading to long term investing is a very large leap - the totally contrasting time horizons mean there's really not that much in common, except for the fact they involve markets and money at risk.

Sounds to me like you have a lot of reading to do about the theory and practices underlying long term investment. Plus, the need to formulate a very clear idea of what it is you'd be hoping to achieve from it and how you might realistically get there, ie. a realistic plan.

If you intend to short-term trade at the same time as manage a long term portfolio, be aware that that's quite hard to pull off: it can be very difficult(/impossible) to compartmentalise the two making it likely that your short term trading mindset will influence how you manage the long term portfolio.

Now if you're consistently skilled this might help in some regards (like finessing an entry point), but since the vast, vast majority of your time as a long term investor requires patience & inaction, these opportunities are few and of limited benefit. On the flip-side, the disbenefit is that a short-term mindset puts you at constant risk of meddling too frequently with your long term portfolio. Some of the time this will work out for you, but unless you're very, very skilled or lucky then the longer that you meddle the more likely it will have a negative effect, and the larger the negative will become.

I'd strongly recommend doing a lot of reading and thinking before embarking on this, and having a solid plan, based in reality, underpinning it. If you do, you'll succeed at it, but if not then you won't.

Thanks - this resonates with me as I've figured some of this myself - some from mistakes, other from reading. I am not looking to day trade or meddle too much with my portfolio - quite the opposite. I believe people have got the wrong impression. If anything, I don't have the time to be monitoring my portfolio or touching it all the time. I also have quite a bit of tolerance and calm when my investments go down which has often helped me but I have also lost money, especially from single name equities where the stock just tanks.

It's hard to tell what I would have done if I were to hold these stocks when they tanked in 2018. I probably would have held on to it. When the stock plunged from 1700-something to 1200-something, it's hard to tell though if it would go back up or would be of the likes of Metro Bank which is down something like 98% from it's highs.

Anyway, the biggest difference for me is just the mechanics of the markets which is very different from futures where you are dealing with raw materials and global macro to equities which are...very very different. I try to keep it simple. I'm definitely not looking to capture short term profit. I've spent the last 30 days analysing companies and reading annual reports to select a handful of companies I like.

[sss555sss]

This is why at least 99% of investors should be buying index funds over and above individual stocks.

I'm a very experienced investor with a high proportion of assets in individual medium/high-yield shareholdings (e.g. GSK, AZN and NG. which are my largest three by market value) but I'm not brave/foolish/smart enough to be trying to pick individual shares to add to my portfolio in the current chaos.

However I think overall the FTSE offers good value for money so I'm buying heavily into tracker funds several times each month.

I think that now is probably one of the few times that buying the market via a tracker is probably a good idea.

Dod

You mean now? Why do you think that? Buying a tracker right now makes little sense unless this is the only option. I guess one could start to cost average into a tracker but not the best option out there right now IMHO.

[dealtn]

I try to keep it simple... I've spent the last 30 days analysing companies and reading annual reports to select a handful of companies I like.

Your idea of keeping it simple is different to most then I would say. Not to say I don't find that activity commendable.

[tikunetih]

It's hard to tell what I would have done if I were to hold these stocks when they tanked in 2018. I probably would have held on to it. When the stock plunged from 1700-something to 1200-something, it's hard to tell though if it would go back up or would be of the likes of Metro Bank which is down something like 98% from it's highs.

You should hold investments until the investment thesis no longer stacks up; everything else is noise to be ignored.

For example, if your investment thesis included measures of price action as an input then a trend break or similar technical signal might well have triggered a sale of those two examples you cite, at some point in the decline.

But many investment theses don't include those things as inputs and will instead be based on fundamental aspects only, often and mainly objective measurable things such as financial ratios and metrics etc, but also subjective qualitative issues. Until the investment thesis failed according to these measures, you'd keep holding the stock. You wouldn't sell just because it had fallen in price; indeed, the fall in price might have improved the investment thesis (eg. improved earnings/cash flow/dividend yields), so you might actually be looking to buy more on falls, so long as you remained within the max position size for a single holding, or other risk measures.

One of the great appeals of broadly diversified, passive, index-based strategies is that the investment thesis always applies, so you don't have to monitor, assess or do anything at all, other than "keep the faith". This makes for a much easier life in many regards, and much lower costs over the long term, just so long as you have the temperament and discipline to stick with it. And if you don't, you shouldn't be investing in risk assets.

With this type of portfolio, often the only thing to make decisions on is to gauge your risk/volatility tolerance and to decide your overall asset allocation. Ongoing maintenance should just comprise periodic rebalancing back to target weights. For an even easier life, at a little extra cost, you can outsource all of this to an investment manager, by choosing a predominantly passive multi-asset fund, so you have nothing to do at all. With no decisions to make yourself there's less chance of errors (since you are usually the weakest link in the plan), allowing you to collect more of the risk premium over the years. You've just got to "hold fast"!

[fca2019]

In answer as to why you get such sudden price swings, companies like these are cyclical. Also operate in thin margins, so when have a difficult year and return on capital employed drops below the benchmark for similar industries investors sell on mass, conversely when beat the benchmark prices rise sharply.

[terminal7]

I have no comment upon the individual stocks mentioned - best addressed on another board such as company analysis.

As to whether this is a good time to invest in equities at the moment - that is a different matter. It is interesting that the FOOTSIE is at a level of some 4 years ago. Given the economic and financial policies of the UK Govt (and others) do you really believe (intuition if you have minimal macro skills or read what others say and take a view) that the UK economy is going to rebound soonest?

In effect, do you forecast that the UK economy (or on a wider basis) will expand from here in the short term? Do you think that the UK economy will expand in the long term (whatever that means in terms of years)? If the answer is yes to both - start investing soonest on a selective basis taking account of current downside risks and the absence of potential dividends. If the answer is No and Yes - wait and park your cash and try to squeeze out some return and wait until you can answer yes.

Of course it also depends on how old you are and when are you aiming to retire? Long term to me I suspect is a lot different to long term to you.

As I have written elsewhere I am too old to retain any significant exposure to markets given my financial position. If I was much younger, I would try and stock pick in the short term - granted a bit of a gamble - but my view is there will be further sustained decline in equity markets with a small number of sectors likely to show some upside.

T7