Buy-N-Hold Portfolio

One of the Sweet things about investing in market-leading consistent growth companies with globally recognized and respected brands…what are called “Rule Makers” by The Motley Fool (www.fool.com)… as they “make the rules” for their industry to follow… is the low maintenance requirement for the investor.

Unlike the micro-cap strategy or a strategy of buying hot momentum stocks-Rule Maker portfolios are a list of tried and true blue-chip companies that proven their ability to dominate their industry over extended periods of time.

Investors in these Rule Making companies will “buy them and hold them”, maybe for their entire life (stocks are a great way to pass wealth on to the next generation, having tax advantages in some countries). These investors sleep soundly each night, probably only checking their portfolio performance monthly or even quarterly.

This “Rule Maker” investing strategy is about success with minimal effort. The investor does their homework once, finds the very best company in dynamic growing markets and buys them. Once the purchase is made…90% of the effort is done. As many Sagely investors through history will tell you, visit our Warren Buffett site for the best example, investing success comes from thorough preparation, superior research, and control of your emotions.

As said so many thousands of years ago by the famous Chinese strategist Sun Tzu, “Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.”

The Buy-n-Hold “Rule Maker” strategy is simple and elegant. It also, by design, ignores the fastest growth companies on the market. Not many .com or .net or i-somethings in this portfolio.

Regardless of what value the market places on the latest IPO…it won’t qualify as a true Rule Maker for quite some time. Sure the spectacular returns seen in many new tech companies is appealing, we all have to admit.

Only an idiot would say they prefer (in hindsight) to hold a company that appreciated 20% a year versus one that exploded by 50% a month!

But are these exciting eye-popping returns sustainable? The pricing of these companies has almost entirely ignored the risks they face in expanding their businesses.

Certainly among them some will misstep, encounter unexpected competition, face unexpected technology advances, or lose key managers…and shareholders at that moment will be unable to get to the exit fast enough.

Shareholders will thus need to expend a large amount of time and energy to keep up with all the latest development at their companies and its competitors. And that’s OK-lah, if you are willing to put in the time and effort to watch your investments like a hawk.

But that’s not for the Buy-n-Hold investor. Perhaps we’ve entered a new era in stock valuations globally, where unproven and unprofitable businesses are rewarded with hyper-rich market caps… but many believe it is an aberration. Not that this can be proven, but with history as a guide, times change & then change back again.

As US President Harry Truman used to say, “Everything new is just history you haven’t learned yet.” There have been plenty of “bubbles” in stock markets before where rich valuations were thought to be there to stay, only to crash back to reality soon enough.

Rule Makers are all about efficient use of energy. They are the biggest companies in their industries, and there is not much chance for them to disappear tomorrow. Rule Making does not require us to look into the future and make predictions about where commerce, or entertainment, or finance, or culinary tastes or fashions are going. These companies tend to make a necessary or desired product or service that will tend to still be needed or desired ten years from now.

Watching the market and the prices of your stocks every day can be fun. Buying and selling every day can be exciting too. But it’s not efficient and has been proven historically to be unproductive. Just like taking a pull on the slot machine, a spin on the roulette wheel or playing a few hands of blackjack at the casino can be exciting and enjoyable…knowing all the while the odds are stacked against you.

So where do we go to find the companies who make the rules in their industry? Unfortunately, on a global basis, the selection on the Singapore Exchange is quite limited. Here are a few strong local companies you might consider looking into:

• Merck, leader in pharmaceuticals.
• Exxon-Mobile, leader in petroleum.
• Amgen, leader in biotech.
• Microsoft, leader in software.
• Intel, leader in microprocessors.
• Coca-Cola, leader in soft drinks.
• Amazon.com, leader in online commerce.
• Medtronic, leader in medical devices.

If you like the peace-of-mind of owning market-leading Rule-Making companies, but you also watch the prices each week or even month..

 Happy Hunting!