Did you ever know a person who had an illness or injury that was so acute that people wondered if the person would ever walk, talk, and think again – yet they recovered to live full and interesting lives? You may be wondering what that has to do with building a buy-and-hold portfolio, but I’ll get there, I promise.
My friend Anthony had a serious stroke in his 70s. It was the kind of stroke where a person slowly regains the use of their body and relearns formerly easy tasks, such as speaking… if they’re lucky. Just a few years afterward, I frequently ran into Anthony at community events. Today, Anthony is in his 90s, and I know that he’s still functioning relatively well because I see him on social media.
Another friend, Evita, had a sporting injury that ripped her guts apart. There’s no other effective and brief way to describe it. I don’t even know how she survived the immediate injury, let alone the long wait for assistance that day, and the many months of touch-and-go physical and mental fragility. Today, Evita is playing sports again.
Two other folks within my wide circle of friends and acquaintances, Sanjay and Annabelle, had serious head trauma from car accidents. No one could understand how Sanjay wasn’t permanently paralyzed, but now he’s completely physically mobile, and he’s taken on a very public leadership role in his area of expertise. Annabelle won’t be able to return to her previous level of competitive sports, but she’s back in college, carving out a bright future for herself.
This week, another friend survived a “widow maker” heart attack. I’m praying for him, because when it comes to physical and mental healing, apparently the sky’s the limit.
What do accidents have to do with buy-and-hold investing?
On par with stroke and car accidents, stock markets can be similarly and drastically injured. We’re living through such a time right now, socially, economically, and financially, and it’s scary. People are worried, praying, and bracing themselves for worst-case scenarios.
Stock markets have fallen breathtaking amounts in the past, for all sorts of reasons, from corporate financial irresponsibility to acts of war. People were scared and they gave up hope, cashing in all of their stock investments in an effort to distance themselves from the pain.
Then the miracle unfolded. The stock market recovered – again and again, from pullbacks, hiccups, corrections and crashes – and went on to reach new all-time highs. Even when there was no stock market crash in sight, there have been times when the mere insinuation of “recession” sent investors running for the hills. Nevertheless, we’re seeing U.S. stock markets rise to new all-time highs.
If you sold during the downturn (which is the opposite of buy-and-hold) and now find yourself uncertain what to buy in the midst of an economic recovery, there’s still plenty of opportunity out there. If you buy high-quality stocks today, there’s a reasonable opportunity to double or triple your money as the stocks rebound and continue to rise higher.
Want Buy-and-Hold Stocks for the Next Uptick?
Here’s how to proceed. You’re going to buy shares of companies that are thriving, companies that are not dramatically harmed by the “social distancing” behaviors sparked by the COVID-19 virus. There are many such companies. People are still using computers, driving cars, watching television, accessing banking services and buying groceries. Companies are still manufacturing semiconductors, producing advertising, caring for medical needs, managing your retirement benefits, and growing vegetables to stock Kroger stores.
When markets are thriving, it might require some serious study to figure out which bank or computer company or packaged food company would be the best stock to own. Frankly, there’s no need for such serious comparative analysis today.
All you need to do is make a list of industries that are not greatly harmed right now or that have not yet participated in the recovery. Then write down the names of a couple of famous companies from each industry. Finally, go to your normal source of stock research, and review the net income numbers to verify that those companies have been delivering stable or growing profits for several years in a row. Got it? You want a list of companies that are faring well right now, and have been faring well for several years.
Now that you have your list, select five to 10 buy-and-hold stocks, one or two from each industry on your list. Voila! You have a diversified portfolio of profitable companies whose stocks will very likely come roaring back to much higher values by the end of 2021 (companies with a long and healthy history of dividend payments offer a premium if recovery takes longer than expected). It could happen sooner, of course, but I don’t tend toward exaggeration. I want you to be able to nod your head and say, “Yes, this makes sense. I can picture this happening.” Excellent! A buy-and-hold portfolio doesn’t rely on market timing or momentum as much as it relies on large, well-known companies continuing to do what they do best.
It’s okay to acknowledge that today might be scary AND that the future might also be bright. Remain hopeful, constructive and careful. Have peace. I’m in this with you.