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Creating a Portfolio Like Warren Buffett: A High-Return Investment Strategy by Jeeva Ramaswamy

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CHAPTER 3

Long-Term Investing

Long-term investing, also known as buy and hold, does not mean buy a company’s stock and then forget about the company for 10 to 20 years. You need to buy a growth company and consistently follow its revenue and earnings growth every quarter and every year. As long as the company is growing at a decent rate, keep holding the stocks for long-term gain instead of selling the stock to protect short-term gain. In long-term investing, investors should ignore the stock price variation, which is happening every day depending on the market events. As an investor, you need to judge the investment by its economic progress as a business. Many investors believe that if the stock price increases as soon as they buy it, then they picked a winner and they feel happy. On the other hand, if the stock price goes down, they think that they picked a loser and they feel awful.

When you buy in, you should allow sufficient time to judge whether or not your investment is successful. During the short term, the price variation of the stock is irrelevant to the underlying company’s fundamentals. But, during the long term, a company’s fundamental changes should reflect the stock price. You need to monitor your investment by following the underlying company’s fundamentals.

Here is Warren Buffett’s reasoning for his Washington Post purchase:

It’s a lot of different going out to Kalamazoo and telling whoever owns the television station out there that because the Dow is down 20 points ...

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