Although the buy and hold method of investing has certainly had its fair share of critics in recent years, history has shown us that investors reap greater rewards in the long-term by following this strategy, as opposed to buying and selling stocks on a more regular basis.
Sure, you'll get the odd "investor" bragging about their ability to time the market, and about some of the incredible profits they've made in the process, but they are far less likely to tell you about the losses they have also recognised or the gains they have missed out on.
While you may get lucky on the odd occasion, timing the market is impossible. Nobody truly knows where the stock market will go on any given day or in any given month. Instead, by investing for the long-term, you are buying into the business' growth prospects, buying rights to any dividend distributions they make along the way and also becoming eligible for a capital gains tax discount when a stock is held for more than 12 months.
Take Commonwealth Bank of Australia (ASX: CBA) or Woolworths Limited (ASX: WOW) as two perfect examples. In September of 1991, Commonwealth Bank was trading for just $6.82 per share, while Woolworths was trading for just $2.84 per share in July 1993. Since then, the pair have climbed an astonishing 988% and 1092% respectively (these figures aren't even including dividend payments). Day traders who took their profits along the way would be kicking themselves after another astonishing year in 2013, where the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) climbed 15.1%.
When buying for the long-term, you want companies that are likely to be much bigger five or 10 years down the track. Of course, as is the case with Warren Buffett, our favourite holding period is forever. Here are three companies you could consider adding to your portfolio today:
Telstra Corporation Ltd (ASX: TLS): The telecommunications giant might be one of Australia's largest companies already, but still boasts enormous growth potential as individuals and businesses grow increasingly reliant on smart phones and the internet. Trading at $5.14 per share, it offers a fully franked 5.6% dividend yield and is a company to hold onto for the long-haul.
Coca-Cola Amatil Ltd (ASX: CCL): Warren Buffett once said: "If you take care of a great brand, it's forever", adding "No business has ever failed with happy customers". Coca-Cola Amatil is the manufacturer and distributor of some of the greatest brands across the world. Shares were punished in 2013 following a profit downgrade but it possesses enormous growth opportunities in the Indonesian market (with a population of 250 million people), while it also re-entered the $1 billion a year beer market in December last year. While stocks are trading at around $12, investors should certainly consider adding the company to their portfolio and focus on the long-term prospects.
M2 Telecommunications Group Ltd (ASX: MTU): M2 is another telecommunications giant you could dial into your portfolio while its growth story is only just beginning. It has purchased quality businesses such as Dodo and Primus and now looks set to repay its debts and grow organically. Making the company even more attractive is its fully franked 3.7% dividend yield.
