Recent surveys indicate the majority of private share market investors make their decisions solely on projecting a continuation of the most recent conditions. Even worse, the average holding period is now a mere 11 months – down from seven years 20 years ago. This isn't an investment strategy, it's speculation and has nothing to do with the only rational purpose of a share market – to provide long-term equity for selected business ventures and earn long-term rewards.
Few people have a good trading performance over five years or more and most investors would be far better off placing a portion of their funds into reliable low cost investment vehicles such as Argo Investments Limited (ASX:ARG), which has outperformed or matched the ASX 200 Accumulation Index over 1, 3, 5, 7, 10 and 15-year periods. Argo is a careful investor whose top holding is Westpac Banking Corp (ASX: WBC) comprising 7.3% of the portfolio. In total the big four banks take up 22% of the portfolio with the remaining 78% spread over a wide selection of stocks. Larger holdings include Wesfarmers, CSL and Woodside.
Argo Investments was founded in 1946 by accountant Alf Adamson whose guiding principle was to invest in undervalued companies and hold them for the long term. This principle has never wavered and the company hasn't missed a dividend in 46 years. Admin and management fees are the lowest in the land at 16 cents for every $100 invested. With highly astute management, Argo Investments is a good buy for those seeking broad exposure to the Australian economy.
If you want to implement your own buy and hold strategy there can be great benefits:
1. More care taken when researching and selecting companies; leading to a much higher 'win rate'
2. More likely to take advantage of bear cycles as your mindset isn't about obtaining quick profits
3. Better balancing of a portfolio and controlled stock weighting as successful investments move into dominance
4. The ability to sell a proportion of a shareholding if overvalued or buy more if undervalued
5. Enjoying the benefits of compounding returns
6. For many, a better quality of life and less anxiety – your part of the business is there for the long term
Obviously the trick is to identify well capitalised growing companies and buy them well. Easier said than done, however, mistakes can be sold and distance winners allowed to run. Over time a portfolio will be reduced to a select group of high performance businesses with the capacity to take advantage of cyclical downturns.
Argo's sister company Australian Foundation Investment Co.Ltd (ASX: AFI) pursues a similar strategy and has done so for 80 years. Although 10% of funds can be used for trading this is rarely exercised.
Foolish takeaway
Although these two investment companies are rarely the top performers in their sector they have both produced good capital and income returns for their investors over many years. Consistency in performance is a real virtue and these two are an excellent starting point for novice or inexperienced investors – in fact they deserve a place in any private portfolio.
