Investing in the stock market for the long term It is a strategy that will allow us to achieve good returns with our savings and with a Low risk compared to other equity investment strategies. From my point of view, it is one of the most interesting alternatives for those looking to go public and do not have enough time and knowledge to learn more complex strategies.
At the same time, it must be borne in mind that it is a strategy that has always proven to be very profitable since - until now - those who strictly follow it have managed to increase their assets. Let's see then what are the fundamental pillars on which this strategy is based, also known as Buy and Hold (its name in English):
- As the name suggests, the most important part is that you must buy stocks and never market. There are some exceptions to trading but we will see them later.
- Always select reliable companies and with great market value (blue chips). In Spain some examples would be BBVA, Telefónica, Santander, Iberdrola, Inditext
- Choose companies that give a high dividend and whose expectation is increase said dividend long and stable.
- Reinvest dividends obtained in new actions to take advantage of the effect of compound interest.
Having discussed the fundamental principles, it is essential to consider when to trade a company's stock. You should only market in case of obvious risk bankruptcy. If we detect that any of the companies that make up our portfolio is going through a critical situation that puts their survival in obvious danger, then it isthe sale justified.
But it is VERY important to be able differentiate a specific crisis - that all companies suffer - from a real and definitive crisis since if we sell in specific crises then we will be doing the opposite of what the strategy indicates and selling only at the most attractive moments to buy. As an example, in the summer of 2012 the IBEX35 was at 6,000 points and it seemed that the world was going to end. Many long-term investors may be tempted to market all of their shares for fear of a failure of major companies in Spain. But this was not real it is not possible for all companies in a country to go bankrupt (and if it happened we wouldn't mind being on the stock market or not since we would live a truly uncertain future) so the summer of 2012 was not a time of sale, but a unique possibility to make portfolio and buy stocks at incredible prices taking advantage of the collective madness that made many people trade.
Now it's easy to say this, but the really important thing if you are going to follow this strategy is to be 100% convinced of it so that in case of a situation like this you know how to react correctly and not market your actions.
