Thoughts about long-term investing and our progress so far.

You can succeed in long term investing in equities, even if you are only right 50% to 60% of the time. The trick is to cut your mistakes quickly so the damage will be limited. Conversely, you should let the winners run for a long time so the gains will compound.

This is easier said than done as human nature often pushes us to do the exact opposite. Fear and hope combine to sabotage our wealth.

If a stock is showing s profit, humans fear that it will be snatched away by Mr Market. We sell too quickly, and the position does not get the opportunity to compound. On the other hand, if a position is showing a loss, we hold on hoping that it will go back to its original price. Sometimes it does, but most often it does not; at best it just sits there – it is either dead money or a wealth destroyer.

The approach of keeping losers but selling winners was described by Peter Lynch in his book “One up on Wall Street” as akin “to cutting your flowers and watering your weeds.”. Unsurprisingly it is a strategy that rarely leads to good outcomes.

In the last five years, we have tried to manage our money in the right way and results have been very satisfactory.

This Substack started two years ago as an attempt to write about companies which had a high probability of making good long-term investments.

We have covered abut 30-40 companies. We have made two very bad choices. They are Enphase Energy and SolarEdge Technologies. We are argued in favour of both in a single Substack piece that can be found here. The industry was hit by a combination of falling demand, reduction of subsidies, especially in California, and more recently, the imposition of import tariffs in the USA on Solar Panels and related items imported from China. The stock fell and we lost about 80% of our capital before we sold.

However, most stocks we covered in the last 2-3 years, including our largest holdings, have made good money. These have included stocks like Microsoft, Berkshire Hathaway, Nvidia, Meta, Arista Networks, Broadcom, Costco, On Holdings, Sprout Farmers Market, Alphabet and Interactive Brokers which have all performed well.

The overall portfolio results have been most pleasing. We have been lucky as the market has performed well over this period. However, we also hope and believe, the work done in studying the companies in depth has made a difference. It has helped us avoid banana skins and gain conviction to stay invested in good stocks for long periods.

In this endeavour of long-term, fundamentals-based investing, an investor is essentially asking two big questions.

1. Is X, Y or Z a good company which is likely to make an attractive long-term investment?

2. If so, is it available at an attractive price, a discount to its estimated fair value?

To answer the first question, one must be highly selective. We are looking for the best of the best and many perfectly good companies (perhaps 90% plus) will be rejected.

We will make many errors of omission – where we fail to buy stocks in companies which subsequently prove to be good investments. This is to be expected and it is perfectly ok. It is the price we must pay for avoiding errors of commission. These occur when we buy stocks which later lead to large losses and permanent destruction of value.

To deal with the second question, we must be very patient. We may have to wait a long time, until the stock of an identified good company trades at an attractive price which is a significant discount to its estimated fair value.

Once we have position, we should also again be patient and hold on as long as the fundamental thesis remains in place. One should refrain from selling even it if the stock becomes a little overvalued. Large gains are almost always made by holding good companies over long periods.

We are encouraged by our results so far. We will produce a table tracking the companies that we follow. We will update it as new companies are gradually added. We will include our estimates of the fair value of the stocks of these companies and will update these as time goes on.