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 stock investment strategies. From my point of view, it is one of the most interesting options for those who want to go public and do not have enough time and knowledge to learn more complex strategies.
In addition, it must be taken into account that it is a strategy that has always been proven very profitable since - so far - those who strictly follow her 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 have to buy stocks and never sell. There are some exceptions to sell but we will see them later
- Always choose reliable companies and with great stock 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 in a long and stable way.
- Reinvest dividends obtained in new actions to take advantage of the effect of compound interest.
Having discussed the fundamentals, it is important to consider when to sell the shares of a company. You only have to sell in case of obvious risk bankruptcy. If we detect that any of the companies that make up our portfolio is experiencing a critical situation that puts their survival in obvious danger, then it isthe sale justified.
But it is VERY important to be able to 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 just at the most attractive moments to buy. For 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 sell all their shares for fear of a decline in the main companies in Spain. But this was not real it is not feasible for all companies in a country to go bankrupt (and if it happened we would not care to be on the stock market or not since we would live a really uncertain future) so the summer of 2012 was not a time of sale, but a unique opportunity to make portfolio and buy shares at incredible prices taking advantage of the collective madness that made many people sell.
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 that you know how to react correctly and not sell your shares.