Holding, not trading, is key: The article challenges the notion of rapid trading and emphasizes the importance of identifying strong companies and holding onto their stock for extended periods to capitalize on long-term growth. It uses the example of William J. O’Neil, who held Pic ‘N’ Save for over 7 years, achieving a 10-fold return.
“A common misconception about successful investing is that it involves rapid trading… However, the true goal for many investors is to find great companies with strong fundamentals and hold on to their stock for extended periods.”
- Four Steps for Success: The article outlines a four-step process to successfully hold onto winning stocks:
Know the company: Thoroughly research and understand the company’s fundamentals, products/services, growth potential, and competitive advantages. This knowledge will help you withstand short-term price fluctuations.
- “Understanding the company you’ve invested in is essential to maintaining your conviction through periods of volatility.”
Develop a strategy: Determine your investment strategy beforehand, including how much of a price drop you are willing to tolerate. Having a plan helps resist emotional selling decisions.
- “One of the best ways to stick with a winning stock is to develop a strategy in advance.”
Focus on the weekly chart: Ignore the daily noise of the stock market and focus on the broader trends visible on the weekly chart to assess the stock’s overall health and direction.
- “The daily stock chart can often be overwhelming due to its inherent volatility… However, a weekly chart provides a broader, more stable view.”
Recognize sell signals: Learn to identify signals that may indicate it’s time to sell, such as breaking below the 10-week moving average, heavy volume on down days, and failure to hold key support levels.
- “Despite all the advice about sticking with a winning stock, there will inevitably come a time when it’s appropriate to sell.”
- Real-world examples: The article highlights real-life success stories of companies like Microsoft, Amazon, and NVIDIA to illustrate the potential rewards of holding onto winning stocks for the long term.
- “As seen in the examples of Microsoft, Amazon, and NVIDIA, the greatest gains often come to those who stay the course and remain patient.”
Important Quotes:
- “Holding a big winner is not easy. The temptation to sell and lock in profits prematurely is ever-present.”
- “Great companies usually grow into their high valuations as their profits increase, and analysts often adjust their price targets upward.”
- “By focusing on the weekly chart, investors could remain confident that the long-term growth story was intact, even if the stock had a rough few days or weeks.”
Conclusion: By following the outlined steps and learning from the experiences of successful investors, individuals can increase their chances of realizing significant gains from their investments.