Buy and hold or rotating the capital what exactly big investor do
So you might have heard that an investor stories and stories about how an investor made a passive small investment in the year 1970s in the xyz company and now he is millionaire because he invested that small amount back then and held it for a longer period of time.
This is pretty much the bitcoin saga that people who invested in bitcoin in the last year of decade of the 2000s and early decade of 2010s made a lot of money (i.e) there investment of few dollars appreciated to millions dollars.
Do you really know about Big investors investment strategy
What people conclude from such investment stories is that you make big money by investing 100 or few 1000 dollars only when you hold stocks for longer period of time. So the popular concept is that it is with time your big investors earn money who are deep in to the financial markets and are part of big game
So let us start by analysing what the “oracle of Omaha “Warren Buffet do by analysing his portfolio . first let us go the basics according to the investment analysis it is said that sage of Omaha sticks to the concept of value investing . The strategy of value investing is said to have floated by Benjamin Grahim
“Value investing ” is this right strategy
Value investing involves finding the right the time when the value of stocks decreases or the stock becomes underpriced (disclaimer not a suggestion just an academic discussion ).
Even John Maynard Keynes while managing the endowment fund while managing the endowment fund of college did not go after momentum of the market to increase money. He instead found companies which he knew well and according to him whose stocks are undervalued. The father of macroeconomics was able to beat the market even during turbulent times
Do Big investor care about volatility
Most people are believed to think that large amount of investor wealth especially those multi billionaire come from the method of buy and hold . when investing through buy and hold principle an investor does not care volatility in the market . It indicates the confidence in the price of stock that it will appreciate in the future so that it is worth locking your capital in such stock for longer period of time
Does Warren Buffet completely sticks to his position of buy and hold
Experts have another view
Youtuber Akshat shrivastava in his detailed analysis of Warren Buffet strategy debunks that the myth that big investors such as warren Buffet do not rotate their capital.
He explains this by showing that in the last quarter Warren Buffet portfolio size was $360 bn and now it has come down $300 bn .
So why the “sage of Omaha “ has reduced his position
The probable reason why he does this is for rotating his capital that is taking out returns from a stock that has appreciated and putting it in some new stock that is undervalued or underpriced and then holding it up to the point where it give rich dividends
what make the Big Investor Ray Dalio so Big
Rey Dalio the world second wealthiest hedge fund manager after George Soros follows the same principle in his book “principles ” he talks about the principle of “risk parity” .There is no one better to talk about risk management in the market than the world’s top hedge fund manager .
If we analyse the Bridgewater portfolio from the perspective of rotating the money we see that it bought stocks of Analog devices inc in Q1 2022 and sold it in Q2 2022 . what does this indicate is not that he lost confidence in the company . Offloading the stock just meant that it was just the right time of averaging . As the Q2 arrived the earning per share of analog devices reached $2.52 which exceeded the expectation . On signs of broader slowdown in the semiconductor industry the stock was averaged by the corporation.
life lessons by Big investors
However knowing about the basic principles and stocks that the best fund manager of stock market buy is not just enough for retail investor . Ray Dalio explains this in very precisely in his advice that you can definitely look for learning and advices from all the experts but you have to do your own work in the stock market.
Another stock that goes with Ray Dalio strategy and others they have pointed a E V company that can give tough competition to TESLA. Ray Dalio and others are investing in Rivian because its promising as an EV manufacturer. It is trying to bring in to the vehicle market an Electric sports utility vehicle . It is interesting to note that it is also developing a Electric delivery van .
We discussed here how the strategy of rotating the capital can be much beneficial for retail investors.”Buy and hold ”is the strategy that can increase your money . however you are trying to build money for specific goal . If the long term appreciation of money does not serve the purpose than what is the intrinsic worth of money
So your investing strategy should be build on
- Your own research
- Your own confidence in the stocks you are investing
- Your capacity to take risk
- Knowing your ownself and your own psychology about money and your goals in life
- Diversification is sine qua non of rationally investing
- Averaging at the right moment
- Being aware at all times about the money you have invested
- Buy and forget does not hold good
- Manage your investment actively