Every time I post asking for advice here, someone always tells me to just buy index funds and hold forever. I get it, but I'm also genuinely interested in individual stocks, and I want to know if there's an actual framework (not just vibes) for evaluating whether a stock is worth holding for 5 or 10 years. Something that accounts for growth potential, valuation, and income at the same time. Has anyone found a system that actually holds up over time and isn't just backtested hindsight?
"Buy and hold" is advice I hear constantly, but nobody ever explains how to actually decide what to hold.
byu/Minimum_Pear9193 instocks
Posted by Minimum_Pear9193
25 Comments
Good companies
It has to, first and foremost, be a stock that fits with your investing plan, style, and goal. Ultimately only you can decide what that is.
No, no one has figured out exactly how to pick winning stocks. Hence most people fail to beat the market.
VTI and chill for 35 years. You’re welcome.
To answer your broader question, it’s a bad idea to try and time the market or invest in individual stocks unless you have a high level understanding of the business. If you want to try it, sure go ahead and throw a few grand into it and hold for 5 years to see what happens. Even the best hedge fund managers in the world with an entire team of Ivy League grads can’t consistently outperform the S&P, so how do you think regular people like us are going to fare? When you buy into the low cost index funds like VOO, VTI, SPY all the work is done for you and you just ride the overall market gains.
Bags. You hold bags.
I do an annual evaluation. But i sell very little.
In fact last sell for me was wbd at about $10 and then 6mo later the. Get a buy out and pop to near $30. Ugh. I’d gotten this in a spin out and was cleaning up
Portfolio but still…
1. Does the stock have a long lifespan?
2. Do they make a popular product(s)?
3. Do they have stable growth?
4. Fair p/e ratio?
Take Coca Cola as an example
>I want to know if there’s an actual framework (not just vibes) for evaluating whether a stock is worth holding for 5 or 10 years
You should definitely stick to indexes.
It’s all very individual, so it’s something you’ll have to figure out for yourself as you gain experience.
Personally, I have never sold anything, but used dividends and work income to make new investments. I don’t worry about trying to earn the highest returns, and don’t invest all of my savings. Investments help me live the kind of life I want, and that’s good enough for me.
Best of luck to you.
You obviously cannot reliably hold stocks forever. Even Warren Buffet loses confidence in his choices. The goal is to hold while you have confidence in the company. Loss of confidence can be anything from a business model drifting to obsolescence to change in management, whatever.
The S&P500 or $SPY/$VOO
My “framework” for individual stocks is:
– set a stop loss at -50% that completely exits of the position
– set a take-profit at +100% that sells half of the position.
– let the remaining half ride on house money, hold pretty much forever. I guess until retirement.
Using this framework I have accumulated a dozen or so stocks where my BEP is 0.
But of course I’ve also had a few stop losses that triggered on other stocks which ended up going up afterwards. You win some you lose some.
steadily rising revenues is a good start. A hugely expanding market, like Google in 2010 because of ballooning internet advertising or Nvidia anytime in the last 5 years because of AI. Great management, big FCF, juicy sustainable margins, gems that crater on market selloffs like everything AI related last April. And look more at ETFs, I bought 6 different healthcare ETFs last September and made a mint, couldn’t have done it with stocks. Plus stocks can stay crushed for a long time, sectors usually bounce.
Never hold your losers. Sell them before they go long term or even better, sell them down 15%. If you hold your losers and sell your winners, you will have a portfolio of all losers.
Maybe read some financial statements
If someone had a magic moneyprinting strategy, why would they share it?
Always have an exit strategy. Either based on price performance or ratios. Look or listen to companies quarterly reports and pay attention to forward looking statements. Good example, I bought TSLA in 2012. Listened to the earnings calls pretty regularly and one day the CEO stated they were no longer a car company but a robotics company. That’s when I made my exit.
If you don’t know what to hold… just hold a diversified ETF tracker.
You should build a DCF in Excel at least once. This will give you an exact number how much the stock should be worth today.
And then you can just play with the assumptions (revenue growth, margins, discount rate, terminal growth) and see how much the valuation changes.
It’s not true. Everyone tells you exactly what to hold. You must not have looked at all.
VOO
QQQM
VT
Etc etc
Just do simple research
If you need someone to explain this to you maybe you should talk to a financial advisor.
Diversification is key. You should hold 10-20% gold.
ETFs do not diversify any more. S&P is 40% 7 evil tech corps. So keep that to 25% or less. Make sure to have bonds, real estate, crypto if you’re into that
Pen15
I held AMD for 15 years, I also held Walgreens for over a decade as well. Two very different outcome lol