The art of investing in individual businesses can become tricky when your shares disappoint, how do you know when to stay invested for the long-term?
It's quite easy to stay invested with a broad exchange-traded fund (ETF) such as iShares S&P 500 ETF (ASX: IVV) and Vanguard MSCI Index International Shares ETF (ASX: VGS) because there are no business-specific issues to worry about – just hold through volatility. Let compounding, technology improvements, inflation and population growth help your wealth increase.
The current reporting season hasn't been kind so far to some of the shares in my portfolio, namely Costa Group Holdings Ltd (ASX: CGC), Challenger Ltd (ASX: CGF) and Paragon Care Ltd (ASX: PGC).
Some advice out there says you should sell at signs of trouble before further falls, move on and find something better. Other investment advice says ride it out, it's about being patient. It seems like contradictory advice.
How are you supposed to know what to do? You would need a time machine to truly know what the best decision is.
Shares are volatile, they don't go up (or down) in straight lines. Most of the time, profit doesn't go up every single year either. There are going to be bumps along the way.
One of the best ways to stay invested for the long-term is to think about why you invested in the first place. Did you buy thinking that what happens in FY19 will dictate whether you buy, hold or sell? Maybe you did. But I didn't with my three shares that I mentioned.
Another question is: Would you buy at the current prices? If the share price has fallen substantially and you still wouldn't buy shares if you didn't own any then that may suggest your thesis is partly (or entirely) broken. If you would buy shares, then that would suggest you should hold onto your current shares.
Foolish takeaway
For me, I bought Costa, Challenger and Paragon shares with the thought of where they will be in FY30 – hopefully much bigger businesses by then. Despite a rough start to 2019, I am optimistic about their futures and I hope that in a few years I can look back and be glad I remained patient and didn't sell out of fear or frustration.
