The classic buy-and-hold strategy is in decline. That’s too bad, because the strategy is a good one.
So what explains the lack of support from investors and financial writers for the strategy that arguably set Warren Buffet apart from almost every other investor in history?
Personally, I think it owes to a fundamental misunderstanding of the strategy.
You see, buy and hold is a strategy that still works for stocks purchased at a discount to their intrinsic values.
That means an investor must buy the stock at the right price.
And if the investor does this correctly, a portfolio will contain stocks that will be held for a very long time.
You see, a long holding period is just a natural result of prudent stock picking.
For sure, the hardest part of this process is resisting the temptation to sell — especially in times of economic distress. But significant gains can be had when investors hold stocks for the long term.
And this isn’t just an academic exercise, either… Below is a brief overview of three stocks I own which I will likely never sell.
The High-Tech Darling
The first is Nvidia (Nasdaq: NVDA).
For readers familiar with my StreetAuthority articles, one of my favorite investing strategies is to identify stocks at the beginning stages of a “mega-trend.” Once the trend is identified, the stock is purchased while it is still selling at a discount to its intrinsic value.
NVDA met such conditions in July of 2015 when the stock was trading at roughly $19 per share. Take a look at what the stock has done since then:
The stock’s recent closing price of $173 represents a stellar 810.5% return in just over two years. Now, you might ask why the stock isn’t on the block for sale to lock in the gains. That’s easy…
Shares of the chipmaker have further to go. You see, the investment thesis that existed when the stock was first identified is still in an uptrend. And until that trend shows signs of fatigue, NVDA stays in the portfolio.
This begs the question: Should a new investor consider the stock at these lofty valuations? In my opinion, the stock is still undervalued based on the trend for which the stock was bought.
Now, don’t confuse the stock being undervalued based on the metrics financial analysts use, such as price to earnings, EV/EBITDA, etc. By those measures, the stock is over-valued at current levels.
But the trend to autonomous vehicles and artificial intelligence is still in its infancy. And NVDA’s chips remain at the forefront of this transition. This stock could easily grow another 800% or more in the coming years.
NVDA is definitely a keeper.
The Groundbreaking Cancer Treatment
Another stock that gets my never-sell rating is Juno Therapeutics (Nasdaq: JUNO).
While the stock currently sits roughly 10.6% below its entry price of $34, the stock holds significant potential for dramatic price appreciation. Here’s why…
For a generation, cancer treatments have remained largely the same. Once a patient receives a cancer diagnosis, that patient begins traditional therapies of surgery, chemotherapy, and radiation therapy.
Unfortunately, chemo and radiation treatments are as hard on the body as cancer. In fact, two-thirds of the 8.2 million cancer patients who die during cancer treatment die of infections arising out of compromised immune systems.
What Juno and a handful of other companies are researching is a novel approach that involves engineering a patient’s own immune cells to recognize and attack malignant tumors. The research centers on ‘T’ cells. T cells are a type of white blood cell that scans for cellular abnormalities and infections. They are essential for fighting infections.
Juno researchers have developed a process whereby ‘T’ cells are engineered to produce special receptors on their surface called chimeric antigen receptors (CARs). These receptors are proteins that help ‘T’ cells instantly recognize a specific protein of tumor cells. These engineered CAR-T cells are then grown in the laboratory until they number in the billions.
Once the “CAR-T” cells are infused into the patient, these cells multiply in the patient’s body and go to war with the cancer cells.
It’s a brilliant strategy that leaves cancer cells in the crosshairs of the body’s natural-born killers while simultaneously leaving healthy cells unharmed. And once the company perfects the engineering of this radically new process, the stock will go sky-high.
And it will stay in the portfolio until that happens.
The Future Display King
One final stock that will stay in my portfolio forever is Universal Display Corporation (Nasdaq: OLED).
Since I purchased the stock in late 2015 for just over $30 a share, it has returned more than 275%.
But this is only the beginning. The company has developed the technology to embed small diodes onto plastic or metallic substrates (ultra-thin wafers) that are much thinner and lighter than current liquid-crystal display (LCD) screens, which use glass substrates. The technology is called flexible organic light emitting diodes, or FOLED.
Because FOLED products don’t use glass, they will be much lighter. And since they are made of ultra-thin plastics, metals, and organic compounds, they will be flexible enough to weave into fabrics that can conform to different types of surfaces.
The possibilities of FOLED technology are endless. Flexible lighting can be used in wearable electronics, woven into clothing and even turned into three-dimensional screens.
The technology also will dramatically reduce the cost of manufacturing display devices. Using paper or fabric as substrates for LEDs will result in low-cost mass production and allow for a greater diversity of display products. For this reason, OLED has a license to print money.
That’s why it will stay in the portfolio forever, and why I hope some financial writers continue their silly assertion that buy and hold is dead. It just means more money for those of us in the know.
Risks To Consider: Two of the three stocks described above have already experienced significant gains since being added to my personal portfolio. And while they are expected to continue their respective trends, there is some risk that the trends may take a breather before continuing their respective climbs higher. Accordingly, these stocks are most relevant to investors with a long-term horizon of 5 years or more.
Action To Take: Dollar-cost average into each of these stocks over time on the dips. Because of the long-term nature of these stocks, specific entry points are less relevant than buying on dips. Mitigate your risk by applying no more than 2% of your portfolio into any on stock described above.
— Richard Robinson
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Source: Street Authority