When Buy and Hold Doesn't Work

As a value investor, you often hear me speak on the virtues of selecting great businesses at attractive prices and holding them for long periods of time. Many new investors make the mistake of thinking that means never selling your holdings. Instead, the focus must be on the underlying health of the business – the actual enterprise in which the shareholders and management are engaged to make money. If you’re talking about a carpet company, what is the outlook for the future profitability of the carpet industry (both in terms of sales and cost inputs – carpet, for instance, is almost entirely processed petroleum so rises in crude prices are going to hurt profits). As long as the underlying business still has a good long-term outlook, drops in the stock prices should be viewed as potentially attractive opportunities to increase your ownership in the corporation.

To discover examples of companies that have been horrible buy and hold investments and clues as to what might tip you off to them, continue reading When Buy and Hold Doesn't Work.