Lessons in Long-Term Investing

In the world of investing, the temptation to sell early can often be overwhelming, fueled by short-term gains or external pressures. However, the decision to hold onto your investments for the long term often leads to transformational wealth creation. In this blog, I’ll explore the power of long-term investing, share personal and anecdotal lessons, and highlight why being a rare seller is a philosophy every investor should adopt.

Why am I a Rare Seller ?

One of the main reasons I rarely sell is to avoid the regret of selling too early. This regret stems from missing out on the exponential growth that can follow years of patience.

Take the example of a study conducted by Fidelity in 2014. It revealed that the best-performing investors were often those who had passed away or investors who forgot they had a Fidelity account. Why? Because they simply bought stocks and never sold them, allowing compounding to work its magic without interference. Intriguing, isn’t it?

Tata Motors and a Wedding: A Lesson in Missed Opportunities

In 2020, one of my colleagues sold Tata Motors shares at rock-bottom valuations. When I asked him why, he said he needed funds for his wedding. He had made a modest 10–20% gain and didn’t want to dip into his fixed deposit savings.

Fast forward four years, and Tata Motors turned into a 10-bagger, delivering nearly 900% returns. While the stock has faced recent corrections, its journey since 2020 is a testament to the potential of long-term holding. I can only imagine the regret my colleague might feel today, thinking back to his decision to sell early.

My Personal Regret: Dixon Technologies

Regrets of selling early are not foreign to me. Back in 2017, I applied for the Dixon Technologies IPO. The issue price was around ₹1,700, and I was lucky to get allotment & thus secured eight shares(1 lot). On the listing day, I sold four shares at ₹3,000, almost doubling my money on Day 1 & just a few months later, when the stock hit ₹5,000, I sold the remaining shares, convinced I had struck gold.

Today, every time I look at Dixon’s chart, I’m reminded of what could have been. The stock has soared to unimaginable levels, turning into a wealth compounder. My 8 shares would have been today 40 shares, courtesy the split in 2021 & today it trades at Rs.14,776/Share. Thus my 15K investment would have been 5.9Lakhs ! If only I had held on to it :(

Turning Point: Lessons from Microsoft and CDSL

My perspective on holding stocks changed after I read about Microsoft's lost decade! Yes, the stock that remained stagnant for nearly a decade before embarking on a remarkable bull run. Imagine holding onto a stock for 10 years, enduring periods of doubt and underperformance, only to be rewarded with unparalleled returns. Learning : Stocks can underperform for even a decade , but in the long term the trajectory changes for quality companies.

A similar conviction guided my decision with CDSL. In 2017, I participated in its IPO, convinced it was a proxy to India’s financialization journey. Despite a 40% listing gain on Day 1, I held onto my shares this time. Adjusted for a 1:1 bonus( recently in June 2024), the IPO price of ₹149 translates to ₹74.5 per share. Today, the stock trades around ₹1,500 levels—a stunning 20x return in just seven years. Had I sold for quick gains, I would have missed this wealth creation journey entirely.

Learning from the Regrets of Legends

Even the best investors have regrets about selling early. All the 3 here are whom i deeply admire & have learnt so much. Here are three stories on regret that they have shared publicly, that underline the importance of staying invested:

1. Mohnish Pabrai and Ferrari

Pabrai bought Fiat Chrysler during a crisis at extremely low valuations, only to sell after a modest gain. To his dismay, the stock jumped 4X after his exit.

2. Sunil Singhania and Bajaj Finance

Sunil Singhania once owned 10% of Bajaj Finance when its market cap was just ₹400 crore. He exited around 1500 Cr. , thus making almost a 4X ! Today, it stands at over ₹4 lakh crore —a 1,000x return. Holding onto such a stake could have made him one of the richest individuals in India.

3. Masayoshi Son and NVIDIA

The SoftBank founder once held a significant stake in NVIDIA, the poster child of the AI revolution. Yet, he sold too early, missing the meteoric rise that made NVIDIA one of the world’s most valuable companies. Had he held onto it , just that stake would have been $178 Billion !!

The Two Regrets of Investing

Every investor faces two types of regret:

1. Buying a stock and watching it fall.

2. Selling a stock and watching it soar.

The key difference? When a stock falls, your loss is capped at 100%. But when you sell early, the potential upside is infinite—and so is the regret.

Key Takeaways for Aspiring Long-Term Investors

1. Identify the Runway: Focus on businesses with a clear pathway for growth over the next decade.

2. Resist Short-Term Temptations: Avoid selling during periods of underperformance or for small gains.

3. Learn from Mega Trends: Companies like Bajaj Finance, HDFC Bank, and BEL started as microcaps and are now multi-lakh crore giants. Staying invested through the ups and downs is the secret to capitalizing on these trends.

Final Thoughts

Long-term investing isn’t just about holding stocks; it’s about embracing the journey of compounding and avoiding the lure of quick exits. Every regret, whether personal or from the experiences of investing legends, serves as a powerful reminder: patience is the greatest virtue in wealth creation.

So, the next time you’re tempted to sell, ask yourself—are you ready to trade a life-changing journey for short-term satisfaction?

Stay invested, stay patient, and let time work its magic & don't forget to stay Mad About Stocks !