Mailbag: I am 45 years old & want to accumulate shares of good companies for next 20 years

A reader aged 45 had the following query. Though he asked the question on Stable Investor’s Facebook page, I thought it would be a good idea to share it with loyal website readers to know their views.
 
 
 
So here is his question:
 
“I am 45 years old and wish to invest in equities for long term. My goal is to create a corpus, which I may use when I’ll cross 65. Hence in which Indian companies should I invest? I plan to buy stocks of the chosen companies regularly in small quantities in “buy-and-forget” mode. I don’t want to be bothered about daily price fluctuations or viability of company’s business. Please recommend a few companies which you think would keep performing well for years to come. I assume that at whatever price I buy these stocks, I would eventually have significant capital appreciation over the next 20 years.”
 
Now this is what I think:
 
I am assuming that you are adequately insured and have sufficient money in your emergency funds. With this assumption, I would say that it is always advisable that one should invest in multiple asset classes, so that there is no concentration risk. I am assuming that since you plan to invest in the so-call-risky asset class, you already have decent positions in less risky ones like PPF, PFs, NSCs, bonds, FDs & RDs etc.
 
Now Buy and Forget kind of investing requires that you pick companies which you are sure are going to survive for next 20 years. These are companies which essentially, have a greater ability to suffer than other listed companies.
 
Once you have taken care of survival, you need to shortlist those which have a good probability of flourishing in next 20 years. Just these 2 filters would reduce the list of probable companies to less than 10-15. And that in itself is a pretty manageable number.
But having said that, I would digress a little from this topic of direct equity investment. You can, or rather should consider routing a substantial part of your planned monthly investments through index funds. You might argue that investing in index funds would eliminate the probability of picking up multibaggers, even when considering a 20 year time frame. That’s correct. But this would also eliminate the possibility of ending up with stocks of companies which might be very close to being shut down at end of 18-19 years of your stock accumulation period.
 
Now no one would want to accumulate shares of a company for 19 years, only to find that when he requires that money in 20thyear, share prices have crashed down and business is about to close. 🙁 So, I would suggest that you should give index fund investing a serious thought.
 
Sometime back, I had suggested a similar approach to two young readers who also intended to invest for next few decades! You can read those discussions here and hereBut if you still want to go ahead with a Direct-Equity-SIP sort of a program where you buy few shares of companies every month for next 20 years, you should stick to companies which pass the following criteria –
 
First
 
Provide products and services which would have increased demand in years to come and are ideally placed to benefit from India’s demographic profile over next 20 years.
 
Second
 
To meet this demand, these companies should depend as little as possible on debt and should be able to fund their expansion through cash flows itself.
 
Third
 
The companies should be run by trustworthy and proven management. You don’t want to handover your hard earned money to companies which are not run by people whom you would personally not like to interact with. Isn’t it?
 
Fourth
 
Personally speaking, dividend paying companies ring a bell for me. But you can choose not to consider this criteria.
 
So once you have shortlisted companies according to these criterias, you would have very few companies which you would like to invest for next 20 years.
 
One such company which comes to mind is ITC. You can create your own list of such companies.
 
It is always better to have a framework (structure) before you go ahead picking specific stocks. Hopefully, this post will help you in coming up with a correct framework to pick stocks worthy of long term investments.
 
This is what I feel should be done by the reader. What do you all think?
 
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Written by Dev Ashish

Founder - Stable Investor Investing | Personal Finance | Financial Planning | Common Sense

22 comments

  1. Thanks Stable Investor for putting up my question for discussion. Let me the first one to comment and further dig into my query……. But to begin with, let me tell from where and why I got this idea……..

    No gusses………I picked it from the none other than the great Warren Buffett (WB). Now if we consider him to be wizard of fundamental investing then remember whenever we talk about him we talk about his convictions of investing in good companies with honest management and at right price….. His investment in Coke is most quoted example….. So if WB could visualise the potential of Coke years ago, why can't I?

    That idea was the genesis of my above query.

    Good companies survive…..until and unless there is complete change in fundamentals or extrinsic environment like invasion by foreign forces, big natural disasters etc….. To support this, here are few companies that are around more than a decade: Jessop and company, Britannia, Century textiles and industries, TVS, Dabur and more can be read from the link below:

    http://businesstoday.intoday.in/story/companies-that-have-completed-100-years-in-india/1/16503.html

    So in nutshell, remaining invested for long time horizons in good companies makes good sense. And as WB says, do not love your equities, definitely at some point of time, one has to reap the benefits of capital appreciation.

    Personally, I do not like the concept of mutual funds…..because first of all it is very passive way of investing…..it takes away the thrill of doing fundamental research, picking up the stocks at right price, the joy of seeing small dividend payouts that get reflected in your statements…..and above all it takes away the sense of control over your investment.

    Mutual fund managers, though have all the training and resources at their disposals but are still bounded by the fund's policies, impatientness to churn the portfolio, and perhaps egocentric prejudices.

    My plea is if all fund managers are good, then why most funds are in red….. Above all where the dividends earned from lakhs of shares held by these funds goes…..it is hardly distributed to the subscriber………(I stand corrected in this belief, please enrich me with how funds work).

    Most importantly…..if a funds fails to perform, fund manager has nothing to loose (except the job only if something done seriously wrong) because all fund managers get hefty pay-outs and bonuses irrespective of their performance.

    Nevertheless, coming up to my original query…….if I project myself into 2033, that is twenty years from now, then which companies I should invest now so as to have a solid capital appreciation (along with generous dividend payouts).

    I wish to invest in small amounts, picking up in dips or whenever I have surplus funds.

    To the best of my logic such companies should fulfil following criteria.

    1. Saleable products or services that would be in demand for ever.
    2. Good and honest management that shares profits with equity holders.
    3. Potential of intrinsic growth due to expanding market or increasing demands.

    Please share your views and opinions….

  2. Dear Stable Investor,
    What is your take on Siyaram Silks. Bought at 280 levels and it is lingering around 190 levels for the past month. What would be your suggestion? to exit

  3. Hi,

    Lots of people think if Warren can do why cant I… If many people would replicate Warren would not be “So Special”…

    For example i would like to emulate Warren but he has great capital allocation skills and that's his full time job… Working in a full time job and doing investment is not that easy from a time commitment perspective… So i do analysis at Fund level (Mutual fund and Index Fund) instead of individual stocks (I am not for Thrills)…

    My advice for you will be to analyze your behavior and see if Stk Mkt is ok for you…

    1. Your portfolio analysis (Equity Vs Debt Vs Real Estate Vs Gold). This will give you good revelation on your stake at ground for stocks .. For most indian Retail investors RE+ Gold will be > 50 – 95 % and they will be worried about stocks where the allocaiton is less than 5 %

    2. Your behavior when the markets test your patience and what are your lessons learnt…

    PS: I forgot the period – Warren did not buy any stock for a continuous 7 years bull run… Can you do that ?

    Thanks
    Jai

  4. Sorry Ancha
    I don't track Siyaram Silks. But what I can suggest is that if the reason for which you originally bought this stock is still there (for example: good business or product, etc), then there is no point in selling it as markets tend to overreact in short term.
    But having said that, you should be really sure of the reason and be objective about it.

  5. I really like the part where you said that it is important to analyze one's own behavior and see if stock markets are really the place to be for that particular individual?

    But as Rajiv Garg has pointed out, if a person is really ready to put in the efforts to analyse stocks and businesses behind them, then possibility of decent returns are also good.
    But on a personal front, asset allocation is something which I feel is more important than the search for multi-baggers (which is sole aim of most market participants). I like Rajiv's approach of accumulation of decent, sustainable businesses and am myself doing this for past few years. But having said that, I am trying to diversify across multiple asset classes as I don't want to put all my eggs in one basket, even though it might reduce my overall results. I adhere to philosophy – 'Return OF capital is more important than return ON capital.'

  6. Hey Rajiv

    I have given my views on your and Jaisankar's comment as a reply to latter's comment itself. And talking about structures, processes and asset allocation, I would take this opportunity to share my interview with you. In this interview, I have discussed about these concepts at length.
    You can read the interview at http://www.safalniveshak.com/tribestar-2/

    Would like to hear your feedback on the same.

  7. I suggest the below Companies for this and I do hold them. HDFC, HDFC Bank, TCS, Asian Paints,Hindustan Zinc, Fag Bearings, GSK Consumer Healthcare,IPCA Labs,Colgate,M&M
    – Inba

  8. Hi,
    For a 20year horizon, a proper asset allocation as per your risk taking ability with investment in equity through a few diversified mutual fund with good consistent track record is the best option. Everyone before entering says I wish to invest for long term 20 years 30 years, but after investing a very small amount goes on monitoring the tickers every day.Direct stock investing is not worth unless you are for sure capable of judging the stock valuation and forecast the company prosepects.

  9. Well said Ajay. Taking a simpler Index fund based approach makes a lot more sense when one is creating a core corpus for decades.
    But if one is ready to stick to only really great businesses and accumulate these stocks in small quantities every month, then it can be a good option too (to add to the satellite portfolio)

  10. I have Asian Paints, Castrol India, HUL, ITC, Dabur, Coal India and Reliance Industries. As of now 21% return. Only two non performing stocks are of SAIL and HCL info. But these give dividends.

    I have also invested in GoldBees ETF with long term perspectives.

  11. The performing stocks mentioned by you are some well respected ones and have proven businesses. And the returns are also quite good. As far as non-performing ones are concerned, SAIL seems to be a in a cyclical downturn and hence may be a good buy at current levels if one is ready to stay put for next 5 years.

  12. I am planning to invest in stocks of good companies for a long-term (10/12 yrs). As I
    don’t have any expertise in stock market analysis I am planning to invest through through SIP mode (in a monthly basis).

    My stock list is ITC, HUL, HDFC Bank, M&M, Britannia, Lupin, Dabur, TCS

    Does the SIP mode really help in overcoming the market volatility and
    give profits. Or is it only thorough investing by market analysis we can
    earn profit.?
    Thanks,

  13. Your stock-list seems to be a collection of names which remind us of words like reliable, robust, built-for-long run 🙂

    As far as SIP in direct stocks is concerned, let me tell you frankly that its always best to do 'thorough analysis' before investing. And one should always wait to invest when the markets are down and sentiments are at their rock bottoms.

    But if one cannot devote much time to analysis of companies, its better to stick with mutual fund SIPs. SIPs do help in overcoming market volatility. But there is never a 100% guarantee of profits.

  14. I have NMDC, IDFC, Pidilite, Tata Elxsi and Delta Corporation. Could the stable investor guide me if the companies mentioned here are suitable to stay invested in for the next decade. Thank you in advance

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