Q: Is "buy and hold" the best investment strategy?
A: There's no one-size-fits-all investment approach. Buying and holding has worked wonders for many investors, but it's best thought of as buying to hold. In other words, never buy a stock and then just blindly hold it for years without ever checking up on it. Instead, carefully select promising companies, intending to hold them for the long term as long as they remain healthy and growing.
Many great fortunes have been built by people who held shares of great companies (such as Wal-Mart, Microsoft, General Electric and Coca-Cola) for decades, through ups and downs. Even super-investor Warren Buffett has said that his favorite time to sell is "never."
Q: If I buy 100 shares at $10 each and the company does a 2-for-1 stock split, how do I value the shares when I sell?
A: Let's say the shares you bought for $10 were trading at $16 before the split, for a total value of $1,600. After the split, you'll own twice as many shares (200), worth half as much ($8 each), for a total of . . . $1,600. See? Not much has changed, materially. For tax purposes, though, the "cost basis" of your purchase, which was $10 pre-split, is now halved, dropping to $5. So if you sell now, your capital gain will be your $1,600 in sale proceeds (less your brokerage commission cost), minus your $1,000 purchase price (plus your commission cost). Including commission costs is legal and will reduce your taxable gain a little. Lots of numbers get adjusted when splits happen - these include dividends per share, earnings per share and other figures based on share count.
If you'd like guidance from someone who invested for 70 years and beat the market average soundly, meet Philip Carret. He started Pioneer, one of the first mutual funds, in 1928. His average annual return, calculated from 1928 to 1974, is estimated to be 14 percent. That's pretty impressive, considering that the stock market in general averages only a 10 percent annual return. Carret died in 1998 at age 101, leaving behind many thoughts on what contributes to successful investing:
Other lessons can be gleaned from Carret's life. It wasn't one spent with eyes glued to the stock ticker. He made time for things he enjoyed, such as solar eclipses, which he would travel almost anywhere to observe. He was generous with and loyal to friends. When he prepared his housekeeper's tax return for her, he quietly paid the taxes due, as well. He was a man of principle. Years ago, when a social club at Harvard agreed to accept him on the condition that he "lose his Jewish roommate," Carret told the club to take a hike.
Carret's example inspires us to aim for high performance, high principles, and lives with many high points.
I trace my roots back to an 1868 trading company. Today, I'm reportedly India's largest conglomerate and its biggest taxpayer, operating the country's largest private steel company, its largest chain of luxury hotels and its largest private power utility. I also deal in vehicles, software, food, telecommunications and more. I have 96 operating companies (several dozen are publicly traded) and 230,000 employees, and rake in about $22 billion annually. Two-thirds of me is owned by a charitable trust, and I introduced eight-hour workdays in 1912. My name is one way to say goodbye. Who am I?