Discover why we prefer a “buy and watch closely” approach over a “stocks to hold forever” philosophy

The best stocks to hold in your portfolio all have one thing in common: They give you reason to believe they are “stocks to hold forever.”

Most of these stocks have an established business and a history of sales gains, plus some earnings, if not dividends. To put it more simply: these stocks have a clear business plan that seems to be working.

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The market can change quickly, so we recommend paying close attention to your holdings instead of looking for “stocks to hold forever.”

The types of stocks we mentioned above are the kind we put in the portfolios of our Successful Investor Wealth Management clients. Though we think they are worth holding on to indefinitely, we keep an open mind. After all, they’re subject to the usual risks. Competitors can overtake them. Expected contracts can fall through. They can lose key employees, run into union or regulatory problems, and so on.

Of course, nobody can predict the future. We’ll change our view and sell some as time passes. We’ll give up on some way too early, and hang on to others way too long. But if you focus on stocks like these, you improve your odds. The best of the bunch will overwhelm your losses and leave you with highly satisfactory long-term returns.

Rather than a “stocks to hold forever” investing strategy, we prefer a “buy and watch closely” strategy. What that means is we constantly look for reasons to sell. But we don’t offer them, because we are careful about what we buy.

A buy-and-watch-closely orientation can be extremely profitable in the long term. Keep in mind, too, your best picks are those that do way better than you ever expected.

The 3 keys to constructing a portfolio that will reward you with consistent gains

Of course, there are a variety of ways to build an investment portfolio. Some work better than others. But our buy and watch closely approach has done well for our Successful Investor Wealth Management clients over the past few decades.

To build a Successful Investor portfolio, we start by applying our three-part philosophy:

1. Invest mainly in high-quality, well-established companies, with a history of earnings if not dividends;
2. Diversify across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities);
3. Downplay or stay out of stocks that are in the broker/media limelight. This limelight raises investor expectations to dangerous levels. When stocks fail to live up to those heightened expectations, share-price slumps can be swift and brutal.

We advise selling particular stocks when we feel the situation has changed and they no longer qualify as high-quality investments. We also sell if we decide that a stock is no longer as high-quality or well-established as it needs to be, to cope with the challenges it faces. Of course, many of our sales are due to a successful takeover of a company’s stock, which generally results in a major profit for our clients.

On the other hand, when we sell stocks out of a particular client’s portfolio, it’s often because we see a divergence between the characteristics of the portfolio on the one hand, and the client’s objectives and risk tolerance on the other.

We may at times adjust many or all of our clients’ holdings, based on our assessment of risk or opportunity in the overall market. But we never sell just because a stock or the market has gone down, and may drop some more.

A drop in the market or a particular stock is a constant risk. Your best protection against it is to be careful about what you buy, with respect to investment quality, diversification and investor expectations.

Most “stocks to hold forever” pay dividends 

Good dividend stocks are a valuable component of any sound investing portfolio. The best dividend stocks provide a consistent dividend yield year after year. That’s key to your long-term investment success, because those dividends can contribute as much as a third of your total return.

Here are six tips for picking the best dividend stocks:

• Dividends are a sign of investment quality.
• Watch out for unusually high dividend yields.
• Look for a history of paying a dividend.
• The best dividend stocks dominate their markets.
• The best dividend stocks can feature hidden assets.
• Dividends can grow.

Too high of a dividend yield can be a warning sign. Have you ever fallen victim to a high dividend yield stock that then crashed?