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Hold On To Your Stocks For Dear Life

I was in the barber shop getting my hair cut when Domenic (my barber) mentioned that he was glad he kept a multi-family home that he bought about 40 years ago. Over time he moved as his needs changed (larger family) or when he made a final move that was close to his newly opened barber shop. Except for that property, he would sell his previous residence at the same time he moved to the new one.

This particular property was different since he was already earning money by renting the other unit. He figured that the property wouldn’t be a drain on his finances because he could also rent his side such that all the expenses would be more than covered.

Fast forward 40 years and this property is his ace for a comfortable retirement. What if he didn’t keep it and sold it instead? He might of simply bought a more expensive house along the way. He would have lost this asset that over time continued to earn more and more money and increased in value as well.

I thought to myself, is that the secret to having financial security, a rental property? Here’s a chart that tracks housing prices over the long term.

Housing chart courtesy of Visualizing Economics.

My barber probably made more than an inflation adjusted return on his property because it is located in a city in a good location to jobs and industry with limited available land (even back when he bought it).

The truth is, after thinking about it, is that real estate isn’t unique in its ability to store value and offer potential for real gains. The reality is that if you simply hold any quality asset for a long time you will be better off than not doing it. Don’t dwell on the success of a particular case (such as my barber), seek out things that you understand, buy them and hold on to them. In my case, I prefer stocks.

When I look at other asset classes, such as stocks, fine art and collectibles or even gold, it’s the same story. Holding on for the long term at the very least will keep that investment stable at the inflation rate. Here’s a chart that I picked out for Chevron that shows its investment return since 1970. I picked Chevron because oil and gas isn’t exactly a sexy or new business. Even in 1970, oil was a well developed industry.

Screen shot courtesy of Yahoo! Finance.

I don’t have a chart showing the investment returns of Picasso paintings, but I think it’s a good bet that 40 years ago, buying a Picasso (even one of the many simple autograph drawings he was known to pass out) would have been a good investment on par with stocks and real estate. Picasso was already famous, so you wouldn’t have had to place a bet on a new or unknown painter.

Image courtesy of free-people.net

Stocks Trade Like Candy

If you are investing in individual stocks, remember that you are buying very rare commodities: companies that made it to the public market and have lasted through many business cycles and hopefully have earned money and paid dividends. Today, stocks can be bought and sold with the same ease as buying a candy bar. The financial punditry can discredit and pummel a quality business on a simple whim or choice news item.

Resist the temptation to sell unless there is some egregious problem that can’t be fixed. Keep them for the long term. Right now it is tempting to take profits because you may think that stocks are too high.

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