From Emerging Trend’s Trader (AUS) –
Warren Buffett is known for value investing. He champions the investment approach of buying into quality companies and holding them for a long time. To start with, I believe Buffett is right — good companies tend to outperform over the long run. This conclusion is well-tested, backed by decades of investment research.
However, investors who want to copy the Buffett approach need to be aware of their own investment styles. When Buffett says ‘hold onto stocks for a long time’, he means exactly that — holding them for years, decades even! That could be a problem for some investors.
Among the many oft-quoted Buffett one-liners, one that sticks out is ‘cash is the worst investment’. I also agree with that. Cash gives a percentage return lower than most other investment classes over time. It is irrational to leave any ‘investible’ money in cash (not including cash for living expenses and discretionary spending). Property investment, stocks and bonds have historically offered significantly higher returns than cash over time.
If you follow what Buffett says, you naturally wouldn’t leave your savings in cash, investing in a variety of different asset classes instead. And when looking at stocks, you should buy quality companies and hold onto them for a long time.
Today, I want to test whether holding onto quality stocks gives investors the best returns, as Buffett claims.