29 April 2011

Framework for identifying a solid stock for the long term

We would all love to buy stocks for the long term, the buy it and forget it types. However, its easier said than done. I follow a framework which gives some method to the madness associated with dealing in stocks, especially for the long term, the time horizon of multiple decades. The framework is conservative and yet seems to be robust enough to deal with the volatility cycles in the stock markets.


Framework for selecting solid stocks for the long term
While buying a stock for the long term I look for a solid business which has a history of paying dividends consitently and is available at a resonable price.

Using this framework, I would have rejected more than 99% stocks which came my way. I have only 2 stocks in my portfolio which meet the criteria laid out by the framework.

What have been the results from using this framework?
  1. Stock 1: Have held it for more than 6 years and it has delivered market beating returns. The framework has delivered.
  2. Stock 2: Have held it for less than a year. Its too early to comment on its performance. The ability of the framework to deliver results needs to be tested. 
This is my way for investing for the long term. What is your approach to investing over the long term. Leave a comment. It would be nice to hear about it.

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