Finding companies that can be held long-term

The challenge: Finding companies that can be held long-term

Despite the volatility in the market, Tan says he is still a long-term investor.

“We bought into Parkson in 2002 when it was around 40 sen. It went to a peak of around RM10. If we had sold at 80 sen, we would have made 100% gains. The question is, if you sell, what are you going to reinvest in? The advantages of buying and holding is that if you have the right company, you don’t have to worry about reinvesting. Of course, at RM20, we would have sold because it would have been so overvalued. But a good company, managed well, has tremendous potential. If you buy and sell once in 10 years, you only have to be right twice. If I buy and sell every month, I have to be right 24 times a year. "

The dramatic drop in stock markets last year has led to the long-term approach of buy and hold being questioned. In an article in late April, The Wall Street Journal ran said that advisers are ditching the ‘buy and hold’ dogma in the face of massive losses.

For Capital Dynamic Asset Management Sdn Bhd’s managing director Tan Teng Boo, the question is not whether to invest long-term but in finding companies that can be held long-term. The value investor seeks companies selling at an attractive discount from the intrinsic value. And in this market, he is rubbing his hands in glee. Tan says he has been steadily accumulating stocks over the past year. The iCapital Global Fund, a fund for high net worth investors that was launched in July 2007, now only holds 6% in cash, says Tan.

“We see a lot of prices which have bombed out although the company has not,” he says. “I have never seen so much pessimism in so many places at so many levels of society in my life. The negative sentiment is a divergence from the economic numbers, which isn’t as bad as those seen in the Depression. This is a springboard for a major rally.”