When investing in shares, a lot of people believe that you only need to buy those of a big blue-chip company and hold on to them for ever. This might have been a good investment philosophy a few decades ago but things have changed in the investment world. Back then you were limited to a few investment instruments like policies, retirement annuities, and of course a direct holding in shares. Buying shares was a cumbersome process and you ended up holding a piece of paper called a share certificate. If you wanted to sell the shares again, you had to mail back the certificate and a sales order before you could receive your money. Subjected to this unsophisticated process a lot of people believed it was just too much of a hassle to sell shares so they simply held on to them.
Today shares can be bought and sold online in a matter of seconds and we have instruments like ETFs and unit trusts which make the process of investing very fast and efficient. With access to the internet we receive information about changes in the economy and developments at companies instantly, making it much easier for investors to decide whether to buy or sell shares.
This new trading environment does not necessarily mean that the old buy-and-hold philosophy can no longer be used to great effect, but we have to at least monitor the shares we hold to make sure they are still relevant. Take, for example, an old favourite called British American Tobacco (BAT). If you bought BAT about 9 years ago, your return would have been 217% (24% per annum) plus you would have received good dividends. If you bought BAT 4 years ago, your return would have been 0%, but you would still have received the dividend. If, however, you bought Anglo American 9 years ago, your return would have been between 0% and 79% (9% per annum) – with wild swings – over the 9 years.
So, it becomes clear that the new environment created by the internet and the advances in the IT sector has changed the general investment philosophy of buy-and-hold to one of buy-and-monitor.