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Income Investing

Legacy Stocks

By Roger S. Conrad, on Jun. 23, 2016

Buy-and-hold investing may seem passé in a 24-hour news cycle that plays on investors’ emotions and sensationalizes even short-term hiccups as a potential calamity.

For better or worse, the proliferation and popularity of exchange-traded funds (ETF) have also lowered the barriers for investors to trade in and out of baskets of stocks—a dangerous situation in an emotionally charged environment.

Spooked by market volatility and the reality that some of today’s leading companies will eventually become obsolete, some investors have given up trying to build wealth with individual stocks and instead opted for lower-cost, passive strategies.

But the focus on identifying forever stocks is itself flawed. The market and economy are forever evolving; investors should regularly check their holdings for potential cracks, with an eye toward flaws that could jeopardize their long-term value.

Scrutinizing Dominion Resources’ (NYSE: D) quarterly results and business prospects has enabled me to hold the stock in my personal account for almost 30 years. Buy-and-hold investing isn’t dead, but it does require due diligence. On the plus side, this approach limits your trading costs and helps you to grow sustainable wealth.

Your heirs will enjoy a one-time step-up in their cost basis on stocks left to them in a will; no matter how long you’ve held these positions, their cost basis will always be what it was when the will was executed.

But leaving a basket of high-quality stocks to the next generation is an incomplete gift without advice on how to monitor and manage these investments. Here are some of the highlights from the investing legacy I hope to pass on to my children:

  • There’s no such thing as a forever stock, which is why you must understand the businesses in your portfolio and their growth prospects; and
  • Tend your portfolio as you would a garden, pulling any weeds that threaten your returns and pruning any overgrown positions.

This advice is particularly relevant in the latter stages of a bull market, when valuations become stretched. Weakness in the US and global economy also puts pressure on corporate earnings, especially for names engaged in cyclical businesses.


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