Benefits of Holding Stocks for the Long-Term

Grace is a small-town American girl with a knack for simplicity. Fresh out of college at 22, she landed a secretary job at a pharmaceutical company.

With her first paycheck, she made a modest purchase: 3 shares of the company, each costing just US$ 60.

Nothing special, right? Well, hold on—it’s about to get unbelievable.

Grace stayed with the same company for the next 40 years, living a humble life. She never sold those shares, even as she retired and continued to live quietly until her passing at age 100 in 2010.

Over the course of 78 years, those 3 little shares grew—splitting and multiplying—until she held more than 100,000 shares.

Curious how much those shares were worth by 2010? Brace yourself: they were valued at a staggering US$ 7.2 million.

Is the above fictional? Nope. Grace Elizabeth Groner surprised many as she left behind the US$ 7.2 million estate to the Grace Elizabeth Groner Foundation, her foundation which is established to offer unique service-learning opportunities to qualified Lake Forest College students.

Her US$ 7.2 million estate is a testament to how ordinary people could achieve extraordinary results from holding onto fundamentally solid stocks for the long-term.

As you read, it is possible for you to think:

• What stock did Grace buy?
• Who buys stocks to keep for life without them?

If that is you, it is normal. This is because the majority of stock buyers today are not looking at 5, 10, 20 or like Grace Elizabeth Groner, 78 years down the road.

Most are interested in profiting in the short-term and do not understand the immense benefit of investing over the long-term.

Here, I have yet to obtain the same financial success as Grace.

But nevertheless, I had benefited from long-term stock ownership in the form of greater net worth.

In this article, I’ll share 4 benefits for holding stocks in the long-term and explain why such would be ideal and effective in wealth building.

They are as follows:

Benefit 1: Superior Net Worth Growth

Let’s dissect the success of Grace Elizabth Groner.

The stock that Grace bought and held onto for 78 years was Abbott Laboratories, Inc. (Abbott).

Since 1923, Abbott had scaled, expanded and matured into a global pharmaceutical company.

It continued to grow its net earnings to US$ 5.8 billion in 2019, up from US$ 1.0 billion in 1990, the furthest back SEC filing that I could possibly obtain). This is almost a 6X increment in 18 years.

I cannot imagine the magnitude of Abbott’s growth if we could trace it back all the way to 1923, when she bought the stock.

Therefore, I believe that the key driver to Grace’s significant growth in net worth is Abbott’s continuous expansion in net earnings.

As such, I make it a key focus to invest in stocks that possess the capability to grow earnings for the long-term and keep them.

Like Grace Groner, earnings growth is the key factor that would contribute to my growth in net worth.

Benefit 2: Recurring Dividend Income

Imagine earning recurring dividends every 3 months, which increase every year, for life. Grace Groner had enjoyed dividend income for decades as Abbott pays out recurring dividends.

The more Abbott earns, the more dividends it pays out.

Now, what if that is you? Earning recurring and growing dividends would enable you to be flexible with your time.

Sure, some will choose to continue working to earn more income.

But all of us could choose to allocate time on other activities which add more colour and meaning to life by and large.

They include:

• Time with family and friends.
• Time for self-development courses and activities.
• Time for holidays to enhance life experiences.
• Time for hobbies and interests.
• Time to take care of physical health: rest and work-out.
• Time for volunteer work and donation for worthy causes.

Such is possible only if we hold onto fundamentally solid stocks in the long-term. It would not be possible if one keeps on trading stocks for the short-term.

In a way, investing for the long-term is not so much about “making money”, but “buying quality time”.

Benefit 3: High IQ is Not Required

Is Grace Groner known to be smart, intellectual or entrepreneurial? Nope.

Is Grace Groner a move and shaker at Wall Street, a chartist, an economist, or a possessor of a list of unfair advantages in the stock market? Nope.

Grace started her career as a secretary.

I’m sure there are millions who are more intelligent than her in regards to finance, business, economics, charts, investing and market directions.

But, can the millions attain what Grace achieved in their own investment portfolios? Not quite.

Why?

This is because beyond intelligence, investment success often lies in emotions and habits.

True, we need skills and wisdom to identify sound businesses and value them. This is the prerequisite to building wealth in the stock market.

But, what sustains us in the long run is to adopt long-term thinking in managing our stock portfolios.

It takes high EQ to hold onto stocks in good times and bad times.

This is exemplary with Grace Groner.

Consider this. Don’t you think she could sell off her Abbott shares during:

• The Great Depression in the 1930s?
• World War 2 in the 1940s?
• The Kennedy Slide in 1962?
• Black Monday in 1987?
• The Dot Com Bubble in 2000?
• The Global Financial Crisis in 2008-2009?

But she didn’t. That is why Grace compounded her net worth to US$ 7.2 million over 78 years.

Benefit 4: Active Management is Not Required

When we adopt the mindset of a business owner in investing, we would buy to keep.

Our duty in managing portfolios is to ensure that the businesses (stocks) in our stock portfolios can continue to grow their earnings over the long-term.

We just check their accounts very quarterly.

Sometimes, we would check them annually as businesses that are fundamentally solid tend to just deliver us consistent growth in earnings and of course, dividend income.

 Do we look at charts, volumes and patterns on a daily basis?

Not required. Do we adjust our portfolios if there are interest rate hikes or falls in the future?

Nope.

Do we actively time the market to buy and sell stocks in the stock market? Nope.

Do we need to possess “sixth sense” to predict future market directions? Nope.

As such, active management is not required.

Many times, the more we buy and sell, the worse it becomes for our portfolio.

Just like Grace Groner, all we need is to buy right and hold onto them.

Allow time to be our friend as the businesses we own continue to expand and compound wealth in the future.

Conclusion:

Perhaps US$ 7.2 million is too huge a figure to aim for currently.

Depending on your circumstances, you could be aiming for RM 7.2 million, RM 720,000, or even RM 72,000 in portfolio size.

Regardless, it is vital to just start. Like Grace, she began to accumulate wealth at 22 years old in her first year of employment with US$ 180.

If you work and are earning an income, I’m sure you can save a few hundred and start small.

But the key is to start right. This is because many started but not with the right footing.

I did that by speculating stocks in my 20s and this cost me “10 years of possible compounding wealth”.

To me, I was introduced to value investing in my 30s and practiced that for 10+ years.

Surely, it had compounded my net worth, especially in my 30s and 40s.

But, I wonder what if I started off right, acquiring good companies and holding onto them when I started earning income in my 20s?

So, don’t waste precious time and money.

Start learning the basics and build a portfolio.

From it, I’m confident that 5, 10 or 20 years down the road, you will look back and thank yourself for your investments made in the past.