Warren Buffet : Buy and Hold Strategy

by : Zainul Anuar

You can easily get bored from buy and hold strategy, especially if you are beginners looking for fast cash. Nevertheless, it can be so profitable in the long run. Let see why Warren Buffet loves buy and hold strategy so much that most investors overlooked.

Growing Population

US population has been growing about 1% per year for the past 100 years, and is expected to increase to 392 million by 2050. If 1% of the population growth happens to be the customer of a product, the company will be able to increase $3 million in net profits annually; assuming each product is giving $100 in net income. And this has not considering if the product is able to dominate the market share from competitors yet, which will bring in more profits.

As more and more people come to life and each live longer than before, companies have opportunities to make more money per customer as long as the product or service is compelling enough. Continue upselling is great way to make continuous sales from loyal customer.

Wealthier Consumer

As businesses grow from time to time, the business owners, shareholders and employees have better income; and more money to spend as well. More disposal income per person is equivalent to better earnings potential per customer for the listed companies. As a result, converting the potential customers to buyers becomes much easier than before. For example, selling a notebook nowadays is much easier than it was 15 years ago.

However, good stocks must have anticipated possible changes in customers' lifestyle as well. It is important to dominate the market share by maintaining its customer loyalty.

Globalisation Effect

China and India alone has 36% of the world populations. Other than this huge demand, both countries offer relatively cheap labour as well. That is why, many US and European companies gradually moving their manufacturing operations to these countries. By doing so, they are able to reduce the operating cost while maintaining the selling price, which results to better profit margin.

Airbus A380 is a perfect example. Although none of its sections were manufactured in either China or India, each parts was assembled in France, Spain, Germany and UK; while its components were coming from all over the world.

Therefore, despite all the advanced trading systems available in the market, buy and hold strategy remain relevant and profitable. However, you need to buy the right stock in the right market at the right time, all the time. Also, be patient while waiting for the stock to grow beyond your imagination, and make money out of them.