The Two Golden Rules of Sensible Investing

2.1 1st Golden Rule: 'Buy what's worth owning forever'

This rule tells you that when you want to buy a stock, think as if you will co-own the company forever. So before you decide to co-own a company, you need to study the company very carefully and find out whether it is really a wonderful business.

This is beautifully said by Warren Buffett; " Our favourite holding period is forever " and to avoid temptation about buying stocks which don't meet this criteria, he said " If you don't feel comfortable owning a business for 10 years, then don't own it even for 10 minutes".

This approach of co-owning the company while buying a stock has many benefits viz:

1. Stock of such a company is most likely to see a consistent increase in price over the years, giving you the benefit of compounding increase
2. Such a company is able to withstand tough times better than others and hence you will not lose money on it in the long run
3. You will have to buy and track stocks of only a few companies. This will give you an opportunity to understand them even better & gain the confidence to make larger investments in each one.

How to determine if a company stock is worth owning forever

A company stock is worth owning forever, if the answer to the following questions is an unambiguous "Yes".

(a) Is the company capable of growing its profits even during tough times? and
(b) Does the company have a great financial track record?