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This rule tells you that when you are selecting which stock to buy, you should 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".
The Benefits of this approach of co-owning a company are:
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?
In order to have a better understanding of whether a company is worth owning forever, we came up with the 10-YEAR X-RAY and the FUTURE PROSPECTS for companies which help you understand the financial track record of the company and what we can expect from it in the near future. At MoneyWorks4me, we give a colour coding for each stock as Green, Orange and Red which helps you better understand whether the company is Great, Good or Risky. For the best returns, you must invest in Green companies and avoid Red companies.
Click here to know the Second Golden Rule