Buy-and-hold stock investing can be an advantage for patient Canadian investors. The market is inundated with short-term thinking, speculating, and trading. In fact, the market and the media want to push you to action. The more moves you make, the more money they make (and often the more you lose).
Sometimes the best thing you can do is sit on your hands. In fact, that is how some of the greatest investors in the world made their fortunes (aka Warren Buffett). You especially want to think long-term in your TFSA (Tax-Free Savings Account) because you want to generate the largest tax-free gains and income as possible.
A terrible mistake I made on this Canadian stock
I’ll give you an example. I owned TFI International (TSX:TFII) for the past four or five years. This Canadian stock has a track record of delivering strong returns and running a leading transport/freight company across North America.
However, it has been a volatile stock. I held it through the freight recession. I held it when the company contemplated moving their headquarters to the United States. I held it through the tariff tantrums. During this time, the stock drew down by almost 50% at one point.
However, it was the war with Iran that made me ultimately sell a good part of my holding. The stock had recently had another drawdown. My logic was that the high gas prices were going to be a headwind to margins and profitability. I made an investment decision for a non-investment reason.
Subsequently, this Canadian stock rose 48%, and I missed out on all of it! The point being that making a reaction gave me worse results than just sticking with a great business. TFI just released second-quarter results and reported a nice recovery in revenues (up 12%) and operating income (up 29%)! There appears to be more upside as the freight recession abates.
Lesson learned. Going forward, this is a stock that I will just buy and hold for the long term as long as it keeps executing and operating as it has in the past.
This Canadian stock is set for a rebound
Another Canadian stock to be looking at for long-term TFSA wealth creation is Descartes Systems (TSX:DSG). This company provides the network and software solutions that enable logistics and transportation around the world.
As with most software stocks, Descartes has pulled back by 31% over the past year. While many see AI as a threat, management is investing to expand AI solutions. In fact, Descartes appears to be taking market share in recent years given its strong platform and reliable service.
Descartes has everything a long-term investor should like. It has a cash-rich balance sheet, a high stream of recurring revenues, a prudent management team, a record of good capital allocation, high profit margins, and a mid-teens growth rate.
This stock may be down today. However, like TFI, its quality will eventually shine through. Today, you can buy this stock at its cheapest valuation in 10 years. It provides a great entry point for a long-term TFSA allocation.
The Foolish takeaway
The TFSA is the perfect place for long-term compounding. You don’t want to pay tax on massive gains or income. If you plan to earn 10X, 50X or 100X gains, you will have to be incredibly patient to hold through the market’s ups and downs. However, a patient, long-term approach can pay off with substantial gains over time.