When you own a truly exceptional business, the best approach is often to hold on simply.

It has been 18 years since Google bought YouTube for US$1.65 billion.

Now, YouTube generated US$50 billion in revenue over the past four quarters alone.

The YouTube founders were initially offered US$50 million, but they got Google to increase it to US$650 million and then to US$1.65 billion. The founders, Hurley and Chen, then uploaded a video to YouTube announcing the acquisition.

It turns out that it was still a steal.

So why am I telling you this? Not to inspire you to create the next YouTube and sell it to Google. The odds of replicating that success are incredibly slim.

It’s to remind you of the power of long-term investing. When you identify a truly exceptional business, the most rewarding approach is often to simply hold on and let the power of compounding work its magic over many years.

When Google acquired YouTube in 2006, the picture wasn’t rosy. The fledgling video platform was burning through venture capital and struggling to scale. Many investors scoffed at the US$1.65 billion price tag, believing Google had grossly overpaid. But Google understood YouTube’s potential.

In 2010, YouTube finally turned profitable, and today, it’s one of Google’s crown jewels, generating a staggering US$50 billion in revenue, eclipsing Netflix’s US$37.6 billion. And unlike Netflix, YouTube doesn’t have to contend with Hollywood writers going on strike, disrupting its content pipeline.

The key takeaway here is simple: when you own a truly exceptional business, the best approach is often to simply hold on.

So Why Did I Sell?

Recently, I shared my decision to sell part of my portfolio in Why I’m Taking Profits in the Stock Market Now. It sparked some great questions from readers about my perspective on the market, so I thought it was worth unpacking my investing philosophy a bit more.

Let’s get this straight—I didn’t make this call because of looming elections, inflation fears, or geopolitical tensions. It wasn’t a gamble on a market drop so I could jump back in at a discount. My decision came from a very different place: resilience.

My guiding principle in investing has always been to build a portfolio strong enough to withstand market twists and turns—because if you want to enjoy the magic of compounding, you have to survive the bumps. Or as Nassim Nicholas Taleb, author of The Black Swan, famously put it: “Never cross a river that’s four feet deep on average.” It’s dangerous to assume that averages make things predictable. In real life? The markets and economy don’t follow averages; they throw curveballs, sometimes all at once.

My goal isn’t to plan for “average.” It’s to build financial resilience that can withstand stress. To reap the benefits of compounding, I need to stay in the game, and that means preparing for a variety of conditions—especially the unpleasant ones.

The long run is a series of short runs. To enjoy the fruits of long-term compounding, we must be prepared to navigate the inevitable downturns.

As I plan for the future, I anticipate significant expenses in four to five years. So I’m using this period of favorable market conditions to increase my cash reserves and prepare for those expenses.

Short Run Rules for Long-Term Success

To stay on track for long-term compounding, these four rules have kept me grounded:

1. Don’t invest cash you’ll need within the next five years.

2. Never invest with borrowed money.

3. Maintain an emergency fund

4. Adequate insurance

The market doesn’t care if you’ll need cash next month or next year. That’s why it’s crucial not to lock up short-term funds in long-term assets—or put yourself in a position where you’re forced to sell at the worst possible moment just to cover expenses or pay off debt.

And here’s a bonus exercise for those new to investing who haven’t experienced a full market cycle.

Imagine this: your portfolio drops 50%. Headlines scream recession, inflation, rising interest rates, and maybe even war. The companies you own stocks in are suddenly “doomed,” as everyone predicts disaster. Your heart races. Palms sweaty, knees weak… (okay, I won’t go full Eminem on you).

Now, add to it—your job’s on the line, maybe a partner’s pay is cut, and those bills aren’t slowing down. When it rains, it pours. Can you financially and mentally stay steady enough to make good decisions?

The stock market has a way of testing investors, and it’s easy to claim that you’ve what it takes to withstand the stock market volatility until a market drop punches you in the gut.

Many investors panic and sell during drawdowns when they should be buying. In good times, it’s easy to proclaim long-term conviction and believe we’re as emotionally detached as Warren Buffett or Charlie Munger. But when Mr. Market delivers a blow, reality often bites.

As a side note, after Mr. Buffett’s recent sale of Apple and banking stocks, Berkshire Hathaway grew its cash pile to over US$300 billion—about 30% of its market cap.

Investing is Simple, But It Isn’t Easy

The stock market is one of the most powerful tools for building wealth. Once you own a portfolio of strong businesses, the smartest move is probably to hold on through the ups and downs. But to do that, you need a solid financial foundation—one that can weather any storm and help you stay calm and rational when the market inevitably tests your resolve.

While buying is celebrated, selling with intention is equally critical. And yet, not many talk about it. If you’re interested, I’ve outlined my approach to selling here: https://steadycompounding.com/investing/sell/

Until next time.

Compound steadily,

Thomas

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Thomas Chua at Steady Compounding

Email: [email protected]