Is Buy and Hold Dead?

Includes: DIA, SPY
by: Ryan Edward

Is the buy-and-hold strategy dead? Can long-term investors just sit back and ride out the market bumps? This is what everyday people are told are told to do by the financial elite. Wait and don’t worry.

Financial elites such as Derek Foster told this to his readers for years. Stay steady, hold tight. His seductively simple approach to riding out turbulent markets by focusing on dividends, not day-to-day market gyrations, resonated with tens of thousands of Canadians who bought his bestselling books such as Stop Working, Here's How You Can! and The Lazy Investor.

This man for years preached the buy and hold strategy…and now he’s abandoned it. He advised readers to hold good stocks "forever" and to "buy more shares" if there's a market crash. Recently, he dumped virtually all of his holdings.

Why did he dump nearly all his holdings?

I don't consider myself to be a panicky investor. I've been through a couple of typical bear markets, the typical 20- or 30-per-cent declines ... but I just started researching it more and more and I just think that this is not a garden variety bear market. I think this is almost like a paradigm shift. We've lived in North America, more so in the States, in a fictitious economy to some extent because people ... were living way beyond their means. And I think this crash is an inflection point. So going forward I don't see the economy growing as robustly as it has because I think we've been living on borrowed money.

What about missing the rebound?

I could be wrong. But if I'm wrong, I don't think the markets are going to head back to the glory days anyhow, so the risk in being wrong is not that big. I don't see the market suddenly booming.

Now that even the kings of buy and hold are dropping out, is that a sign for an even worse financial tsunami to come? Or possibly, just maybe, is it the ultimate contrarian indicator.