Shared Perspective: Buy and Hold Is Changing

European Closing Bell was co-hosted by Andy Hartwill from Quasar. I've never heard of him or the firm but I thought his points were interesting, mainly because they jibe with mine (ahem).

He seemed to stress two points; geographic diversification and that buy and hold "as we know it" won't work anymore.

His perspective is as a UK market participant so his home bias is, or was as the case may be, presumably the UK and he wants out of the region. Europe, including the UK, may turn out to be worse off than the US. Too many US based investors rely on products that are too heavy in Europe and the UK for their foreign exposure. This hurt in the current bear market and maybe a hindrance in the rebuilding of portfolios that hopefully will occur over the next few years.

This line of thinking is obviously consistent with what I have been writing about for a long time regarding investing at the country level. Better foreign diversification can be had by seeking out and buying countries that are fundamentally different than the US. Most of the EMU countries have a lot in common with the US in that they need to import a lot of stuff, are mature economies, "advanced" financial systems and heavily indebted. The opposite of this could include commodity based, exports a lot of stuff, a much simpler financial system and a little less debt.

While finding countries that meet all those criteria could be tough there are plenty of countries that are different enough. I guess my favorite countries are Chile, China, Brazil and Norway. I say I guess because I have been writing about them more than other countries but long time readers might remember what I have been doing with these countries over the last few years.

From the low point in November to now, Chile has had a very smooth ride to a 10% gain, China is up 25%, Brazil is up 45%, Norway is up 30% and the US has had a very volatile ride to a 10% gain. All four of those foreign markets dropped a lot at different points in this bear market but the timing has been a little different and owning them has helped smooth out the ride which as you know is a big priority here.

This is not a case of some great call I made. It doesn't take much to find out a country has a different fundamental make up than the US and if you believe in the concept (different fundamentals means different cycles) then you can figure which countries give the best shot at this effect.

The equity markets of these countries are becoming easier to access but the fixed income and currency markets no so much. WisdomTree filed for an ETF for just about every conceivable currency on the planet but have only actually listed a small handful of them. They filed so long ago that I have pretty much given up on them but in line with what Hartwill, I and others have been saying it will only get more important to seek these investments out.

Comments

[William Cowie:]

Buy and hold, done the Buffett way (i.e. with a lot of homework to pick very few stocks, and go big on them) is very much a viable strategy, especially these days. There are several solid, dividend-paying stocks with strong market franchises selling for reasonable prices today. Two years ago, with prices too high and cash running out of everyone's ears, that wasn't true. Even Buffett stubbed his toe in that time. But these days it is back true again.

Not a popular view these days, but then again, his views were never popular at the time, only in hindsight...

Apr 24 02:08 PM

[TheFounder:]

I can't see any reason not to buy and hold Brazil (EWZ) or China (FXI).
India (INP) is ok as well.

Buy and hold in America is risky. You may face another decade with high volatility but no or very low yield.

Apr 24 02:17 PM

[Jasper M:]

Brazil looks good to buy (and hold) Now, because of volatility. It will be the same on the way down.

Apr 24 02:29 PM

[Dustinian:]

I completely agree. I can't say I support this new idea that buy and hold is "dead". Obviously one should be flexible with their investments, but with stocks being currently so cheap, I think now is a tremendous time to buy and hold!


On Apr 24 02:08 PM William Cowie wrote:

> Buy and hold, done the Buffett way (i.e. with a lot of homework to
> pick very few stocks, and go big on them) is very much a viable strategy,
> especially these days. There are several solid, dividend-paying stocks
> with strong market franchises selling for reasonable prices today.
> Two years ago, with prices too high and cash running out of everyone's
> ears, that wasn't true. Even Buffett stubbed his toe in that time.
> But these days it is back true again.
>
> Not a popular view these days, but then again, his views were never
> popular at the time, only in hindsight...
>

Apr 24 03:27 PM

[John Christy:]

It's a shame that the meaning of "buy and hold" has become so distorted over the years. As William correctly points out, the real essence of the term has its roots in value investing and careful stock-picking.

A classic buy-and-hold investor does his homework and tries to buy great companies when they're temporarily out of favor. Timing the exact bottom, however, is impossible, so he must be prepared to hold until his thesis pays off. This kind of buy and hold investing will NEVER die.

But somehow investors came to believe that "buy and hold" meant "buy whatever you want and hang on, eventually it will pay off". That is hopefully gone for good -- and good riddance.

Apr 24 06:19 PM

[Analyste de...:]

Foloowing the digression...
"Buy & Hold" as described to the masses was really "Buy & Fold."

During both the 2000-02 Bear and the 2007-09 Bear (so far), most retail investors were overweight stocks - talk to mature 401k participants and older investors, you'll hear how they were 75-90% in stocks/equities. Most didn't even bother rebalancing, never paid much attention to risk, burned once they played 'Catch Up,' etc.

The plan providers actively dissuade trading in 401k brokerage accts, with hefty fees, time-windows, limited options. Plan participants were really the suckers left holding the empty bag... TWICE.

I've been reading Roger's column for at least 3 years, and I agree with his thesis here as well: whatever your allocation, overweight Foreign Eqty & overweight Emerging Mkts. Ignoring global investment opportunities is poor investment strategy, now.

Apr 24 11:26 PM

[Acronym:]

Great insight Roger! I must admit I like your style. Simplicity is king.

Apr 25 08:43 AM

[CLH:]

Investors never were buy and hold (which is the best). Most investors buy during the bull and sell during the bear.

Apr 25 09:11 AM

[Dave Shafer:]

Buy and Hold the Buffett way is not dead as several folks have pointed out. Buy and Hold mutual funds [including rebalancing & asset allocation strategies] never was much of a strategy.

If you think you know enough about a foreign economy to invest in it, then go for it. But as we have seen folks can't even figure out their own countries economy!

Sorry, but folks who have made money investing in foreign economies are, for the most, just lucky. I remember folks telling people to invest in Russia and Eastern European stocks not to long ago.

I stick with the Buffett/Graham ideas to invest in companies in which you have done your own research, that are trading at fair prices, and that have products that make sense going forward. Taking a flier of rebounding economies is pure speculation in my book!

Apr 25 09:46 AM

[notsosmart:]

be aware.wall st now has a new mantra."trade,trade,tr... theycant make money pushing their phony rated AAA wortless paper so they say " buy & hold" is dead.buy & hold is still the way to go.there are good cos with great divs that are nicely priced now that are great to hold & join their drip plans.

Apr 25 10:01 AM

[buoy:]

Saying that any investment strategy is dead is just plain nonsense. The best strategy is the one that gets results.

Apr 25 11:11 AM

[LKofScotland:]

great comment stream. notsosmart sounds like homespun wisdom to me. it's in environments like this that fortunes are made (and lost, too. think of Paradise Lost, right?) That's why the likes of Buffet put billions on the table--it's a feeling called "greed." Made him billions in the past--he's betting history will repeat itself to his benefit again. Past performance is no gurantee of future results, though--right? That's why following banks is far more important than following "rich people." And of course the government is bailing out those banks with your taxpayer dollars and not the likes of Warren Buffet who senses "opputunity." If the government is doing it I posit it's a good idea for investors to take note--and what should stand out? THERE'S A HUGE PROBLEM. At least that's the way I look at a couple of trillion here and there. So forget the gold bugs, the Goldmans and even the Sach'es for a moment--this is one of those amazing times when you can simply buy, sell or hold based on the government's own well publicized investment strategy--they're your JP Morgan who is running book for the entire economy--and how you put your chips on the table can be done relativey simply-- just read the newspaper as to how they place their bets. Speculating in the market place has rarely if ever had such clarity. One thing is for certain--expect the government to lose collossal sums of money. But remember, governments, especially our own, can do that. Our government goes bankrupt all the time and at least for the past 50 years its meant nothing. With a massive war over the world's oil supplies fought almost exclusively in Central Asia and the Middle East I'm certainly not anticipating that will happen this time. Could be wrong, though. Maybe the Taliban really are going to start out in Afghanistan and conquer the world.

Apr 25 12:04 PM