Why 'Buy and Hold' Isn't Dead 11 comments
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"If 'buy & hold' is dead, then I am the embalming fluid"
- Capitalism is dead, and no longer works as an economic system
- More regulation, and less leverage is always better.
- Everyone took on too much debt, and the recent crash will cause everyone to be very debt averse forever; let the de-leveraging begin.
- The right thing to do with your money all along was to play it safe, and sock it all away in a savings account; assets with risk associated with them should be avoided at all costs.
- Don't speculate, don't invest in stocks, don't buy real estate, don't take risks in starting a new business venture or making any kind of investment where loss is a possibility
...and my personal favourite:
- 'Buy & Hold' as an investment strategy is dead.
All of these new postulations are the result of the human instinct to remember the most recent painful experience and alter one's thoughts and habits to correct for this. What has happened is akin to falling of your bicycle and breaking your arm. Perhaps walking is a better idea. Maybe you can't get places faster on your bicycle. The government should ban biking. Better yet, perhaps we should all stay in our houses. Do you want to buy a video game that simulates riding a bicycle? The real thing is far too risky and provides no real benefits to anyone.
Of course people are now saying that 'buy & hold' is dead. It's easy to think that buy & hold is a bad idea when the current 'hold' experience involves watching your investments fall by 40%. That hurts, for some probably more so than falling off of that bike. Does this in itself mean that buy & hold dead? I think not. Equities have been the best asset class to own over the long term, and I don't believe that will change. Try not to do all of your buying at the peaks and all of your selling in the valleys, and buy & hold will probably work out for you the longer you hold shares of quality firms that provide the goods and services that people want.
The best time to draw inferences about what works is probably not during and post a large market crash. Ask yourself, what biases are those making these calls prone to? For the vast majority of us, the market crash will turn out to have been a good thing long term. That is if we avoid buying into the inferences drawn by those with broken arms.
For those interested, my other financial advisor is Kanye West.
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This article has 11 comments:
I completely disagree! Losing a substantial chunk of one's retirement savings is bad. When you make a crazy statement like this you need to explain it.
There's a full post on this on my website, which I encourage you to visit, but the problem is that people think buy and hold means that you buy a stock and you forget about it.
Buy and hold never meant that. It meant that you bought a good company at what you thought was a good price and then you held on to it as long as the data supported continuing to hold the stock.
For example, if you bought GM at what you thought was a fair price but then saw them lose market share and become overly dependent on trucks, then you would have said things have changed at this company and I no longer want to hold it.
That is not to suggest that there are no opportunities, there are more today than ever. However the idea that one can just by stock and wait five years and not update your basic investment assumptions on a regular basis is just wrong....
bk
Setting up a strawman with words such as always, forever, never and knocking it down with such a facile argument is really stupid. Commenters did not get this, their responses fell into various traps.
Well, buy and hold is, at this point in time, an extremely risky strategy if your time frame is 1 or 2 decades. Until something changes, dead is a good descriptor.
One change that is needed is to understand the manipulative and dishonest effect of shorting (legal, illegal) which is almost impossible to factor into buy (and hold) decisions, at least for ordinary investors. Duplicative effects cause AND exacerbate price declines and increases in float that is not reported/understood. Here is a website that explains this in more detail.
www.stopshortingstocks.../
I believe Bruce is referring to the DTCC. More folks should understand what is going on behind their backs.
Wall Street should have tried to honest for once - if someone has a 25 years or more time horizon then history shows that buy and hold will work. Any time frame less than that and you are taking a big risk with a buy and hold strategy.
You all will keep prices down and yields high for dividend investors who are investing for the long term in utilities and great companies like KO, JNJ, PEP, PG and many others who will continue to cut their dividend checks regardless what the rest of the economy's doing.
PG has raised their dividend for something like 57 years now.
PEP has raised theirs for 37 years now.
CLX has raised theirs for 31 years now.
You get the point.
And starting not too long ago, I began rounding out my portfolio till I was never more than a week or two away from my next dividend check. Now I keep doing that while at the same time buying more shares to make my dividend checks ever bigger.
It's raining money in my life, and I'm working on making it rain harder.
Kinda fun. Really.
My financial freedom in a few years is inevitable. Is yours?
After I get it raining hard enough I'll still be doing quite well EVEN IF I have the rotten luck to have many of my companies cut their dividend in half.
Why do so many people have such a hard time grasping such a simple concept?
This $9 an hour cook is rapidly improving his life with dividends. When you make it rain money year round, a lot of the people who want to tell everyone how stupid it is, well....sound stupid.