Buy and Hold Is Dead

Oil up $11 in a single day. Bear Sterns (BSC) goes down 75% in 2 weeks, corn explodes on weather. Everything in the markets now happens in "Internet Time." This simply means that news that took days or weeks to get out to the masses and be reflected in asset prices (it doesn't matter whether it is stocks, corn, oil, mortgages, currency, steel, shipping rates, etc.) now gets passed around the globe via the news wires, the media and the Internet in an instant.

There are so many people sitting in front of a computer screen with so much money that price moves that used to take weeks now happen in hours or days. Despite the major market averages being down roughly 10% so far in 2008, there are still about 100 stocks up more than 100% (15 names are up more than 200%). Most of these are energy related.

The days of buying and holding a particular stock or asset class are pretty much over. The top performing mutual fund last year was Ken Heebner's CGM Focus Fund. His turnover? 384%!! Do you care if you made 80% on your money?

The top performing theme changes every year. Internet stocks, housing, financials, exchanges, solar, agriculture, steel, China, Brazil, commodities...it goes on and on. To stay a top performer you must be a trader (at least every year) and move at least part of your money into a new theme.

The world is changing so fast that buying and holding anything for 3-5 years seems downright crazy.

There is no place for stubbornness in investing anymore. To make big money we must stay flexible, be open minded and be willing to change our mind (just think...steel stocks stunk for 20 years and now are top performers).

Be happy...the more things change, the faster the moves and the more opportunity there is to profit from them. Avoid index funds like the plague (now flat for 9 years) and focus on change and big themes. There is a fortune to made made every year...if you look for it.

Comments

[fxtrader07:]

'To make big money we must stay flexible, be open minded and be willing to change our mind...'

That's certainly true - but why does that mean to flip stocks every month? Why should that mean the #end of buy-and-hold'?
Au contraire! It means exactly the oposite. In a time where people rush in and out of stocks like never before, the patient, smart ibnvestor wins even bigger versus the lemmings. It 'only' means to stomach even more noise and take another step backwards from the crowd's frenzy. It means holding a good portion of cash and then buying the screaming values when people dump them to chase the next hot investment topic.
Ken Heebner achieved truly great results - but he is one of the very very few people who make big profits with high turnover consistently. 99.9% of the people who trade in and out simply throw their money out the window where it will end up in the balance sheets of brokers and of the govt (via capital gains taxes).
I guess, five years from now the author will look at this article in disbelieve that he ever could write somethinmg that, uhm, short-sighted.

2008 Jun 23 05:38 AM

[Alphameister:]

There has never before been so little "friction" involved in trading. When I can make trades of any size in a tax-sheltered retirement account, for a brokerage commission of less than $10, my goal is to identify early the emergence of a new theme and then sell to the lemmings as they clamber aboard (the sooner,the better). It is still possible to be a good long-term investor, but life has never been sweeter for the nimble traders of this world.

2008 Jun 23 09:25 AM

[User 213125:]

mr farley's example of steel stocks would seem to be the ultimate 'buy-and-hold' arguement.

2008 Jun 23 09:31 AM

[alwaysright:]

Since 1980, at least, I have been hearing and reading that "buy and hold is dead". I have bought and held Berkshire Hathaway and Cedar Fair, among others, since 1980.

That is not to say that one should not be alert to changes in company basics or to political foolishness.

2008 Jun 23 10:13 AM

[bishk1301:]

These "revelations" are shared by millions of other gamblers who think they are smarter than the rest and stay poor forever. I wish someone hammered me on the head 15 years ago as I was telling the same b.s. with just 2 years experience of a bull market.

2008 Jun 23 10:39 AM

[kurt walter:]

Not true. .. it depends on what you buy and hold. .. blanket statements are dangerous.

2008 Jun 23 04:02 PM