Shiv Kapoor

Fractured Wall Street Fairy Tales #1: Buy and Hold is the Best Strategy

Joseph - I think you misunderstand buy and hold as a concept; a chart can never illustrate the success of a buy and hold investor, because the value of a stock at any point in time is irrelevant to his thinking - you see their return they earn comes substantially by way of dividends.
Buy and hold investors will not normally buy at any old value with a view to holding forever. They are typically investors who buy deep value and then hold forever. The most successful have an attitude which attributes no value to the future value of the share - i.e. even if the share value goes down substantially it does not matter, so long as the share continues to payout an income.
One such investor known to me has a simple buy policy; he buys when the dividend of a stock together with a 3% annual growth assumption can be had at a value which delivers him a 15% rate of return expected in perpetuity - for example if a stock pays a dividend of $1 and he is very confident it can grow this dividend at a 3% rate over the very long term, then he will buy it when it is selling for $8.58 {Dividend * 103%/[115%-103%]}. On rare occasions he will sell; but only when he has lost confidence in a stocks ability to continue its dividend together with growth at 3% annual. The index is not relevant - for instance at this point in time, he feels the index (SP500) would only represent deep value at 420 levels; because at that level a dividend payout of $24 (his estimate of dividend trough) will give him a return of 15% assuming 3% annual dividend growth. While the market has not got near his levels, several stocks have.
Twenty years on he receives a dividend which yields him 30% of his original cost. And yes, he sits on a huge capital gain; but to him that is meaningless.

Financials Downgraded - Fast Money Recap (8/15/08)

"The problem Goldman ran into is oil, explains Pete Najarian.". Goldman called potential for a spike - up sharply & then back down. It did happen though not with quiet the vigor they forecast. The past few months their conviction lists have been cautious with tight stop losses. I doubt they will be badly burnt on an oil call. Besides, oil should decline a bit further (no more than $98 probably closer to $105) before the shorts cover and cause a rally back to $120/$125 range.