is this strategy dead? with days like today I find it very hard to know where my ira/401k are and not taking advantage of moves or dodging bullets.
A lot of smart people are saying it’s dead. If you look at the numbers, it has been dead during the last decade.
buying great companies at reasonable prices is not dead. that is what investments are predicated on. buying a bunch of random crap and holding is something else. there is a huge difference.
I would def say this is not dead…it is that most people do not have the patience to execute.
former trader Wrote: ------------------------------------------------------- > A lot of smart people are saying it’s dead. > > If you look at the numbers, it has been dead > during the last decade. Also think it depends on what you buy…
Buy and hold the index can still make sense if: 1) Your investment horizon is very long (i.e. you are young or your institution is an endowment) 2) The long term prospects of the economy are good (i.e. we expect to se advances from innovation, productivity, economic growth, and not substantial disruptions from war, environmental damage, etc.). Why? Two reasons. One is that when the (global) economy expands long-term, it means that we are net-creating things that add value to people’s lives. Someone is getting paid for that value, and so it will show up in the profits of the companies that are doing that. If we don’t know which company or sector is going to be doing this, then holding the broad index is the way to maximize our chances of benefiting from these technology, process, and productivity improvements. So it maximizes the reward/risk benefit (assuming that you have no skill in picking companies/sectors or timing market movements). The reason you need a long time horizon is that some economic growth can be fueled by overborrowing from the future or temporary imbalances in investing. Therefore, over shorter periods of time, buy-and-hold doesn’t necessarily give desirable results. So the tech bubble had lots of misallocated capital, and we never truly got our economic balance back after that. The collapse of the tech bubble + Sept 11 made Greenspan decide to keep cutting interest rates to stimulate spending. This resulted in borrowing from the future, and now we have to reduce what is essentially the economy’s “retained earnings” to pay back those malinvestments. That means we lose through low growth, higher taxes, and/or inflation (or some combination of the three). So buy-and-hold looks like a bad strategy for a short horizon (like 5 years or less, and possibly not for 10 years even). However, for a retirement investment for someone in their 20s or early 30s, it might not be bad, provided you are globally diversified and rebalance.
I work for a buy and hold firm. The 10 year annualized NET return of our core strategies ranges from 10%-13% - through the “Lost Decade.” Many similar firms have outperformed us. Buy and hold is not dead. Buying and holding crap is dead, however. If you woke up yesterday and said, “Today, several blue chips will decline for no apparent reason due to a scam or trading error,” then maybe you should trade actively trade the market. Yesterday’s events reinforced my long held belief that I cannot anticipate short term macro or market events.
sounds like the general consensus is buy-and-hold works for a strong long-term focused base portfolio. you just have to deal with your stomach being in your throat on days like yesterday.
mar350 Wrote: ------------------------------------------------------- > sounds like the general consensus is buy-and-hold > works for a strong long-term focused base > portfolio. you just have to deal with your stomach > being in your throat on days like yesterday. If you’re truly long-term focused, then your stomach shouldn’t be in your throat on days like yesterday. You should be happy for corrections that give you a chance to buy cheap. Remember, you can’t see the trend trading on 5-min charts. Daily moves, even extreme ones are of little importance to true long-term investors.
AnotherLurker Wrote: ------------------------------------------------------- > If you’re truly long-term focused, then your > stomach shouldn’t be in your throat on days like > yesterday. You should be happy for corrections > that give you a chance to buy cheap. > > Remember, you can’t see the trend trading on 5-min > charts. Daily moves, even extreme ones are of > little importance to true long-term investors. +1 million At the risk of being too forward - if you can’t tolerate significant short-term fluctuations in the value of your holdings, you have no business being in the market. Secondly, your 401k/ira is a very long-term investment - you speak of it like it’s a day trading account. Finally, investing is not an emotional activity. It is most intelligent when its most business-like.
I always found Buffett’s parable on home ownership to be extremely helpful in framing the market. condensed version: You own a home and let’s say that hypothetically you get a quote on it daily. Would you flip out if someone said your home lost 10% in value one day. Would it affect your judgment on it’s ultimate value (probably not). You may if have no idea what its worth and are merely a speculator. But I am assuming that we are referring strictly to investment operations. It has absolutely no bearing on the true value of your home.
Collectively, buy and hold is the only option, so how can it be dead? There is a buyer for every seller, and ultimately someone owns every share out there at all times. All these pundits saying buy and hold doesn’t work are morons. Who do they expect the public to sell their stocks to, aliens?
I don’t think buy and hold will ever be dead, although from time to time pundits will deem it so. Determining which stocks to buy and hold is the question, not the philosophy itself!
ValueAddict Wrote: ------------------------------------------------------- > AnotherLurker Wrote: > -------------------------------------------------- > ----- > > > If you’re truly long-term focused, then your > > stomach shouldn’t be in your throat on days > like > > yesterday. You should be happy for corrections > > that give you a chance to buy cheap. > > > > Remember, you can’t see the trend trading on > 5-min > > charts. Daily moves, even extreme ones are of > > little importance to true long-term investors. > > +1 million > > At the risk of being too forward - if you can’t > tolerate significant short-term fluctuations in > the value of your holdings, you have no business > being in the market. > > Secondly, your 401k/ira is a very long-term > investment - you speak of it like it’s a day > trading account. > > Finally, investing is not an emotional activity. > It is most intelligent when its most > business-like. I don’t day trade my 401k or roth. It was very hard to watch the indexes go into a free-fall on thursday and not feel anything. My question was more related to the liquidity we should be providing ourselves in this environment where banks, governments and countries are at risk of default and the reminders of systemic risk are constant. Where ‘buy and hold’ is a long term strategy, it has been said that in the LT we’re all dead. I feel that way holding a stock/index that’s in a free-fall, especially when its a blue chip/major index.
FrankArabia Wrote: ------------------------------------------------------- > buying great companies at reasonable prices is not > dead. that is what investments are predicated on. > > > buying a bunch of random crap and holding is > something else. > > there is a huge difference. +1 million FrankArabia clearly has a lot of the same views/investing habits I do. Almost every reply of his to a thread articulates what I was thinking.
perhaps we’re brothers from a different father…
former trader Wrote: ------------------------------------------------------- > A lot of smart people are saying it’s dead. > > If you look at the numbers, it has been dead > during the last decade. that depends on what you were holding. for the value investors, value investing isn’t dead. here are notes from the most recent value investors congress, http://inoculatedinvestor.blogspot.com/2010/05/2010-value-investing-congress-notes.html