Wednesday, April 29, 2009

Buy, Sell, or Hold?

WSJ article today talks about the growing number of investors and investment advisers who have abandoned the "buy and hold" approach.  That's become a very common media theme, particularly among the geniuses on CNBC:  "you've got to trade markets like these.  Buy and Hold has been a disaster for everyone over the past ten years."  Last night I received a cold call from a broker in New York.  He wanted to tell me about his firm's (J.T. Marlin?) successful trading ideas.  He started with the assumption that I knew trading was the only path to success in the current market environment.

Trading your way to profits is largely a myth.  I've been around many professional traders for decades, and I know that it's a very difficult way to make money.   Most people are unsuccessful. I can't do it on a consistent basis, and I'll bet that you can't either.

Sure, buy and hold hasn't worked.  Not in the last ten years, not in the last year.  But that's because if you bought ten years ago you bought near the peak.  If you bought one year ago, you bought near a peak.  Now I'm not smart enough to call tops or bottoms, but I can measure big declines.  If you had bought in March 2003, after the S&P 500 had fallen by nearly half from its 2000 high, you would have almost doubled your investment over the next four years.  And many high quality stocks like ABB, CAT, DD, and BA were up three to six times off the bottom.  

If and when the market sustains a significant advance, I won't be advocating buy and hold.  I'll be taking profits, trimming positions, writing calls, and hoping to move money into munis at more attractive levels.  But after the substantial market decline which brought us to present levels, I'm quite content to buy quality individual stocks and hold with the expectation of significant appreciation.  The fact that many other market participants have abandoned buy and hold only makes me more confident that my strategy is correct.

No comments:

Post a Comment