Buy and Hold strategy passe?

[Scanner]

http://finance.yahoo.com/tech-ticker/article/358304/The-Days-Of-'Buy-and-Hold'-Are-Over-says-John-Mauldin?tickers=%5Edji,%5Egspc,di,SPY,xhb&sec=topS tories&pos=8&asset=76e2bef9c180ea7bfaeb3cf8bf12030 c&ccode=rd

Related to other discussions here. . .

[KTP]

I don't know, buying and holding the right mix of things still seems like a viable strategy to me. I really wonder if all of these people consider dividends also?

Buy and hold potential winners:

Walmart
Mcdonalds
Apple
P&G
Altria
J&J
(insert random oil company here)
...

I could make a huge list of good solid companies paying 4%, 5% or more in dividends. If they all go bankrupt at once it will not matter one bit if you have all of your cash in them or under your matress, because only guns and canned food will matter then.

[disneysteve]

I'm old enough to have seen this cycle play out more than once.

Stocks are rising. Times are good. Everybody is recommending stocks, from your broker to your janitor. Buy, buy, buy.

Stocks are falling. Times are not so good. Everybody is giving up on stocks. Sell, sell, sell.

Then the pattern repeats.

Buy and hold isn't dead. The fundamentals of the economy haven't changed. Over time, stocks will outperform other asset classes. Folks with a long time horizon still need to be in stocks to meet their investment goals. Diversification remains important. Asset allocation remains important.

People who think they have a good risk tolerance discover during bad times that their tolerance wasn't so high after all and change their tune.

[Broken Arrow]

The headline is sensationalistic and the article offers no details as to how the days of buy-and-hold are over. Therefore, to me, it's just another piece of Yahoo fluff that shouldn't be worth your time reading.

To elaborate, Maulding "admits the average investor doesn't "have as many good choices" as in the past." I agree. The current market condition isn't exactly the most friendly it's ever been to anyone, including institutional money.

However, I disagree with the conclusion that, therefore, average investors should abandon buying and holding. First and foremost, doing so would mean abandoning a good, working, scripted passive strategy on growing your money long term. In the video, Maulding himself has said that he is supremely optimistic of the long term prospects of the stock market. If so, and if you are buying-and-holding long term... then you should do quite well if he is right.

So, what he is implying more of is the fact that the short term market risks a double dip recession. That's possible, but that's something that applies more to traders, not average investors.

Also, we've already discussed how active fund managers do not always out-perform the market as expected, especially in a bear market.

In my trading account, I've already pared back my holdings, and the rest are highly defensive. However, for my passive investments, Mr. Maulding's thoughts are appreciated, but has offered absolutely nothing to change my mind about the strategy of buying-and-holding.

[Snodog]

Agree with the above posts. Financial porn is all it is. Ignore it and stick to your plan.

[Scanner]

Yeah, I sorta agree with him and sorta don't. Actually, if you ante up now (or preferably 1 year ago). . .buying and holding may not be a bad idea, if you are 10+ years out.

Where I think it has been bad is where it became "non-contrarian" - in the early/mid 90's where "buy and hold" was the mantra of the day. I don't think that has proven to be an exceptional strategy the last 15 years, esp. now if you need your money locked down in bonds/cash because you are near retirement.

I mean, think about it. . .what if you were 60 y.o. and had 40% of your money in stocks in 2006? And even that other 60% in bonds took a small hit. Now. . .you have to start assessing downside risk of even being 20-30% in stocks as you start to near 65 y.o.

I realize though this goes against the mainstream advice given out here to newbie investors - put 10% of your takehome in stocks/bonds/mutual funds and forget about it.

(or rebalance every so often but mostly forget about it)

Not trying to change anyone's strategy - if DS, BA and/or KTP want to continue to b&h, that's fine. I lean more towards agreeing with him than disagreeing with him. I don't think that means you have to necessarily day trade. . .but I don't like the idea of "buying and forgeddabout it".

[Scanner]

PS: I disagree with the topic being sensationalistic. In fact, I think the topic may actually be a very "meaty" discussion. . .after all, this summarizes one's investment approach.

The headline may have been sensationalistic though but that's internet journalism (or any journalism for that matter).

[Broken Arrow]

I don't think that means you have to necessarily day trade. . .but I don't like the idea of "buying and forgeddabout it".

I agree.

To be clear though, that's not the same as "buying and holding". Even passive investors should know what it is they are putting their hard-earned money into.

As you have cited, there are times when even these target retirement fund's asset allocation can become skewed with too much risk exposure, and some prospective retirees have taken on too much loss as a result.

However, that doesn't mean the strategy of buying-and-holding is over or passe. Rather, it means that companies who have devised these retirement funds have set an inappropriate asset allocation. They made a grave error and ultimately failed us. And hopefully, they have it fixed by now.

But again, "buying and holding" is not the same thing as "buying and forgeddabout it". Those who have caught that and have adjusted their asset allocations to reflect their true risk tolerance should have experienced a limited impact through the winter of 2008.

[Scanner]

Yeah, BA. . .I don't mean to be argumentative (but I will be, huh, lol). . .I suppose you could place the blame on the specific asset allocation recommended to the public the last 20 years -

100 - age = % stocks/equities

vs. the buy and hold approach/philosophy.

Whether the target funds followed the 100 - age approach when allocating for their Targets. . .I"m not sure really (don't have a target fund other than for college)

That being said. . .I think that's kind of a misdirect. Yeah. . .if a person who was 60 y.o. had been 90% bonds instead of 60% bonds, would have he/she done better? Yeah, a little.

Enough to not delay retirement?

I"m not sure. I don't think so. Frankly, they would have had to been very much in cash. I think you are copping out a little when you are basically saying that "buying and holding" is not the same as "asset allocation choice." Yeah. . .it's not. . .but they are joined at the hip.

I mean, c'mon. . .if you are going to "buy and hold", what do you think is the proper asset allocation for a 50 year old?

Are we going with 70 - age now? Or now the correction of a lifetime has happened are we going with 120 - age? I'm not picking on you BA so don't feel singled out. . .I think your reply is representative of the rest of the forum and if I was sitting across the mahogany desk of a financial advisor with me with crossed arms who had me deployed at 100 - age asset allocation.

"Oh, Scanner. . .it's not the buy and hold philosophy. . .I just had your asset allocation all wrong. Oops. Sorry about that retirement. . .looks like you are going to have to pop spines 5 more years. . .don't worry. . .the market will come back. It always does."

[Broken Arrow]

100 - age = % stocks/equities

vs. the buy and hold approach/philosophy.

I don't see anything wrong with this, and why is it versus? You can just buy and hold, and then re-balance every year or so.

I think you are copping out a little when you are basically saying that "buying and holding" is not the same as "asset allocation choice." Yeah. . .it's not. . .but they are joined at the hip.

Huh? I see no cop out here.

Asset allocation and "buying and holding" are indeed separate issues. And for that matter, I was referring to institutions dropping the ball on target retirement funds. Had they set it correctly and left it alone, individual investors could have easily continued to buy and hold that fund.

I mean, c'mon. . .if you are going to "buy and hold", what do you think is the proper asset allocation for a 50 year old?

The simple answer is 50% stocks and 50% bonds. Feel free to slice and dice or find a quality fund with that basic pre-allocation.

Are we going with 70 - age now? Or now the correction of the lifetime has happened are we going with 120 - age?

Come on. I've never said any of this.

[disneysteve]

Originally Posted by Scanner

Not trying to change anyone's strategy - if DS, BA and/or KTP want to continue to b&h, that's fine.

I don't like the idea of "buying and forgeddabout it".

I just want to be clear on this.

Buy and Hold does not mean Buy and Forget About.

You still need to monitor your holdings whether they be stocks, bonds, real estate, gold, pork bellies or frozen orange juice futures. You still need to rebalance periodically to stay in line with your chosen asset allocation. You still need to be mindful that a stock or fund that was a good choice when you invested may no longer fit your purposes at some later date.

I think a lot of people misunderstand all of that when they hear "buy and hold". Not suggesting you don't understand, Scanner, but others may not.

[m3racer]

Originally Posted by disneysteve

The fundamentals of the economy haven't changed.

I'd say that's on shaky grounds. The current white house is working very hard to change the fundamentals of our economy.

[Inkstain82]

When people talk about the historical returns of stocks, they generally mean United States stocks, and that history goes through an run of prosperity unprecedented in world history.

I suspect stocks in the next 100 years will not look at all like stocks in the last 100, though they are still a good investment.

[KTP]

I can one up you. I predict that the stocks 200 years from now will look very different than the stocks 100 years from now.

I can't say how the stocks 300 years from now will look though, that would be crazy to try and predict that.

[StockTrader6080]

Originally Posted by disneysteve

I just want to be clear on this.

Buy and Hold does not mean Buy and Forget About.

You still need to monitor your holdings whether they be stocks, bonds, real estate, gold, pork bellies or frozen orange juice futures. You still need to rebalance periodically to stay in line with your chosen asset allocation. You still need to be mindful that a stock or fund that was a good choice when you invested may no longer fit your purposes at some later date.

I think a lot of people misunderstand all of that when they hear "buy and hold". Not suggesting you don't understand, Scanner, but others may not.

Mutual funds (buy and hold) strategy has been proven to not work, especially with them dropped 40% to 60% last year.

I run cooltrade robotic trading software and simply takes 10% profit anytime a position goes up or down 10%.

Buy and Hold and hanging on and hoping a stock will rise, when all they are doing is going up and down, is completely illogical. Look at QCOM, it has gone up and down for the last 10 years (between $35 and $55). You could have traded that stock 100's of times. Hard to do manually, but a no-brainer with robotic trading software.

Keith

[disneysteve]

Originally Posted by StockTrader6080

Mutual funds (buy and hold) strategy has been proven to not work, especially with them dropped 40% to 60% last year.

What proof would that be exactly?

Just because many funds (not all, mind you) saw big drops in 2008 doesn't mean investing in mutual funds is a failed strategy. Many of those very same funds are up 30% or 40% or more in 2009. My best fund is up just over 70% YTD and over 116% for the year as of 11/6! If that is a failed strategy, I'm quite happy to be a failure.

[snafu]

Most people buy when everyone else is buying and the price has been driven too high. Likewise, they sell when everyone else is selling which is when you should be buying if you have researched and believe in the company and it's management.

Most Mutual Fund managers don't out perform the index in their own market. Yes, there are bubbles like the current gold market but you need to be nimble and get out when conditions change.

Buying the Bond market via mutual funds makes sense to me because I need all those other investors to participate in those really good firms. I can't keep up-to-date on international stock market[s] or political shenanigans so using a mutual fund whose managers are there - on the ground, keeps me mostly on the plus side.

I don't have enough money to buy enough shares with enough diversification to make a serious profit. Sometimes I'd like to write to the manager of my least favorite fund and ask ...'hey guy...what were you thinking!'

Lastly, just because an investor is 60 y/o doesn't mean they need to drop equities, they may need to rebalance or choose less volatile stocks but they do not cash out just because they reach some arbitrary age.

[saving peter]

I agree that 'Buy and Hold' is the way to go with the stock markets. The Stock Market definitey rewards patience, if you get your stock picks right and can bide your time. And, of course, that means no panic selling, and no Herd Mentality.