Buy & Hold

[winston]

SECULAR BEARS TEND TO BE LONG EVENTS….
16 August 2010 by TPC

Are you betting on the return of the buy and hold strategy? You might want to think again.

The last three secular bear markets lasted an average of 17 tears….

Source: UBS

http://pragcap.com/secular-bears-tend-to-be-long-events

[winston]

Make 10 Times Your Money without Taking Big Risks By Dan Ferris
Friday, August 20, 2010

Investing is like tennis. It's a loser's game.

Think of the difference between professional and amateur tennis players. Professionals win points. Amateurs lose them. When weekend warriors play tennis, the losers determine who wins. They hit the ball into the net. They whack it out of bounds.

And they routinely double-fault on their serves. That doesn't happen nearly as much in pro tennis, with its long rallies and pinpoint shots.

Most investors are like amateur tennis players. They lose money in stocks because of their own behavior. There's no opponent outplaying them. They beat themselves.

DALBAR, a Boston-based research firm, compared the returns from market index funds with returns real investors earned in equity mutual funds…

From 1989 to 2009, market index funds returned 8.3% per year. If you compound $10,000 at that rate for 20 years, you'll wind up with just under $50,000 – five times your money. For buying an index fund and doing nothing else, that's a great return.

No research necessary. No thinking required. Just buy and wait. It couldn't be easier, and you get five times your money, pretax.

The only problem with that 20-year, five-times-your-money return is that almost nobody earned it.

Real, flesh-and-blood investors investing their own real, hard-earned money made significantly less than 8.3% per year over that time. On average, individual investors in U.S. equity funds earned just 3.3% per year. At that rate, $10,000 grew to just $19,150 in 20 years. They didn't even double their money – in 20 years! Most investors just can't hit the ball back over the net.

Most real investors investing their own real money perform even worse relative to the overall market in bull markets. During the great bull market to end all bull markets from 1984 to 2000, DALBAR found equity mutual fund investors made 2.57% per year, with market index funds compounding at 12.22% per year.

The age of the daytrader treated investors worse than most periods. Investors ran around the court faster than ever, swinging like mad, only to hit more balls out of bounds and into the net than ever, turning a $10,000 investment into just $15,000 during the biggest bull market in history. Had they simply failed to lose, they'd have turned $10,000 into just over $100,000.

Investors could have made 10 times their money in 16 years by refusing to overmanage their own money – by letting stocks do the work for them.

A large dose of humility would help most investors make more money in stocks. For starters, most investors just shouldn't buy individual stocks. They should buy index funds and plan to hold for decades. Almost everyone else should build a diversified portfolio of only the highest-quality names and plan to hold them for at least 10 years.

If you can't hold on for a long time, be prepared to take losses.

In my Extreme Value newsletter, I have a list of the world's best companies that are currently trading at absurdly cheap prices. I've mentioned a few here before: Microsoft (MSFT) and ExxonMobil (XOM) are two of my favorites.

These and stocks like them are an excellent start on a diversified portfolio that could earn you 10 times your money – remember, that's 12.22% per year for 16 years. Most stocks like this will compound your money at single-digit rates. But one or two could produce enormous returns.

You don't need to take on big risks to earn that kind of return. All you need to do is wait. To master the loser's game, you must be patient. You must master time itself.


Source: Daily Wealth

[millionairemind]

These kind of articles are very misleading, to say the least.

Y take 1989 to 2009?? How about 2000-2010??? You are still underwater by more than 25% if you bought at the peak in 2000 and held till now... how about March 2009?? Lost more than 50% after holding for more than 9years!

Go back to the early to mid 70s, the PE ratio was in the mid SINGLE digits! yes, you heard me right!

It is because of the liberation of the 401K plan in the US since the 1980s as well as globalization that started this BULL MKT with its PE expansion!!! I hope these investment letter writers do a bit more of their homework before writing this kind of crap letters.

The last bull mkt from 1982-2000 will probably be the only one of its kind. Y? The baby boomers are all retiring... with massive unemployment among the 19-30year olds and current baby boomers withdrawing money to fund their retirement, whats going to drive the mkt higher than the previous peak of DOW 14,000????

We are in for a VERY LONG SLOG ahead. Not to say that we can't have cyclical bull markets within a greater secular bear mkt like we are in now.

[kennynah]

dua towkay MM...
Very good writeup!! Certainly with u on your take on this subject matter

Maybe, in this forum, we shd properly rename this thread to reflect the more educated approach to this investment strategy...

Perhaps we shd call it

Buy and Hold Smartly

Open to everyone's ideas here

[millionairemind]

Thanks K

Just venting my frustrations cos' I used to believe in all these crap back when I started.. and hence lost a bundle during the bursting of the dot.com bubble. I hope by writing these tots down I can help younger investors avoid my painful losses.

How about "BUY AND HOMEWORK"?

[lithium]

Or BUY and HOLD to HELL

[winston]

I was with a group of people who were all big fans of "Buy & Hold". I then found out that they were fans because their Chairman was a big fan of Warren Buffett..... you know... "Monkey See, Monkey Do" ...

They feel that as long as they invest like Warren Buffett, it does not matter their investment is down 50% because they are confident that it would always come back. They even asked me to look at how the market rebounded sharply from the bottom of 2009 ...

After a few minutes of discussion with them, I suddenly recall one of Deepak Chopra's Rule: " I will relinquish the need to defend my point of view. I will feel no need to convince or persuade others to accept my point of view. I will remain open to all points of view and not be rigidly attached to any one of them."

I then left the discussion as that but not before I politely asked them, to also read the books on George Soros eg. "Buy First, Investigate Later".

When the market next crash, I know that they will go back to read their books on Warren Buffett, to see what they have missed. I did ..

[kennynah]

next suggestion...

Mysteries of Buy and Hold

[Musicwhiz]

It's always been "Buy and Homework" to be honest. I'm not sure who first came up with "Buy and Hold", but it's extremely misleading. I monitor the status of my companies every now and then, pretty closely. It's not an easy task.

[kennynah]

exactly.... this forum should not be misunderstood as a proponent of "buy and hold" and thus the suggestion to rename this thread...but W will make that call...