Friday, 7 March 2014

Is buy and hold dead? Jason Zweig shares his unique perspective, concluding that one should look at it differently.

The Wall Street Journal's Jason Zweig shares his unique perspective on buy and hold investing, concluding that one should look at it differently. 

Is buy and hold dead?
I don't think it is right. 
That is exactly what people say right before buy and hold comes back to life.  
Nobody says that when the Dow was over 14,000 when buy and holding was a dangerous idea.
They only started saying this when the Dow was nearer 8,000. 
But it is cheap now and it is inconceivable that buy and hold is a bad idea at Dow 8,000 than at Dow 14,000.

What about the idea of the market being in a long term bear market that could go on for years, like from 1966 to 1982?
Anytime you buy, it is going to take you years to get back to where you were and people should invest more actively.
We may enter at a protracted period when the returns from the market are below average, that doesn't mean that more active trading in and out of stocks are going to increase your returns. 
Though the trading costs are lower now than before, the costs are still real. 
If you can buy and hold through a protracted period of low returns, the flip side to this is, you are buying at lower market valuation than before. 
People who bought and held from 1966 to 1982, or from 1929 to 1940s and 1950s, did quite well.
It was the people who only held who suffered. 
If you are going to retire, you had a big problem. 
But if you are younger, buying and holding is a spectacular idea.

But when people said to buy and hold, they do not mean, buy once and then do not put another dime in, and wait for it to go up. 
They mean buying steadily, not trying to decide  where you think the bottom has bottomed, but keep buying at lower prices regularly.
Maybe we should not talk about investing. Instead use the term savings. 
If you think of putting money into the financial market in the form of savings, you don't expect to get your returns right away.  
You expect to get it over time and certainly that tricks people up. 
Certainly, the returns had been terrible recently and if it is going to pay off, you must give it time.

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