Showing posts with label buy and hold. Show all posts
Showing posts with label buy and hold. Show all posts

Wednesday 15 July 2020

Buy and Hold Works….Until It Doesn’t


by KenFaulkenberry | Portfolio Management

Buy and Hold
Buy and Hold is considered by many to be the holy grail of investing. Its current popularity has become a cult-like strategy that draws criticism to its critics and disdain towards those who dare speak out against the beloved investing strategy.

I’m going to explain why a buy and hold strategy is useful for some investors and a good strategy at certain periods of time. We’re also going to explore why buy and hold is not the best strategy for many investors, and is a poor strategy for everyone at certain periods of time.

Buy and Hold Strategy Definition
Investopedia provides the following definition:

“Buy and hold is a passive investment strategy in which an investor buys stocks and holds them for a long period of time, regardless of fluctuations in the market.”

There are many different ideas of what buy and hold means, but I like this definition because it’s fairly simple. The only wiggle room in the definition is: What is “a long period of time”?

Some investors might consider one year a long period of time. I believe we are living in an era where investors have “short-term-itis”. Many more people would consider 3-5 years a long period of time. This may be because in relationship to 1 year it is long.

However, for our discussion I’m stipulating that a long period of time is 10 years or more. Anything less than that it’s difficult to use reasoning or logic that includes probabilities. The shorter the time period the more randomness and fluctuations affect returns. If your not thinking longer than 10 years, you are not really thinking “long term”.

Advantages of Buy and Hold Investing
Easy to implement. The ultimate in passive investing: buy and hold. Simple as can be?

Saves on taxes. Long term capital gains and dividends are taxed lower than short term capital gains.

Efficient. Saves on commissions, transaction fees, etc.

No Need For Market Analysis. Market timing is avoided, volatility is ignored.

Investment Vehicles Add to Simplicity. Low-cost index and ETF funds are perfect investment vehicles for buy and hold investing.

Disadvantages of Buy and Hold Investing
Premium Prices. Most of the stocks worthy of buying and holding are priced at a premium. (Buying high) If you’re going to buy a stock to hold for more than 10 years, it better be a premium company!

Investor Panic. Many investors who claim to be buy and hold investors change their mind after large losses, leading to large drawdowns. (Selling low)

Volatility is ignored. Volatility is not always a bad word. Many successful value investors look at volatility as opportunities to buy bargains and sell trendy overpriced investments.

Ignoring Market Analysis. Market analysis can determine periods of time where it is problematic to be heavily invested or opportunistic to be aggressive.


“The underlying theory of buy and hold investing denies that stocks are ever expensive, or inexpensive for that matter, investors are encouraged to always buy stocks, no matter what the value characteristics of the stock market happen to be at the time.”
Ken Solow (Buy and Hold is Still Dead)

Find the Best Strategy For YOU
If you are the type of person who has little interest in learning how to invest, buy and hold may be the right strategy for you. The problem is you may not have much interest in your investments until they have major declines in value.

A buy and hold strategy requires equal attention to the “hold” part. You can’t sell after you have a 50% decline and be a true buy and hold investor.

In the long run a true buy and hold passive investor will most likely achieve average rates of return. If you systematically invest over your lifetime you will make purchases at bargain prices and at expensive prices. It may all equal out.

A buy and hold strategy does well in bull markets when stocks are consistently rising. But the reality of the stock market is that stocks go through long periods where values decline or stay flat. Sometimes these periods last a couple of decades. Usually these periods are preceded by periods when stocks become very expensive and overvalued when compared to their historical relationships to earning, cash flow, book value, etc.

For an investor willing to make the effort it makes no sense to take the same approach to buying stocks when they are bargains versus when they are expensive. An investment has more upside and less risk when its price is low. That same investment has less upside and greater downside risk when the price is expensive.

“In almost every walk of life, people buy more at lower prices; in the stock market they seem to buy more at higher prices.”
James Grant

This kind of behavior makes no sense. Therefore, buy and hold passive investing works when prices are bargains or even fairly valued. At any other time, your probability of success is greatly reduced.

So buy and hold works….until it doesn’t. People will quote all kinds of statistics “proving” that buy and hold works. Its the trend of our day. This is nothing new. Bull markets make buy and hold look good. Bear markets make buy and hold look bad.

Consider where you think we are in the valuation cycle before you make your buy and hold investing strategy decision!



https://www.arborinvestmentplanner.com/buy-and-hold-strategy-definition-advantages-disadvantages/

Tuesday 28 April 2020

Buy and Hold? Really? Depends on your AGE and NEEDS

How should you choose between stocks and bonds?

Financial advisors are risk averse.  Their risk aversion may have less to do with your financial situation than their reputations.  Conventional wisdom is that a portfolio that is invested one-third in bonds and two-thirds in stocks is the way to go irrespective of the level of your assets.  The one-third, two-thirds formula is the standard.  It is safe because that is what the herd recommends.

The conventional model of portfolio construction, the one-third bonds two-thirds stocks, requires that you periodically rebalance your holdings.  By this, they mean that if your stocks had a particularly great year and now are 75% or 80% of your portfolio, you should sell some stocks and invest the proceeds in more bonds.  That is like selling your winners and reinvesting in your losers

  • How smart is that?  
  • If you already have enough cash to ride out three down years, why do you need more?


The major brokerage houses issue "asset allocation" formulas depending on their view of the stock market in the near term.  This sounds like market timing.  
However, people are different.  Your financial assets and your needs vary tremendously.  

  • What if you have a lot of dollars and need only a pittance to maintain your lifestyle?  
  • Why would you invest one-third of your money in an under-performing asset?



The two most important considerations in formulating an asset allocation formula are:

  • age.  and
  • how much money you have to support your desired lifestyle.




Jeremy Siegel's book - Stocks for the Long Run

In every rolling 30-year period between 1871 and 1992, stocks as measured by an index, beat bonds or cash in every period.  

In rolling 10-year periods, stocks beat bonds or cash 80% of the time.  

Bonds and cash did not beat the rate of inflation over 50% of the time.  



So why would anyone own a bond?  The answer comes back to age and need.

If you are young (20 years to 35 years) and have a job that pays your bills, you can take a long view on investments.

A lot of what you do in investing is just simple common sense.  Many investors think they should be proactive and keep looking for ways to tweak their investment portfolio when just sitting tight, if they made the correct choices in the first place, often would be the better course.





Examples: 

Asset allocation is based on age and need.

1.  A friend liquidated an asset and wished to invest in the stock market.  However, he will need this money for a project he is working on at end of the year.   He should not invest this money in stock, as his need for the money did not anticipate any setback in the stock market.  If he could not be in for the long term, he should not be in.

2.  In early 1980s, a widow inherited a $4 million account with an investment firm and in addition $30 million of Berkshire Hathaway stock.  She anticipated retiring and needed some income going forward.  She had lived comfortably but modestly, given her wealth.   The reason she was so rich was because all her assets had been well invested in stocks Her accountant replied that she had all her assets in the stock market which was, by definition, risky. He suggested a charitable remainder trust into which she could put the Berkshire stock, sell it without paying any capital gains taxes, and reinvest the proceeds in bonds for current income.   On the other hand, her investment advisor replied even if the stock market dropped 50%, she had enough money to live comfortably until her very old age and asked why she would want to stop enjoying the benefits of future appreciation. She decided to leave everything as it was and received her income needs out of the money she had invested with the investment firm.   A number of years later, she reviewed her plan.  She had $180 million.  Today, she has upward of $300 million.  


Monday 13 April 2020

The Buy and Hold strategy may not always be the best investment strategy.



The Buy and Hold strategy may not always be the best investment strategy.

It is vital in stock investing to constantly check the company's fundamental well being, it's strategic direction, it's ability to manouver market downturn / sector specific challenges and it's growth prospects. Ignorance and negligence will cause damage to your wealth!
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The following are some large cap names in KLSE across various sectors that have had massive value erosion over the past decade.


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Did you invest in any of them? Can they turn around the tide? What about your investments? Have you checked if they can weather the recent crisis? Which other stock has the potential to be on this list?


Reference  Stockbit Malaysia

Website: https://my.stockbit.com
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Twitter: https://twitter.com/StockbitMy






Sunday 17 December 2017

Some stocks will perform better than others and these "stunners" will dominate the investor's portfolio.

You won’t improve results by pulling out the fl owers and watering
the weeds.
— Peter Lynch, ONE UP ONWALL STREET


For an investor who—like Keynes and Buffett—adopts a buy-and-hold policy in respect of stocks, portfolio concentration is something that tends to happen naturally over time. 

Inevitably, some stocks within a portfolio will perform better than others and these “stunners” will come to constitute a large proportion of total value. A policy of portfolio concentration cautions against an instinctive desire to “re-balance” holdings just because an investor’s stock market investments are dominated by a few companies.

Buffett illustrates this point with an analogy. If an investor were to purchase a 20 percent interest in the future earnings of a number of promising basketball players, those who graduate to the NBA would eventually represent the bulk of the investor’s royalty stream. Buffett says that:

To suggest that this investor should sell off portions of his most successful investments simply because they have come to dominate his portfolio is akin to suggesting that the Bulls trade Michael Jordan because he has become so important to the team.

Buffett cautions against selling off one’s “superstars” for the rather perverse reason that they have become too successful. 

The decision to sell or hold a security should be based solely on an assessment of the stock’s expected future yield relative to its current quoted price, rather than any measure of past performance  

Saturday 17 December 2016

Uses of Common Stocks: as storehouse of value, to accumulate capital and as a source of income

Basically, common stocks can be used as:

1.  a "storehouse" of value,
2.  a way to accumulate capital, and,
3.  a source of income.


Storage of value

Storage of value is important to all investors, as nobody like to lose money.

However, some investors are more concerned about losses than are others.

They rank safety of principal as their most important stock selection criterion.

These investors are more quality-conscious and tend to gravitate toward blue chips and other non-speculative shares.


Accumulation of capital

Accumulation of capital, in contrast, is generally an important goal to those with long-term investment horizons.

These investors use the capital gains and/or dividends that stocks provide to build up their wealth.

Some use growth stocks for this purpose, while others do it with income shares, and still others us a little of both.


Source of income

Finally, some investors use stocks as a source of income.

To them, a dependable flow of dividends is essential.

High-yielding, good-quality income shares are usually their preferred investment vehicle.




Individual investors can use various investment strategies to reach their investment goals.

These include:

  1. buy and hold,
  2. current income,
  3. quality long term growth,
  4. aggressive stock management, and 
  5. speculation and short term trading.



The first 3 strategies appeal to investors who consider storage of value important.

Depending on the temperament of the investor and the time he or she has to devote to an investment program, any of these strategies might be used to accumulate capital.

In contrast, the current income strategy is the logical choice for those using stocks as a source of income.

Wednesday 9 March 2016

Making investing enjoyable, understandable and profitable...*



Is it not true, that the really big fortunes from common stocks have been garnered by those who made a substantial commitment in the early years of a company in whose future they had great confidence and who held their original shares unwaveringly while they increased 10-fold or 100-fold or more in value?

The answer is "Yes."  

 :thumbsup:
------------------


BENJAMIN GRAHAM'S 113 WISE WORDS
The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

 :thumbsup:
-----------------
 
PHILIP FISHER'S WISE WORDS
"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

 :thumbsup:
--------------------


Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments. If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?

 :thumbsup:

Monday 1 February 2016

Secrets of Long-Term Investing Revealed

“........... long-term investing isn’t about having a great system, or a superior analytic intellect, or better access to information, or even the best advice money can buy.  Long-term investing is about character, about depth of vision and the cultivation of patience, about who you are and who you’ve made yourself to be”

What is long-term investing? 
Long-term investing is the process of buying and holding investment securities you believe will compound investor wealth indefinitely into the future.

Why You Need to Become a Long-Term Investor

There are 3 good reasons to become a long-term investor:
  1. It reduces fees
  2. It requires less of your time
  3. It is highly effective

Long-term investing is so successful is because of its beneficial psychological ramifications.  

If you invest for the long-term, you will focus on businesses with strong and durable competitive advantages that have a chance of compounding your wealth for decades, not days.


Long-Term Investing Strategy

The strategy long-term investors follow is straight-forward:
  • Identify companies with durable competitive advantages
  • Be sure these companies are in slow changing industries
  • Invest in these companies when trading at fair or better prices

  • Insurance
  • Health care
  • Food and beverage

To find if a company is trading at ‘fair or better prices’, a few metrics are important.
  • If the company is trading below the market price-to-earnings ratio, its peer’s price-to-earnings ratio, and its 10 year historical average price-to-earnings ratio, it is likely undervalued.  
  • These 3 relative price-to-earnings ratios will help to paint a picture of if a stock is ‘in favor’ or ‘out of favor’.  
As a general rule, it’s best to buy great businesses at a discount – when they are out of favor.

Another good metric to look at for determining value is a company’s expected payback period.
  • Payback period is calculated using an expected growth rate and a stock’s current dividend yield.  
  • The higher the dividend yield and expected growth rate, the lower the payback period.  
  • The payback period is the number of years it will take an investment to pay you back.  
  • Obviously, the lower the payback period, the better.

Long-Term Investing Examples

Warren Buffett’s investment history is perhaps the best example of long-term investments.  Three of his longest running investments are below:
  • Wells Fargo (WFC) – 25% of his portfolio – First purchased in 1989
  • Coca-Cola (KO) – 15% of portfolio – First purchased in 1988
  • American Express (AXP) – 11% of portfolio – First purchased in 1964
All of these three investments are 25 years old or older.

The American Express investment is especially impressive.  Warren Buffett has held American Express for over 50 years!


Stocks for Long-Term Investors


  • Find high quality dividend growth stocks suitable for long-term investors.
  • Identify high quality dividend growth stocks trading at fair or better prices.
  • Have a brief list of blue-chip stocks worthy of long-term investors that are currently trading at fair or better prices.
For example:  One for each sector of the economy is shown:



Long-Term Investing Is Difficult

Long-term investing is not easy.
It is psychologically difficult to hold a stock when its price is declining.
Holding through price declines takes real conviction (remember the marriage analogy?).
The nearly infinite liquidity of the stock market combined with the ease of trading makes selling stocks something you can do on a whim.
But just because you can, doesn’t mean you should.
Stock Market
The constant stream of stock ticker price movements also coerces individual investors into trading unnecessarily.

  • Does it really matter that a stock is up 1% today, or down 0.3% this hour?  
  • Have the long-term prospects of the business really changed?  
Probably not.
To compound these problems even further, the financial media promotes rapid action.

  • To garner views and attention, financial pundits have become LOUD.  
  • They are always promoting the next great stock to buy, or which one MUST be sold.


The Cure:  Watch Dividends, Not Stock Prices

Stock prices lie.

  • They signal a business is in steep decline, when it isn’t.  
  • They say a company is worth 3x as much as it was 3 years ago, when the underlying business has only grown 50%.  
  • Stock prices only represent the perception of other investors.  
  • They do not and cannot show the real total returns an investment will generate.
Benjamin Graham Quote
Instead of watching stock price, avoid them completely.

Look at dividend income instead.

  • Dividend do not lie.  
  • A business simply cannot pay rising dividends for any protracted period of time without the underlying business growing as well.
Dividends are much less volatile than stock prices.

  • Dividends reflect the real earnings power of the business.  
  • As a result, it makes sense to track dividend income rather than stock price movement.  
  • After all, don’t you care what your investment pays you more than what people think about your investment?

The Difference Between Buy & Hold and Long-Term Investing

There is a difference between buy and hold (sometimes called buy and pray) investing and long-term investing.

Buy and hold investing typically means buying and holding no matter what.
That’s not what long-term investing is about.
Sometimes, there is a very good reason to sell a stock.  It just happens much less frequently than most people believe.
Two reasons to sell a stock:
  1. If it cuts or eliminates its dividend payments
  2. If it becomes extremely overvalued
The first reason to sell is intuitive.

  • When a stock cuts its dividend, it violates your reason for investing. 
The second reason to sell is in the case of an extreme overvaluation.

  • I’m not talking about when a stock moves from a price-to-earnings ratio of 15 to 25.  
  • I’m talking about when a stock is trading for a ridiculous price-to-earnings ratio; something like 40+.  
  • An important caveat to remember is to always use adjusted earnings for this calculation.  
  • If a cyclical stock’s earnings temporarily fall from $5.00 per share to $1.00 per share, and the price-to-earnings ratio jumps from 15 to 75, don’t sell.  
  • In this instance, the price-to-earnings ratio is artificially inflated because it is not reflecting the true earnings power of the business.  
Selling due to extreme valuations should only occur very rarely, during extreme bouts of irrational market exuberance.


Final Thoughts

Investing for the long run is simple, but not easy.

It is psychologically difficult.

The amazing success records of investors who believe a long-term outlook is critical for favorable investment returns lends credibility to the idea of long-term investing.
The financial media does not typically discuss the merits of long-term investing because it does not generate fees for the financial industry, and it does not lend itself to flashy headlines or catchy sound bites.
Invest in high quality dividend growth stocks for the long-run.

  • High quality dividend growths stocks with strong competitive advantages offer individual investors the best available mix of current income, growth, and stability as compared to other investment strategies and styles.
Long-term investing requires conviction, perseverance, and the ability to do nothing when others are being very active with their portfolios.

Do you have what it takes to invest for the long run?

Read:
http://www.smarteranalyst.com/2015/11/16/secrets-of-long-term-investing-revealed/


Thursday 21 January 2016

Experts reveal their investment tips for volatile times

'Don't panic': Experts reveal their investment tips for volatile times
January 21, 2016 - 9:53AM

China fears! Billions of dollars lost! Unprecedented volatility!

With investment markets in full blown panic mode, two listed investment company stalwarts are advising investors to keep cool heads as they wade through some of the most volatile times on record.

Tom Millner, chief executive of the $900 million BKI Investment Company, urges investors not to see red despite nearly $120 billion wiped off the Australian share market since the start of this year.

Around $120 billion has been wiped off local shares in 2016.

Ross Barker, managing director of the $6.2 billion Australian Foundation Investment Company (AFIC), believes now is a great time for investors to cherry pick where to put their funds.



These are their investment tips for navigating through the volatility in 2016:

1. Don't jump

"It's about buying good, quality companies that have strong businesses through cycles," Ross Barker, managing director of AFIC, said.

As the markets yo-yo with gains and losses throughout the trading day, Mr Barker has this to say to investors: "Don't panic."

Herd or mob mentality often permeates the market when investors dump stock in a state of panic, resulting in the overselling of companies.

Australian shares tumbled to a 2 1/2-year low on Wednesday as investors worry about China's growth prospects and slowing global commodity markets.

China's sharemarkets are as volatile as ever, but AFIC managing director Ross Barker believes the country's growth prospects are still strong.

"People get caught up in the mentality of the moment and they can often sell good things when they shouldn't be selling," Mr Barker said.

"There's concerns about China but we're still confident about the growth prospects of the economy."

2. Take your time

Blue-chip stocks such as BHP and Rio have been two of the biggest market casualites, shedding 40 per cent and 24 per cent respectively since last year.

"Be patient."

That is Mr Millner's response to the panicked selling since the start of this year that has spared few companies on the ASX.

Casualties such as BHP Billiton and Rio Tinto, two of the largest resources stock on the sharemarket, have shed 40 per cent and 24 per cent respectively since last year.

But Mr Millner remains confident major Australian resources companies exposed to commodities such as oil, coal and copper in particular will bounce back as the imbalance between supply and demand is adjusted and the Australian dollar continues its descent.

He believes large resources companies may rebound over the next 12 to 18 months.

"It's just short term noise - so be patient," he said.

3. Buy quality

If a company is temptingly cheap but there's little basis for future growth, don't buy it.

"Stick with quality is my advice," Mr Barker said about picking stocks amid the market downturn.

Healthcare and diversified financial stocks are AFIC's picks thanks to an ageing population, while companies that source their revenue from overseas markets are also attractive.

The LIC has bought stakes in companies such as annuities giant Challenger and Macquarie Group.

"It's about buying good, quality companies that have strong businesses through cycles," he said.

4. Stay for the long haul

"We tend to try and hold a stock for at least 10 years," Mr Millner said.

While the thought of clinging to a company for a decade might not be every retail investor's cup of tea, holding a stock for a few years rather than dumping them at the first sign of trouble could yield strong growth potential.

Investors who bide their time and reap the dividends from blue chip companies or businesses with strong fundamentals will benefit through the volatility.

"We're in this for this for the long haul, and we do like the thematics of healthcare in particular with an ageing population."

BKI has been buying stock in Ramsay Healthcare and Sonic Healthcare as part of their long term investment strategy.

The company returned 10.9 per cent for the year to December, beating the S&P/ASX300 Index's 2.8 per cent over the same period.



Read more: http://www.smh.com.au/business/markets/dont-panic-experts-reveal-their-investment-tips-for-volatile-times-20160120-gm9y62.html#ixzz3xpm6Yn2E

Tuesday 22 December 2015

Warnings for calling your investment long term when they were meant to be short-term

Buffett warns against calling long-term those investments that were meant to be short-term but became long-term because the investors could not achieve the desired results quickly.

Buffett recommends being suspicious of those managers who fail to deliver in the short term and blame it on their long-term focus.


Saturday 17 May 2014

It doesn't make sense to invest scared. Despite the occasional bubble or risky valuations, stocks still go up over the long term.

Recently, the American Association of Individual Investors (AAII) sentiment survey revealed bullish and bearish sentiment fell, but neutral sentiment spiked.

Over the long term, the majority of investors surveyed were dead wrong.

Since 1987, the weekly AAII sentiment survey had the following average reading:

Bullish: 38.8%
Neutral: 30.7%
Bearish: 30.5%.

In that period, the S&P 500 has gone up 498%—a compound average growth rate of 7%, not including dividends—pretty much in line with historical averages.

Think about that for a minute.

Over a quarter of a century, despite some big moves up and down, stocks performed as they historically always have, averaging about 7% gains per year. And while stocks went along their usual course higher, at any given time, the majority of investors were, on average, not bullish.

Nearly two-thirds of investors, in fact, expected the market to go down or remain flat.

How is that possible? Have we become a world of glass-half-empty pessimists?

The news media certainly doesn't help. 


And, of course, the financial media needs to scare you in order to keep you hooked so you know what and when to buy and sell.

It doesn't make sense to invest scared. Despite the occasional bubble or risky valuations, stocks still go up over the long term.

If you're a long-term investor, I hope you won't be part of the majority that is constantly afraid. That's no way to live. And it's no way to make money.




- See more at: http://www.hcplive.com/physicians-money-digest/investing/IU-Why-Are-So-Many-People-Wrong?utm_source=Informz&utm_medium=PMD&utm_campaign=PMD+5%2D14%2D14#sthash.tuiDlsW7.dpuf

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.

https://www.youtube.com/watch?v=Z48xR-TBL-8

Bull Markets in Calendar Days

bull markets data

http://money.cnn.com/2014/03/06/investing/bull-market-five-years/index.html?iid=Lead

Is buy and hold, as an investing strategy, dead?

Study the chart below.  Is buy and hold, as an investing strategy, dead? 
Everytime the stock market crashed, many investors shouted buy and hold is dead.
Yet, the truth is, it is exactly at this time when the market crashes, that buy and hold is alive and most profitable.




NEW YORK (CNNMoney)
The stock market bulls have had the upper hand on the bears for nearly five years, and they may be just getting started.

Sunday marks the fifth anniversary of the day the stock market hit its lowest point during the financial crisis and Great Recession.

The fact that the rally is about to turn five has some investors wondering if stocks can keep going much higher.

But previous bull markets, which are broadly defined as a period where the S&P 500 gains 20% or more without a decline of 20% in between, have gone on longer than the current one.

As of this week, this bull market ranks as the sixth longest since 1928 -- just behind the bull market from 1982 to 1987, according to Bespoke Investment Group.

If the S&P 500 hits a new high any time after March 22, this bull market would become the fifth longest. Assuming it continues to rally through Memorial Day, the current run would be longer than the bull market from 2002 to 2007, when the housing bubble inflated.

But this bull market has a long way to go before it becomes the longest -- that honor goes to the epic rally that began shortly after Black Monday in late 1987 and lasted until the tech crash of 2000.

This bull market also isn't the best in terms of stock market performance either.

As of Tuesday, the S&P 500 had gained 177% since March 2009, making it the fourth strongest bull market, according to Bespoke. The S&P 500 would have to rise another 20% before it will top the bull market gain from 1982 to 1987, when stocks surged nearly 230%. That's unlikely to happen, but it's not out of the realm of possibility.

So can the rally continue for a sixth year?

Of the 11 bull markets that have occurred since World War II, only three have made through a sixth year, according to Sam Stovall, chief equity strategist at S&P Capital.

But Stovall thinks there's a "good chance" the current bull market will defy history and make it to its sixth birthday. That's partly because stock valuations are still reasonable, he says. The S&P 500 is trading at 16 times 2014 earnings estimates. That's not cheap. But it's not overly expensive either.

Assuming the economy continues to grow and corporate earnings increase as expected this year, Stovall believes the bull market can last another year. He's not alone.

A survey of 30 market strategists by CNNMoney in January found that most are expecting the S&P 500 to end at 1,960, up about 6% for the year. While that would be a healthy gain, it's a far cry from 2013's 30% increase.

Jeffrey Kleintop, chief market strategist at LPL Financial, sees no signs the rally will end soon either. "In fact," he said, "the bull market may be getting a second wind."

Kleintop argues that stocks will continue to hit new highs as investors who have been sitting on the sidelines jump back into the market. He thinks more investors will come to realize that returns for stocks are likely to exceed safer assets such as bonds.

Looking further ahead, Kleintop says current market valuations suggest stocks can produce "mid- to high-single-digit gains" over the next ten years. That's not including dividends, which could add another 2%.


Of course, even the bulls concede that stocks could suffer some setbacks.

Kleintop says stocks will be volatile over the next ten years and there could even be another recession and big market pullback along the way. But for now, many experts think the bear is going to remain in hibernation mode for the remainder of this year.  



http://money.cnn.com/2014/03/06/investing/bull-market-five-years/index.html?iid=Lead


Monday 3 March 2014

Benjamin Graham's advice to guide investors in a falling market

If You Think Worst Is Over, Take Benjamin Graham's Advice
By JASON ZWEIG

May 26, 2009

It is sometimes said that to be an intelligent investor, you must be unemotional. That isn't true; instead, you should be inversely emotional.

Even after recent turbulence, the Dow Jones Industrial Average is up roughly 30% since its low in March. It is natural for you to feel happy or relieved about that. But Benjamin Graham believed, instead, that you should train yourself to feel worried about such events.

At this moment, consulting Mr. Graham's wisdom is especially fitting. Sixty years ago, on May 25, 1949, the founder of financial analysis published his book, "The Intelligent Investor," in whose honor this column is named. And today the market seems to be in just the kind of mood that would have worried Mr. Graham: a jittery optimism, an insecure and almost desperate need to believe that the worst is over.

You can't turn off your feelings, of course. But you can, and should, turn them inside out.

Stocks have suddenly become more expensive to accumulate. Since March, according to data from Robert Shiller of Yale, the price/earnings ratio of the S&P 500 index has jumped from 13.1 to 15.5. That's the sharpest, fastest rise in almost a quarter-century. (As Graham suggested, Prof. Shiller uses a 10-year average P/E ratio, adjusted for inflation.)

Over the course of 10 weeks, stocks have moved from the edge of the bargain bin to the full-price rack. So, unless you are retired and living off your investments, you shouldn't be celebrating, you should be worrying.

Mr. Graham worked diligently to resist being swept up in the mood swings of "Mr. Market" -- his metaphor for the collective mind of investors, euphoric when stocks go up and miserable when they go down.

In an autobiographical sketch, Mr. Graham wrote that he "embraced stoicism as a gospel sent to him from heaven." Among the main components of his "internal equipment," he also said, were a "certain aloofness" and "unruffled serenity."

Mr. Graham's last wife described him as "humane, but not human." I asked his son, Benjamin Graham Jr., what that meant. "His mind was elsewhere, and he did have a little difficulty in relating to others," "Buz" Graham said of his father. "He was always internally multitasking. Maybe people who go into investing are especially well-suited for it if they have that distance or detachment."

Mr. Graham's immersion in literature, mathematics and philosophy, he once remarked, helped him view the markets "from the standpoint of eternity, rather than day-to-day."

Perhaps as a result, he almost invariably read the enthusiasm of others as a yellow caution light, and he took their misery as a sign of hope.

His knack for inverting emotions helped him see when markets had run to extremes. In late 1945, as the market was rising 36%, he warned investors to cut back on stocks; the next year, the market fell 8%. As stocks took off in 1958-59, Mr. Graham was again pessimistic; years of jagged returns followed. In late 1971, he counseled caution, just before the worst bear market in decades hit.

In the depths of that crash, near the end of 1974, Mr. Graham gave a speech in which he correctly forecast a period of "many years" in which "stock prices may languish."

Then he startled his listeners by pointing out this was good news, not bad: "The true investor would be pleased, rather than discouraged, at the prospect of investing his new savings on very satisfactory terms." Mr. Graham added a more startling note: Investors would be "enviably fortunate" to benefit from the "advantages" of a long bear market.

Today, it has become trendy to declare that "buy and hold is dead." Some critics regard dollar-cost averaging, or automatically investing a fixed amount every month, as foolish.

Asked if dollar-cost averaging could ensure long-term success, Mr. Graham wrote in 1962: "Such a policy will pay off ultimately, regardless of when it is begun, provided that it is adhered to conscientiously and courageously under all intervening conditions."

For that to be true, however, the dollar-cost averaging investor must "be a different sort of person from the rest of us ... not subject to the alternations of exhilaration and deep gloom that have accompanied the gyrations of the stock market for generations past."

"This," Mr. Graham concluded, "I greatly doubt."

He didn't mean that no one can resist being swept up in the gyrating emotions of the crowd. He meant that few people can. To be an intelligent investor, you must cultivate what Mr. Graham called "firmness of character" -- the ability to keep your own emotional counsel.

Above all, that means resisting the contagion of Mr. Market's enthusiasm when stocks are suddenly no longer cheap.



http://online.wsj.com/news/articles/SB124302634866648217?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB124302634866648217.html