Based on consistent results I think Buy & Hold should
be renamed Buy, Hold & Bye Bye. It sounded great for
a while, especially for the huge majority of investors
who don't have the time or interest in really doing due
diligence on investments.
Investing, for some, might be just a hobby, but it can
sure be an expensive one. Yet, if you're like many of
us, you know there are opportunities for putting your
money to work and having it grow. Nonetheless, investing,
like any business (and it is a business) has its own unique
challenges. Here are what I consider to be the top three.
Deciding What to Buy
When it comes to Mutual Funds, there are today over 13,000
choices. You're going to check out each one, right? Yeah,
right. And even for those you do check out, what are you
going to look at? Past performance. What else can you
look at? But as it says on the bottom of every prospectus,
past performance is no guarantee of future results. And
in these days of cockeyed cooked books, past performance
is barely a guarantee of past results! So you need to
decide not only what to buy, but you have to be darn sure
you know when to sell it when future results of an investment
don't match your expectations.
Sure, there are investment rating services that provide
a false sense of security to Buy & Holders. But the
fact is that pretty much every investment that rating
services have touted over the last few years has lost
money. So much for depending on that sort of expert advice.
Determining When to Buy?
It shouldn't matter when you buy if you're never going
to sellbut it does. If you buy just before the market
falls, guess what: You will start with a loss that you
have to recover before your investment begins making money.
So what? According to statistics on mutual fund sales,
most investors buy just in time to grab a loss.
Buy & Hold may turn out to be a profitable approach
if you intend to hold forever. But we don't live forever,
and most people are going to want to sell their investments
at some point before forever hits. It's small comfort
to know that if you hold your investments for another
20 years, they will make moneyespecially if you're
retired and want to take a cruise next month.
Staying the Course.
It takes a strong stomach to hang on to an investment
when you see it disappearing before your very eyes. Or
even when it's up one day and down the next. (Like these
days, for example.) And once you decide that having to
wait for three decades before your investment gets back
to square one is not such a great deal, what happens to
your Buy & Hold strategy then? It's out the window
and all you're holding is the bag. The much emptier bag.
So what's an investor to do, especially an investor who's
really not a professional? For one thing, find a reliable
method of gaining information. One that I like is a trend
analysis approach that objectifies market behavior. This
type of approach is more kinetic in that it doesn't rely
on past performanceit relies on past and present
performance to indicate a "trend" toward future
performance. While that's not infallible in any sense
of the word, it is a broader range of information than
Using one of those as a foundation for your strategy,
determine a buy point and, most importantly, a sell point
for any investment you make. Get comfortable with taking
small losses before they turn into big disasters.
There is always risk in investing. However there are
ways to minimize risk so you become an investor, not merely
a gambler with high hopes for a Buy & Hold approach
that many people have now found to have failed them.
© Ulli G. Niemann
Ulli Niemann is an investment
advisor and has been writing about objective, methodical
approaches to investing for over 10 years. He eluded the
bear market of 2000 and has helped countless people make
better investment decisions. To find out more about his
approach and his FREE Newsletter, visit: Successful-Investment.com.