The last 30 years or so have cemented the idea that “buy and hold” investing is the absolute correct approach to stocks for most Americans. Supporters of buy and hold will always tell you that as long as you look long term, buy and hold is the best way to invest. In many ways, they are correct.
Three Major Influences
In my opinion, there are three big reasons why buy and hold became the #1 investment strategy across the board. While, these reasons are a little less solid due to the recent market crash, they are still very much influencing the majority of Americans. We will see if the near future continues to unravel them or if the last year or 2 was just a speed bump.
The Warren Buffett Effect
The popularity of Warren Buffett and his amazing investing record have countless investors attempting to mimic his performance and strategy. As many know, Buffett seems to buy major companies and stocks and then never sell them. He is the epitome of buy and hold.
His track record speaks for itself and there are things to take away from his strategy and apply to our own investment strategies; however, I will say that we are not in the same position as Warren Buffett. He can get much more attractive deals, he has access to cheap capital, and he has business connections that we don’t. Therefore, we can’t expect to mimic his performance. Even so, his effect on investment strategies everywhere is real.
Stock Market Performance
A second factor has been the market performance over the last 30 years. From 1980 to 2000, we had a giant bull market. Unfortunately, the stock market has been pretty much dead money for the last decade. This is one of the unraveling reasons that I referred to above. Even so, the 20 year run prior to the last decade really cemented buy and hold for many investors.
If we lose another decade similar to the last one, you may see many begin to reject buy and hold investing.
Investment Professionals
Lastly, investment professionals want to sell you on buy and hold investing because the more capital you have deployed in stocks, the more money they will make. You selling off your positions means going into cash and it means less fees paid to the “experts”. Therefore, a buy and hold strategy results in the maximum amount of money generated for investment professionals.
For me, this is one of the main reasons why I struggle to fully embrace buy and hold investing. The people who push this style of investing the most are the ones who stand to benefit from it the most.
Alternatives
Just like people tell you to diversify within your stocks portfolio, I recommend diversifying away from stocks. This might mean owning cash, gold, or things such as real estate. Be careful to not put all your eggs into the basket of the stock market just because somebody tells you that eventually you’ll make money.
Don’t be afraid to cycle and rebalance your portfolio based on some of your largest movers. For example, if you bought Apple Inc (AAPL) a year or so ago and have let it run from $80 to over $200, why the heck wouldn’t you take some profits? That would be nuts. Remember, paper profits are just that: paper. Taking some profits in large winners means securing a profit.
I believe that buy and hold is still a worthwhile strategy among a multitude of investing and financial strategies. I like buying solid companies when I see compelling buying opportunities. This doesn’t mean that I buy continuous every month regardless of where the market is. I tend to try and be patient and wait for attractive entries.
No related posts.
Related posts brought to you by Yet Another Related Posts Plugin.
Stocks