Ya, I know, we could all write novels on why the buy and hold strategy is worthless. Still, for those with 30+ years until retirement, are you ever tempted to buy some new company with a great story? I sometimes wonder if when I'm 70 in a rocking chair I'll say to myself, "I wish I had just bought something and held it, instead of messing around with all that trading nonsense." If nothing else, I wonder if it might not be a good idea to dollar cost average SPY or DIA every month.
There is a very easy way to play the game instead of cost averaging SPY. When the daily MACD crosses buy long or short the next day at 4 and then get out at the following pivot point or cross the morning at 10 following it. It works for the trader who works all day at another job and can't afford to be a day trader.
Buying for the long term simply is a good strategy to employ. I know traders like to think they are smarter than everyone else and that they can produces returns far in excess of what the market returns, but the fact remains that the vast majority don't. It does require an investment horizon of over thirty years however. So it would most likely only appeal to younger people. Of course, older investors could also do it but they are more susceptible to short term risk. The best strategy would be to diversify over international markets too.
Yes, and it seems to work on QQQ well and SPY. You can also use a 5 and 15 SMA to do it. On individual stocks that I tested, not as well..........
The dollar cost averaging into QQQ and SPY may work well if we don't run into a long drawn out deflationary cycle. Don't know if Japan has a similar vehicle but can you imagine dollar cost averaging into the Japanese market the last 10 years? How long would it take to get that money back? Not saying it's the same, but there is always risk involved in any investment/trade. On the flip side, if you had invested $100 in EMC in 1990, in 2000 that investment would have been worth $95,000. Or AOL from 1992 to 2000 was great too. So that works. Of course if you had dollar cost averaged starting in 2000 into EMC or AOL or many others, as we all know, you'd be in big trouble. And there were also long periods where the Dow for instance basically went nowhere. There are obviously a lot of factors involved.
True buy and hold takes nerves of steel way beyond that of even a swing trader. We can all remember in our pre-TA days buying something and watching slowly tank and then go through a long accumulation period. It's virtually impossible for someone to watch a stock drop 50% over the course of several months and then sit in the basement for 3 or more months and not say "I guess I figured wrong. This stock IS a loser. All the institutions and analysts can't be wrong about this dog. I'm gonna sell - what was I thinking anyway??" Next thing you know you've bought high and sold low. That's what I admire more than anything about Warren Buffett - he believes in himself and his analysis. It must have been tough for him when virtually everyone around him was criticizing some position he was holding.
Why don't you just take some of your money and trade it, and some of your money and buy and hold something. That way, you can't say what if I did one over the other
The problem I see with buy and hold strategies these days, is that money moves in and out so fast that companies tend to get overvalued as soon as the story on the company comes out. As we saw with the dot com bubble, stocks built in 20 years of fundamentals. In the past, and we'll get back to it one day, stocks only built in about a years worth of future fundamentals. If you do buy and hold, make sure you have a reasonable idea of what the stock should be worth. Yahoo at it's peak was priced $100B, with sales not expected to top $1B over the next 5 years. Think of it this way, if I paid that valuation, when could I make money if I just made money on the earnings, and if you bought Yahoo, taking into account an increase an earning every year at a substainable long term growth rate, it would've taken you over 50 years. This is a simple way to analyze it, but you get the point.
I have considered buying in late October, then reversing in February, reverse again in October and so on and so on. I think that would beat buy and hold for 20 years.