I made a video about this a few weeks ago and I took a TON of flack. The fact of the matter is though, that buy and hold investing does not make money for ANYONE except the mutual fund industry. It never has, IT NEVER WILL. Yes if you look at the nice pretty chart that the Mutual Fund Industry spends nearly a half TRILLION dollars per year world wide to get you to buy into, then it looks like a very profitable way to go. However, if you look at the real picture, which is to say capital gains AFTER INFLATION, you then discover that buying and holding is as shitty of an investment tactic as has ever been discovered. In fact, buy and holders, after inflation, are about in the same place today as they found themselves in the mid 30's. Of course when I made my video a couple of weeks ago people thought that I might have some radiation sickness. Well, here is an article from none other then the NY Times itself which will tell you exactly the same thing I tried to say. http://www.nytimes.com/2009/02/07/business/07charts.html?_r=2
Well, buy and hold value investors usually look at small/mid-caps, so the S&P 500 is not a good measure in this case.
Its never been about buy and hold, its about buy right and hold. Plus compound interest is what builds wealth. Finally, anything less than a 25 year time horizon is short term. So yeah the last 10 years sucked.
Makes a divi essential unless you know you have a high grower, even then you have sell it at some point.
Great post. It isn't buy and hold that gets me so much as it is mutual funds. Fidelity, for example, has some garbage 30 day hold or -1% penalty rule. Why put up with this crap when you can just buy/sell ETFs. With inverse ETFs now, it's a great way to make money in all kinds of markets, without needing a margin account for shorting! All I trade overnight anymore are ETFs. Instant diversification, low transaction costs, no penalties for selling. The ETF is a great thing.
These stocks didn't pay 10 years of dividends either, bet their numbers are much worse. I can't imagine giving my money to someone like Bill Miller at Legg Mason/Citi and paying him fees to lose 50% of my money last year. Last time I had a mutual fund was in late 90's in 401k. I put in like $40k tax free and it went to $250k and then back to like what I put in. Not kidding, yes I should have done something, but 401k "buy and hold' I figured. Having it 100% in tech fund was the juice, but 2002 was the downfall. I just figured it would be there for like 10-20 years. So 10 years later that initial amt is probably like $55K now and adjusted for inflation I'm flat/down. Great. This was the worst thing I saw today even with mkt down 380. Amazing. Thanks for pointing it out though.
Around 1900 the dow was at 50. It took 80 years for it to get to 500. It took 25 years to recover from the 29 crash. Then we had an a huge boom to 14,000 before crashing. So really buy and hold really only worked in the past 30 years. What makes the past 30 years different? Massive inflation. There has been an incredible increase in the money supply since the end of the gold standard. Correct me if Iâm wrong, but how can the stock market as a whole grow year after year unless the money supply is increased? AKA inflation. So in the end, the stock market will just be an inflation hedge. Unfortunately, inflation is the way The Man sticks it to you. Unless you own assets, your purchasing power is always being eroded.