Abandon “Buy and Hold” at Your Peril


Howard Gold Image Howard Gold Founder & President, GoldenEgg Investing

He says the Taiwanese findings are in line with data from other countries.

He concedes that some individuals can consistently beat the market, but the number is shockingly low—less than 1% of all the day traders they studied in Taiwan. (I happen to think the number is higher here, but good traders require a different mentality and skill set than investors have.)

“There’s simply no evidence trading helps investors,” he told me. “I’m still a big fan of buy-and-hold investing. Pick the mix of stocks and bonds that’s comfortable to you and stick with it.”

I know that’s little consolation to the millions of Americans who have watched their retirement plans go up in smoke. Indeed, if you bought and held only stocks, you did very, very badly last year. If you bought and held some individual stocks (like, say, AIG, Fannie Mae, Bear Stearns, or General Motors), you might have lost everything.

But as we wrote last week, the most rudimentary, no-brainer 50/50 split between stocks and bonds helped you survive the recent “lost decade” just fine—even if you put all your money in on January 1, 1999 and did nothing else except reinvest the dividends for the next ten years.

Of course, you don’t need a financial advisor or newsletter subscription to tell you how to do that. But you may feel you need a sherpa to guide you through the treacherous world of triple-inverse ETFs, commodities ETNs, fundamentally weighted indexes, etc. No wonder so many advisors are urging you to trade actively—with them, of course.

Maybe the underlying problem was just that people bought and held the wrong things—they put too much in stocks and not enough in everything else.  Let’s not blame “buy and hold” investing for our own mistakes.

Howard R. Gold is executive editor of MoneyShow.com. The views expressed here are his own.