Based upon what I even have been hearing via the market pundits, it appears as if the funeral procession for buy and hold investing has recently left the chapel. Without question the recent turmoil within the markets left most buy and hold followers wondering whether or not they were lemmings foolishly following the pack over a cliff. That perhaps so depending upon your viewpoint, but I’m not so sure I’m able to hop on the bandwagon and write it off just yet. First of all, “Buy and Hold is Dead” because it had been never really born to start with. It had been never meant to be interpreted as buy and ignore which is what it had become. “Buy and Hold” was intended to be a phrase for promoting patience with an investment. Somehow this patience became a deep sleep because the go-go years of the past 20 years proved that anyone could make money, even those that were asleep at the wheel. Because the markets were rarely challenging, over time investors became familiar with consistent above-average returns. They learned with Pavlovian-like response that they might just throw their money at the market with no real strategy and their dreams of massive wealth would come true. Unfortunately, we learned this past year that things can change in a moment.
First it’s important to know a couple of things:
1. Unlike trading where you’re jumping in and out of the markets supported short term trends and trying to form a fast buck,
“ETFs that Capture Momentum and Growth ” refers to an investment strategy that involves buying investments and holding them through the up’s and down’s of their inevitable price fluctuations. This is often done on the idea that doing so are going to be more profitable than the pointless efforts of market timing and oft hyped and oversold stock-picking strategies. This assumes the investments chosen still warrant holding until an underlying fundamental change takes place that threatens the company’s success.
2. Despite the near absence of a pure buy-and-hold strategy, in every market , like clockwork, attention and money driven market pitchmen across the country take the stage to administer holy rites and declare that “buy and hold” is dead and that they have found the thanks to the fountain of eternal riches. this is often in an effort to capture the big number of disgruntled investors who have lost money and are trying to find a replacement and foolproof thanks to make them rich.
3. Like most things in life, a “buy and hold” strategy really doesn’t exist in its purest form. Most advisors i do know who followed the buy and hold mantra were taught to rebalance their client’s portfolios periodically to manage portfolio risks and capture diversification benefits. Additionally, advisors would adjust portfolio allocations to account for changes during a client’s life circumstances or when their research led them to the new idea or useful new investment products (such as ETF’s). the thought was to not actively trade a client’s account but rather make strong up-front investment selections and hold until a compelling event signaled that a change was needed. That event might be triggered because specific investment event or maybe as importantly, a change in long-term economic fundamentals that wasn’t present at the time the investment was chosen. The past (prior to 2008) economic and investment landscape was such this system would facilitate success and was supported by compelling long-term statistical data. So, it had been not truly “buy-and-hold” but rather “buy-monitor-and-change as required.”