Tag Archive for 'Hold'

Financial Services Advisor Reveals the Flaw Behind “Buy and Hold” Strategy

Published on July 26, 2011 in Warren Buffett in the News. 0 Comments Tags: , , , , , , , .

Financial Services Advisor Reveals the Flaw Behind “Buy and Hold” Strategy










Grand Rapids, MI (PRWEB) April 1, 2009

The conventional wisdom on investing has always been “buy and hold” – but recent events have shown the flaw in that advice, according to financial services advisor Dennis Tubbergen. The Dow Jones Industrial Average is now worth about half what it was in October 2007, and even Warren Buffett lost money following the buy and hold strategy.

Buffett recorded record losses in 2008, his worst financial performance since taking over the investment group Berkshire Hathaway in 1965.

In fact, the Buy and Hold Strategy, or variations thereof, may have cost investors dearly over the past 18 months, according to Tubbergen. Take the example of an index fund. Since portfolio decisions are typically automatic and transactions are infrequent, overall expenses tend to be lower than those of actually managed funds. Investors following this strategy are typically advised to buy an index fund that is designed to correlate with the performance of a market index like the S&P 500 and then hold it long term. Investors following this advice since October 1, 2007 would likely have seen their holdings in that fund significantly decline.

The S&P 500 closed at 1557.59 on October 1, 2007. As of the close of the business day March 17, 2009, this index was at 783.12 which represents an approximate 49.7% decline.

Buy and Hold doesn’t always work.

The riskiness of the “Buy and Hold Strategy” is exactly what has prompted Tubbergen, CEO and veteran financial services professional, to recommend that clients have an “exit strategy” in mind when investing. Exit strategies are employed to lock in a profit or prevent a significant portfolio loss by determining at what point an investment will be sold.

“I recommend to clients that they have an exit strategy when investing. Know under what circumstances you’ll liquidate an investment and make that decision prior to making the investment.”

Buying and holding an investment, particularly a stock or equity based investment can perform well in a bull market, but in a volatile market or a bear market, following such a strategy can result in portfolio losses.

“My view is that making an investment without knowing what your exit strategy will be is like getting on a cruise ship and not knowing where the lifeboats are,” Tubbergen said. “While no exit strategy works 100% of the time, I believe that a disciplined, successful investment strategy begins with utilizing exit strategies.”

Mr. Tubbergen, a Financial Services Professional for over 20 years, is CEO of USA Wealth Management, LLC, a federally registered investment advisor and is known as one of the nation’s leading advisors to financial advisors. A nationally recognized leader in the financial industry, Dennis is a frequent keynote speaker at financial industry events.

Investing in market related securities involves a risk of principal loss. Prior to making any investment decision, the services of an appropriate professional should be sought as investment related recommendations are dependent upon the personal financial situation of each individual investor.

The S&P 500 Index is an unmanaged index that is generally considered representative of the U.S. stock market. Investors cannot invest directly in indexes. The performance of an unmanaged index is not

necessarily indicative of the performance of any particular investment.

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Buy and Hold Investment Strategy

Published on April 9, 2011 in Warren Buffett in the News. 0 Comments Tags: , , .

The most well-known investment strategy in the world is the buy-and-hold strategy. The thought is that if you buy stock in a fundamentally sound company, then overtime that stock should be worth more than what you paid for it to begin with. One of the advantages of the buy-and-hold strategy is that the investor does not have to constantly watch his or her stocks. Investors who bought into companies such as IBM and GE in the early days saw their investments rise dramatically year after year without much effort. Another benefit of this strategy is that you will not be paying a lot in commission cost, because you are not constantly buying and selling stocks. This strategy works very well as long as there are more bull markets than bear markets.

Buy-and-hold investors try to hang on to a stock as long as a company remains fundamentally sound. They do not tend to chase stock charts or news. They simply look at the bottom line of the company itself. One of the most successful buy-and-hold investors in the world is Warren Buffett. If you look at many of his investments they tend to be in boring companies as opposed to high-flying technology stocks.

The main problem with the buy-and-hold strategy is it fails miserably in bear markets. Individual investors who hold onto stocks no matter what may find themselves losing everything they have gained if they can not recognize the signs of a bear market. This is brought on by the belief that eventually all stocks they own will have to return back to their original price. The truth is though that many stocks may never return to their past glory thus leaving the buy-and-hold investors hanging onto a huge loss year after year.

I personally have never been a big fan of this strategy, and feel it holds back potential huge gains that can be made with a little more hands on involvement with your portfolio. If you are someone that prefers the hands off buy-and-hold strategy, I still believe it is a must to use stop-loss orders to protect your investments when bear markets occur.

Chad Surges has a Bachelor’s Degree in Business. He invites you to visit his website for free information about different investing techniques and strategies:

www.lucky-dog-investing.com


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11/20/09 1pm – Stock Market & Economy Update – Hold GLD, SLV – Economy Getting Worse

Published on July 11, 2010 in Warren Buffett Videos. 25 Comments Tags: , , , , , , , .


minipulation in dollar this morning www.philstockworld.com

Buy and Hold: How to Perpetuate your Investment Losses

Published on May 23, 2010 in Warren Buffett Articles. 0 Comments Tags: , , , .

A recent cartoon in my daily newspaper showed two guys sitting in a bar. One is saying to the other: “I did learn something from my broker…how to diversify my investment losses.”

While this struck me as funny, there is certainly an element of truth to it judging by the number of tragic e-mails and phone calls I have received over the past couple of years.

This was brought home even more so by a reader who responded with strong disagreement to one of my articles. I advocate a methodical, disciplined approach to investing in no-load mutual funds. It keeps me invested during up markets and on the sidelines during down markets. It was exactly this approach that got me and my clients out of the market in October, 2000 and put us back in to take advantage of the April, 2003 upswing.

Judging from the reader’s e-mail it appears that he works for a major bank and is adamant about Buy & Hold and Dollar Cost Averaging. Maybe it’s the approach he has chosen and he doesn’t like hearing that the emperor is wearing no clothes. Nothing personal, honestly, but I find it incomprehensible that anyone, after the bear market and the financial disasters most people experienced, can even consider such theories. The results are just too black & white.

Here are his three main points:

1. “There is no real feasible way to know whether the market is going to be up or down and when exactly to invest.

2. “The only logical way for an investor to make money is through the buy and hold approach. This method is used by Warren Buffett and he has consistently beaten the best with an average annual return of 29%.

3. “Dollar cost average helps to hedge against the ups and downs of the market; moreover, one should have been buying up stocks during the last 3 years, though I do agree with your cashing out at in 2000. I do not wish to insult you, but that seems to me more luck than intuition.”

It appears that the only thing that I can agree with him on is, as he says, there is no reasonable way to “know” whether the market is going to be up or down. However, this statement also underscores that he is not familiar with trend tracking methodologies and the idea that one does not need to “know” or “predict” in order to make profitable investment decisions.

I’ve put together the composite for my trend tracking index in the 80s and it has consistently served me and my clients well by getting us into and out of the markets in a timely manner.

The reader cites Warren Buffett’s success. Sure, he is legendary, but remember that he made most of his fortune during one of the greatest bull markets. He is probably now considered beyond good and evil. But what about the numerous stories in the press over the past 3 years of the heavy losses he sustained in Coca Cola and other stocks, by stubbornly holding on to this positions. When you have enough money invested in a wide range of holdings, you become almost bullet proof. Do you fit in that category?

Furthermore, Buffet has resources available that the investing public simply does not have. Saying that he is successful only because of his buy and hold approach, and everyone following this technique will be too, is an oversimplification and does not factor in all the issues.

How many non-millionaires have enough spare capital to keep buying and holding and buying some more while stocks plummet? How long can they wait for the upswing when their cost-averaged holdings will start to show a profit? Do the math! Yes, the market will eventually turn up. But will it recover enough fast enough to reverse your losses in time to do you any real good? If you’re 20, then maybe. If you’re 60, who knows?

I have received countless e-mails and phone calls from individuals who have been led astray by brokers, financial planners and others using buy-and-hold and dollar cost averaging. Stories abound of retirees having to go back to work just because someone told them that “the market can’t go any lower” or “let’s dollar cost average.”

As for his last point, when I gave the signal to cash out on October 13, 2000, it had nothing to do with either luck or intuition. I had no clue how good of a call that would be; I simply let my indicators be my guide. They pointed to a sell, we considered, and then followed through based on our experience. We held true to our philosophy and kept our emotions, speculations, fears or greed out of the equation. This disciplined approach is what I advocate.

This year it has led us to buy back into the market on 4/29/03. And my detailed analysis and evaluation of a range of funds led us to select some of the best; my top fund being up some 50%.

So, not to be cynical, but to me dollar cost averaging is just a way to spread the pain over a longer period of time and to cloud the obvious with the hope the market will turn around tomorrow. After all, it can’t go any lower. Can it?

Ulli Niemann is an investment advisor and has been writing about objective, methodical approaches to investing for over 10 years. He eluded the bear market of 2000 and has helped countless people make better investment decisions. To find out more about his approach and his FREE Newsletter, please visit: www.successful-investment.com.

Buy and Hold Investment Strategy

Published on May 11, 2010 in Warren Buffett Articles. 0 Comments Tags: , , .

The most well-known investment strategy in the world is the buy-and-hold strategy. The thought is that if you buy stock in a fundamentally sound company, then overtime that stock should be worth more than what you paid for it to begin with. One of the advantages of the buy-and-hold strategy is that the investor does not have to constantly watch his or her stocks. Investors who bought into companies such as IBM and GE in the early days saw their investments rise dramatically year after year without much effort. Another benefit of this strategy is that you will not be paying a lot in commission cost, because you are not constantly buying and selling stocks. This strategy works very well as long as there are more bull markets than bear markets.

Buy-and-hold investors try to hang on to a stock as long as a company remains fundamentally sound. They do not tend to chase stock charts or news. They simply look at the bottom line of the company itself. One of the most successful buy-and-hold investors in the world is Warren Buffett. If you look at many of his investments they tend to be in boring companies as opposed to high-flying technology stocks.

The main problem with the buy-and-hold strategy is it fails miserably in bear markets. Individual investors who hold onto stocks no matter what may find themselves losing everything they have gained if they can not recognize the signs of a bear market. This is brought on by the belief that eventually all stocks they own will have to return back to their original price. The truth is though that many stocks may never return to their past glory thus leaving the buy-and-hold investors hanging onto a huge loss year after year.

I personally have never been a big fan of this strategy, and feel it holds back potential huge gains that can be made with a little more hands on involvement with your portfolio. If you are someone that prefers the hands off buy-and-hold strategy, I still believe it is a must to use stop-loss orders to protect your investments when bear markets occur.

Chad Surges has a Bachelor’s Degree in Business. He invites you to visit his website for free information about different investing techniques and strategies:

www.lucky-dog-investing.com