4 ms·

Buy and Hold is a Myth

3 points by steveplace 18y ago

bumbledraven 18y ago
Tell it to Warren Buffet.
tptacek 18y ago
What the fuck ever. VFINX and SPY consistently beat actively managed funds. Cherry picking a single swing and saying you could have gamed it isn't a convincing argument.
- steveplace 18y ago
  This example wasn't a swing. Swing timeframes are under a month. This was an ETF doubling in 5 years and giving it back in under 1.
noodle 18y ago
i call bullshit. for so many reasons. if you want to maximize your profits, sure, buy low and sell high, and repeat. this takes time to learn how to do well, though, as well as to perform the strategy. if you don't have time or the knowledge or the stones or the money to lose as you learn lessons to play the market game, buy and hold index funds or solid dividend-paying stocks.
- pfedor 18y ago
  this takes time to learn how to do well If it's possible at all. If you believe that markets are efficient, then it's not. Even if they're not efficient, it may be impossible to exploit the inefficiencies because of the taxes and trading costs. Buying and holding an index of stocks historically outperforms an average actively managed fund, and past performance of a fund is not a predictor of future performance (so it doesn't help to buy funds that did well in the past.)
  - byrneseyeview 18y ago
    You are not taking the efficiency argument far enough: if the market is efficient, it isn't a good use of time to do your research. But if it's not worth anyone's time to do research, the market will no longer be efficient. The market may be 'efficient' in the sense that people inclined to do research have a fair tradeoff between time spent researching and the benefits thereof. But it is incoherent for the markets to be perfectly efficient, in the sense that investors are able to rationally appraise the value of every single stock, but are fully incapable of appraising the value of their own time.
    - eru 18y ago
      Perhaps your weaker version of efficiency suffices. If you are not on par with Buffett - buy index fonds.
    - ph0rque 18y ago
      > But if [the market]'s not worth anyone's time to do research, the market will no longer be efficient. I wonder if we will get to the point that publically-traded companies will have to be perfectly transparent, and the needed research will be trivial (and automated)?
  - noodle 18y ago
    i feel like it is possible, as i do know some people who've made it work. luck does play a significant factor in it. you earn your money based on the time you put into researching good investments. however, thats what they do. its their job. i'm not interested in doing that for a living, and i feel like most people would agree. i'd rather make money doing the stuff i enjoy and throw my investments into something i know will generate me extra revenue without having to worry about it.
- steveplace 18y ago
  90% of people lose money trading. Perhaps that should have been the original disclaimer. And I never said that people shouldn't create a passive portfolio. If you want to put all your money into a broad based market etf, fine. I wansn't knocking on that. This wasn't a matter of selling high. This was a matter of an etf doubling and people getting greedy.
byrneseyeview 18y ago
Idiocy. Of course there is a difference with trading and investing, but there’s one thing that the two have in common: risk management. If you’re investing for the long haul, you still need to have stops in place and contingincies written out. I love the idea that stop-loss orders are somehow part of 'investing'. So here's your scenario: you are analyzing ABC Co., which trades at $5. A careful assessment of their assets, growth prospects, and management makes it clear to you that the stock is probably worth $10. So you buy at $5. The next day, a well-regarded technical analyst announces that the stock has done a pigeon-toed triple-flopped oat-and-tree formation, and is destined to take a Fibbonacci retracement. The stock drops to $4.00. Suddenly, your 'risk management' system tells you that this stock, which you had purchased for fifty cents on the dollar, is a worse deal because it now trades at forty cents on the dollar. This is like getting rid of all your clothes because a clothing store had a sale. If you're buying because you think you're getting a good business at a fair price, the daily quoted value only tells you whether you can buy more at a good price, or sell some at a good price. It doesn't inform you about business prospects, or changes in the underlying value. Also, buy-and-hold is a myth because of one cherry-picked anecdote? Look at a thirty-year chart of KO, PFE, MO, WMT, and, for that matter, BRK.A. Making good investments is extremely hard. Making satisfactory investments is not nearly so hard. But adding in a bunch of gibberish about managing risk by selling when others panic will never help anyone.
- tptacek 18y ago
  "Pigeon-toed triple-flopped oat-and-tree formation"? Your ideas intrigue me, and I wish to subscribe to your newsletter!
- steveplace 18y ago
  Geez, didn't think I'd get reamed over this (much less make the front page) 1) Stop-loss orders should be part of an investment strategy. Sometimes, with all your analysis, you can be wrong. Do you plan to risk your entire allocated capital if the stock goes to $0? Do you decide not to cash out in order to find better deals? If that's part of your plan, fine. The point is people don't have plans when they invest. 2) Selling a stock when it's dropped a dollar is not a good risk management strategy. O'Neil reccomends no more than an 8% drawdown on capital for larger stocks (a $5 stock is a different example). 3) Selling because someone else told you that the stock did a pigeon-toed tripple-flopped oat-and-tree formation is not good risk management. Although that is a viable pattern ;) 4) If a stock dropped and you are still convinced of its value, then average in. Of course this should have been part of your plan to begin with. 5) My rant was about not taking profits if a security doubles. That's dumb, especially in allocation strategies (which I mentioned near the bottom of the post). 6) You speak of value investing. That's a good strategy, but not the only strategy. 7) Buy and hold is a myth because people don't look beyond that. There's no contingency. Even Warren Buffet has contingincies (in which he just flat out buys the company so he can fix it). 8) And this post wasn't even about stock picking (your buy and hold examples are stocks) this was an ETF.
noonespecial 18y ago
BS. Most people buy and hold index funds not single stocks! I can find tons of examples where it would be better to "time the market". Pets.com? I can find just as many to prove that buy and hold is exactly the right thing to do. This assertion is totally bogus. Its not even a manipulation of statistics, just an out of context graph in a nonsense argument. Swing and miss.
- steveplace 18y ago
  The example was an index fund.
  - noonespecial 18y ago
    Ahh. True enough, but a narrow one to be sure, (Made up of only 24 banks and lenders). Point remains that it was hand picked from a sector that is doing historically bad right now in order to try to prove a dubious point.
    - steveplace 18y ago
      This is not dubious. People don't have a plan for asset allocation when developing individual portfolios. Like I said in the post, if you've want 5% of your assets exposed to banks, and the etf doubles, then your exposure is now 10% of your portfolio. You should start paring off to reduce your risk to that particular industry. Even with broad based index funds aren't completely diversified. There's no hedging against currency, inflation, and taxes (i.e. muni bonds). If you are to build a passive portfolio, get a friend that works in the High Net Worth section of a broker and get the allocation sheet from them. There's an ETF for every category.
quellhorst 18y ago
Tell Warren Buffet that buy and hold is a myth...

3 points by steveplace 18y ago

Tell it to Warren Buffet.

What the fuck ever. VFINX and SPY consistently beat actively managed funds. Cherry picking a single swing and saying you could have gamed it isn't a convincing argument.

steveplace 18y ago
This example wasn't a swing. Swing timeframes are under a month. This was an ETF doubling in 5 years and giving it back in under 1.

noodle 18y ago

i call bullshit. for so many reasons. if you want to maximize your profits, sure, buy low and sell high, and repeat. this takes time to learn how to do well, though, as well as to perform the strategy. if you don't have time or the knowledge or the stones or the money to lose as you learn lessons to play the market game, buy and hold index funds or solid dividend-paying stocks.

pfedor 18y ago
this takes time to learn how to do well If it's possible at all. If you believe that markets are efficient, then it's not. Even if they're not efficient, it may be impossible to exploit the inefficiencies because of the taxes and trading costs. Buying and holding an index of stocks historically outperforms an average actively managed fund, and past performance of a fund is not a predictor of future performance (so it doesn't help to buy funds that did well in the past.)
- byrneseyeview 18y ago
  You are not taking the efficiency argument far enough: if the market is efficient, it isn't a good use of time to do your research. But if it's not worth anyone's time to do research, the market will no longer be efficient. The market may be 'efficient' in the sense that people inclined to do research have a fair tradeoff between time spent researching and the benefits thereof. But it is incoherent for the markets to be perfectly efficient, in the sense that investors are able to rationally appraise the value of every single stock, but are fully incapable of appraising the value of their own time.
  - eru 18y ago
    Perhaps your weaker version of efficiency suffices. If you are not on par with Buffett - buy index fonds.
  - ph0rque 18y ago
    > But if [the market]'s not worth anyone's time to do research, the market will no longer be efficient. I wonder if we will get to the point that publically-traded companies will have to be perfectly transparent, and the needed research will be trivial (and automated)?
- noodle 18y ago
  i feel like it is possible, as i do know some people who've made it work. luck does play a significant factor in it. you earn your money based on the time you put into researching good investments. however, thats what they do. its their job. i'm not interested in doing that for a living, and i feel like most people would agree. i'd rather make money doing the stuff i enjoy and throw my investments into something i know will generate me extra revenue without having to worry about it.
steveplace 18y ago
90% of people lose money trading. Perhaps that should have been the original disclaimer. And I never said that people shouldn't create a passive portfolio. If you want to put all your money into a broad based market etf, fine. I wansn't knocking on that. This wasn't a matter of selling high. This was a matter of an etf doubling and people getting greedy.

byrneseyeview 18y ago

Idiocy. Of course there is a difference with trading and investing, but there’s one thing that the two have in common: risk management. If you’re investing for the long haul, you still need to have stops in place and contingincies written out. I love the idea that stop-loss orders are somehow part of 'investing'. So here's your scenario: you are analyzing ABC Co., which trades at $5. A careful assessment of their assets, growth prospects, and management makes it clear to you that the stock is probably worth $10. So you buy at $5. The next day, a well-regarded technical analyst announces that the stock has done a pigeon-toed triple-flopped oat-and-tree formation, and is destined to take a Fibbonacci retracement. The stock drops to $4.00. Suddenly, your 'risk management' system tells you that this stock, which you had purchased for fifty cents on the dollar, is a worse deal because it now trades at forty cents on the dollar. This is like getting rid of all your clothes because a clothing store had a sale. If you're buying because you think you're getting a good business at a fair price, the daily quoted value only tells you whether you can buy more at a good price, or sell some at a good price. It doesn't inform you about business prospects, or changes in the underlying value. Also, buy-and-hold is a myth because of one cherry-picked anecdote? Look at a thirty-year chart of KO, PFE, MO, WMT, and, for that matter, BRK.A. Making good investments is extremely hard. Making satisfactory investments is not nearly so hard. But adding in a bunch of gibberish about managing risk by selling when others panic will never help anyone.

tptacek 18y ago
"Pigeon-toed triple-flopped oat-and-tree formation"? Your ideas intrigue me, and I wish to subscribe to your newsletter!
steveplace 18y ago
Geez, didn't think I'd get reamed over this (much less make the front page) 1) Stop-loss orders should be part of an investment strategy. Sometimes, with all your analysis, you can be wrong. Do you plan to risk your entire allocated capital if the stock goes to $0? Do you decide not to cash out in order to find better deals? If that's part of your plan, fine. The point is people don't have plans when they invest. 2) Selling a stock when it's dropped a dollar is not a good risk management strategy. O'Neil reccomends no more than an 8% drawdown on capital for larger stocks (a $5 stock is a different example). 3) Selling because someone else told you that the stock did a pigeon-toed tripple-flopped oat-and-tree formation is not good risk management. Although that is a viable pattern ;) 4) If a stock dropped and you are still convinced of its value, then average in. Of course this should have been part of your plan to begin with. 5) My rant was about not taking profits if a security doubles. That's dumb, especially in allocation strategies (which I mentioned near the bottom of the post). 6) You speak of value investing. That's a good strategy, but not the only strategy. 7) Buy and hold is a myth because people don't look beyond that. There's no contingency. Even Warren Buffet has contingincies (in which he just flat out buys the company so he can fix it). 8) And this post wasn't even about stock picking (your buy and hold examples are stocks) this was an ETF.

noonespecial 18y ago

BS. Most people buy and hold index funds not single stocks! I can find tons of examples where it would be better to "time the market". Pets.com? I can find just as many to prove that buy and hold is exactly the right thing to do. This assertion is totally bogus. Its not even a manipulation of statistics, just an out of context graph in a nonsense argument. Swing and miss.

steveplace 18y ago
The example was an index fund.
- noonespecial 18y ago
  Ahh. True enough, but a narrow one to be sure, (Made up of only 24 banks and lenders). Point remains that it was hand picked from a sector that is doing historically bad right now in order to try to prove a dubious point.
  - steveplace 18y ago
    This is not dubious. People don't have a plan for asset allocation when developing individual portfolios. Like I said in the post, if you've want 5% of your assets exposed to banks, and the etf doubles, then your exposure is now 10% of your portfolio. You should start paring off to reduce your risk to that particular industry. Even with broad based index funds aren't completely diversified. There's no hedging against currency, inflation, and taxes (i.e. muni bonds). If you are to build a passive portfolio, get a friend that works in the High Net Worth section of a broker and get the allocation sheet from them. There's an ETF for every category.

quellhorst 18y ago

Tell Warren Buffet that buy and hold is a myth...