Hold Your Horses
To most financial commentators, “buy and hold” is dead. This
is a short-hand way of them saying that patient,
long-term investing doesn’t work anymore. They cite as proof the record of the
broad U.S. stock market averages over the last 15 years which have been
flattish.
If long-term is for chumps, trading more actively has gone into
vogue. Some professionals using “algorithmic” trading compete by trading a
millisecond faster and using that edge to trump the competition.
The only
problem is there’s little evidence that over the long term frenetic activity
yields superior results. The great investing fortunes have been made by people
like Warren Buffet, who hold for decades. Buffet likes to say that his favorite
holding period is forever. He’s held some positions for 40 or more years.
There’s considerable evidence that if people try and “time” the market – buying
when prospects look good and selling when they are fearful – they damage their
portfolios. Extensive studies by consulting firm Dalbar show that investors typically earn one-third to one-half
of the returns of the mutual funds they invest in. Investors get in and out at
the wrong time. One day patience won’t be a bad word again.