• Business and Finance
• Family
• Computers and Internet
• Auto and Trucks
• Education
• Health
• Hobbies
• Home Improvement
• Legal
• Marketing

• Home
• Arthur's Articles Home
• Browse Categories
• Browse Authors
• Submit an Article
• Search for Articles

Home » Business And Finance Articles » Buy And Hold How To Perpetuate Your Investment Losses

Buy and Hold: How to Perpetuate Your Investment Losses

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?

And here is another random article you might be interested in...

Getting An Offshore Bank Account Via The Internet

There is no need to use the many middleman websites you will find via a search engine. In fact, most of these are *bogus*, even the slick-looking ones. More and more banks are offering offshore internet bank accounts direct. Just get a list of banks in the country you're interested in, and go to their web sites.

See the Google Open Directory here:

http://directory.google.com/Top/Business/Financial_Services/Banking_Services/Banks_and_Institutions/

and here:

http://directory.google.com/Top/Business/Financial_Services/Banking_Services/Banks_and_Institutions/Regional/

and the list at EscapeArtist.Com http://www.escapeartist.com/offshore3/banks.htm.

Opening an offshore bank account is like opening one in your high street; meet their criteria, and you're in. The only difference is you're not there in person.

The first thing is to find out whether they will accept citizens or residents of your country. For example, Swiss banks tend not to want US customers; they don't want the hassle from the IRS.

You will need to prove your identity, and the legal existence of your company, if you wish to open an account for it.

If applying by mail, DO NOT PART WITH ORIGINAL DOCUMENTS. Get copies notarised by a notary public. Originals can be used for fraud or identity theft. Or they can get lost.

A Notary Public is a public officer commissioned by the State to perform notarial acts. A Notary is an impartial witness. The notary is empowered to issue an apostille.

Apostille - Is a method of certifying a document for use in another country pursuant to the 1961 Hague Convention. With this certification by apostille, a document is entitled to recognition in the country of intended use, and no certification or legalization by the embassy or consulate of the foreign country where the document is to be used is required.

In practice this means you provide evidence to this man that you are who you say you are, and/or that your company is what you say it is, and take an oath on the Bible. Oh yes, that's right, it's not a joke.

Due diligence: Banks need to show they have checked who their customers are, and how they came by their money.

Passport - If you apply by post a notarised copy is needed;

Proof of your economic background - documents showing how you earn your money (work contract, bank statement, tax return, company documents);

Proof of the origin of your deposits - documents showing how you earned your deposits. For example if you sell a house, proof of the sale, a copy of the estate agent's listing, etc.;

Information about yourself and your deposits - Name, date of birth, address, etc., as well as how much you plan to deposit on the account and what you plan to do with the money once it is in the account.

If opening a company account, you send an apostilled copy of the certificate of incorporation to the bank providing your account, along with evidence of your identity, an application form, and any other documents they ask for.

If you want to get an offshore bank account, *consider visiting the bank in person*. If you can, travel to the country in question, and open a bank account there. You probably live near one tax haven at least. This especially applies if you are planning to deposit large sums; find out who you're dealing with!

NOTES:

1. Don't pay a middleman to open a bank account for you. See above.

2. Do not use services which offer bank accounts in Eastern European countries.

You are likely to be cheated, possibly by the bank itself. Avoid Latvia!

3. Do not give anyone Power Of Attorney.

You can kiss your money goodbye. You may have legitimate reasons for not wishing to broadcast what you're doing. The problem is: *How can you obscure that you are the owner of the company, or bank account, without losing control of it?*

Don't get too clever, or too greedy.

4. Avoid web sites where:

The business address is a P.O. Box, or a 'Suite';

The site is on a free web host;

The site is badly translated into English;

You have the sense you are dealing with Africans or Eastern Europeans;

The site has not been updated recently e.g. the Copyright reads 2001;

They've only been running for a few years;

They offer a range of dubious products - second passports, citizenships, anonymous debit cards;

You cannot pay via credit card - it's much harder to get refunds on banker's drafts, Western Union and e-Gold etc;

They require you sign a confidentiality agreement, or you have the sense you are entering quasi-legal or illegal territory.

Bogus offshore banking sites can threaten to report you to your tax authority if you question their methods. It's an old con trick; get the mark involved in something illegal, then he can't go to the authorities.

How do I know all this? Well, dear reader, let me take you back to 1997, when ecommerce was a new word. Merchant accounts were not easily available to individuals in the UK, especially if you wanted to sell intangibles. So I found a website that offered one, with a Latvian bank account, and a company registration in Panama to go with it. The latter was necessary to open the account, or so I was told. This 'package' was on a 'discount', and cost about $400+.

All worked well, until the bank went bust in 2001. One sorry fellow reported on Usenet that he'd lost $10,000. I lost the sum of $232 (business was diabolical!). I decided in 2002 to shut down the company, as it cost $500 a year in fees to maintain, I was skint, and I had no real use for it. To de-register it cost another $500. Which I paid. Only to find out later that that the middleman website hadn't de-registered it, and that the yearly fees to the Panamanian registrar had not been passed on either.

Result: No merchant account, and a company in bad standing. Total loss: About £2000 GBP.

That Latvian bank is open for business again, with no mention of their previous collapse on their website (well, you wouldn't, would you?).

The moral of this story? Offshore bank accounts and company formations are just like their onshore equivalents; there's no big mystery about them. If you want a company formation, contact a local man, who speaks English, in the country of registration. Then use another local man to check what the first one's done.

Open your bank account yourself.

One last thing: don't think that because your bank account and company are offshore you can do business in your home country, and/or with fellow residents, and avoid taxes there. You'll find plenty of websites that'll purport to help you, right up until the time you get a small brown envelope from your country's tax inspectors, inviting you in for a little chat.