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The Demise of Buy and HoldBased on consistent results I think Buy & Hold should be renamed Buy, Hold & Bye Bye. It sounded great for a while, especially for the huge majority of investors who don't have the time or interest in really doing due diligence on investments. Investing, for some, might be just a hobby, but it can sure be an expensive one. Yet, if you're like many of us, you know there are opportunities for putting your money to work and having it grow. Nonetheless, investing, like any business (and it is a business) has its own unique challenges. Here are what I consider to be the top three. 1. Intelligently Deciding What to Buy When it comes to Mutual Funds, there are today over 13,000 choices. You're going to check out each one, right? Yeah, right. And even for those you do check out, what are you going to look at? Past performance. What else can you look at? But as it says on the bottom of every prospectus, past performance is no guarantee of future results. And in these days of cockeyed cooked books, past performance is barely a guarantee of past results! So you need to decide not only what to buy, but you have to be darn sure you know when to sell it when future results of an investment don't match your expectations. Sure, there are investment rating services that provide a false sense of security to Buy & Holders. But the fact is that pretty much every investment that rating services have touted over the last few years has lost money. So much for depending on that sort of expert advice. 2. Determining When to Buy? It shouldn't matter when you buy if you're never going to sell-but it does. If you buy just before the market falls, guess what: You will start with a loss that you have to recover before your investment begins making money. So what? According to statistics on mutual fund sales, most investors buy just in time to grab a loss. Buy & Hold may turn out to be a profitable approach if you intend to hold forever. But we don't live forever, and most people are going to want to sell their investments at some point before forever hits. It's small comfort to know that if you hold your investments for another 20 years, they will make money-especially if you're retired and want to take a cruise next month. 3. Staying the Course. It takes a strong stomach to hang on to an investment when you see it disappearing before your very eyes. Or even when it's up one day and down the next. (Like these days, for example.) And once you decide that having to wait for three decades before your investment gets back to square one is not such a great deal, what happens to your Buy & Hold strategy then? It's out the window and all you're holding is the bag. The much emptier bag. So what's an investor to do, especially an investor who's really not a professional? For one thing, find a reliable method of gaining information. One that I like is a trend analysis approach that objectifies market behavior. This type of approach is more kinetic in that it doesn't rely on past performance-it relies on past and present performance to indicate a "trend" toward future performance. While that's not infallible in any sense of the word, it is a broader range of information than most guides. Using one of those as a foundation for your strategy, determine a buy point and, most importantly, a sell point for any investment you make. Get comfortable with taking small losses before they turn into big disasters. There is always risk in investing. However there are ways to minimize risk so you become an investor, not merely a gambler with high hopes for a Buy & Hold approach that many people have now found to have failed them. © Ulli G. Niemann Other articles by this author »
About Ulli G. Niemann
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: http://www.successful-investment.com. Related
And here is another random article you might be interested in... Principles for Total Prosperity In Business And BeyondAre you looking for that "something" to give you the winning edge in your business? Is success still elusive even after burning both ends of the candle? Well, you may be looking for success in al the wrong places or you may not have an accurate picture of what true success is. In a fast-paced society that's driven by a mentality of "more is better," extreme stress and lack of fulfillment are inevitable in every facet of our lives, including work. In the quest for profit in the current win-lose business climate, the prevailing mind-set is that you can't really win without someone else losing. Businesses such as Enron, which are driven by the love of power and money instead of power of love, are proof that no matter how big a business it will eventually collapse in the absence of a solid foundation characterized by integrity, a strong work ethic and a values system that puts people first. The widespread misconception that external riches automatically lead to a richer inner life (i.e. happiness and even self-worth) becomes the driving force behind everything we do. As a result, our pursuit of success becomes narrowly defined as in "He with the most toys lives," rather than "He with the most joy lives." Sure, we have more "toys," but they only produce artificial joy. Since "you can't take it with you," there has to be a point to what you do. After all are you living to work or working to live? Sooner or later it becomes evident that no amount of money or trophies can fill the void created by a malnourished spirit. Then how is it possible to achieve success in business that's both lasting and fulfilling? How do you get the winning edge both in business and in your personal life? It's the best-kept secret by the world's most successful people who experience lasting success and a sense of fulfillment as well. While it's common knowledge that in retailing the determining factor for success is location, location, location, there's another little known element that has to do more with our approach to life. It's far more effective than mere "positive thinking," affirmations or stale traditional business strategies and practices. It's never subject to change (unlike everything else in life). It's something that has the power to produce total prosperity (from health to wealth) with a sense of fulfillment, purpose and real joy. It can also provide you with a short-cut for helping your business expand by stimulating creativity, thereby providing opportunities to positively impact your bottom line. But best of all it's free and it works. So what is this magic formula for success and total prosperity? Whether we realize it or not, we are spiritual beings experiencing the human experience and not the other way around. As such, we were meant to live a life of meaning, purpose and abundance, by connecting with our spiritual roots. This means that everything we do must be spirit-filled and spirit-directed. It's been my experience (as a young immigrant who came to this country with absolutely nothing, but eventually was able to overcome adversity and achieve success) that greater degrees of success can be achieved by anyone regardless of their circumstances, simply by implementing a system which I call The Principles For Successful Living. These are spiritually-based principles that have worked for me and for many of the world's most successful business people. They help create real winners and true success. These powerful principles, which are characterized by integrity, a strong code of ethics, giving and the honoring of all living things, provide practical solutions to many of the most perplexing problems that plague entrepreneurs and business owners today. Living by these principles is the difference between surviving and thriving, where you are not merely making a living but also making a difference. However, to achieve greater levels of success, you must be willing to explore new ways of thinking and abandon the conventional wisdom of "business as usual." Following are some of the key elements for anyone desirous of achieving "real success" (i.e. total prosperity - everything from health to wealth to a sense of higher purpose, meaning, fulfillment and real joy):
Obviously, there is much more to it than that (I go into this topic in-depth in my new book "The American Dream"). However, it's a good start for anyone searching for the path to real success and total prosperity. As my father used to say, "there are three types of people in the world: those who make things happen, those who let things happen and those who wonder what the heck ever happened." Understanding this concept can mean the difference between success and failure in business. So don't just wait for good things to happen to you or for your ship to come in. Instead, take action and swim to the ship trusting in the power of the principles for successful living to guide you to safe shores and glory. Now that makes good sense, and good business as well. Related
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