# Buy and hold?



## snamin (Apr 3, 2012)

Here is my newbie strategy based on some "well-known" techniques:
1. Buy and hold 
2. Peek index funds because they have low MER
3. Diversify 

I'm looking at the iShares S&P 500 Index C$-Hedged (XSP) chart at:
http://quote.morningstar.ca/QuickTakes/ETF/etf_chart_ca.aspx?t=XSP&region=CAN&culture=en-CA

How is that a good strategy if XSP 10 years chart shows a loss of 12.43%? Does the chart include dividend distribution? What am I missing?

Thanks
Stas


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## mart (Apr 2, 2012)

Don't buy the hedged fund..


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## KaeJS (Sep 28, 2010)

snamin said:


> What am I missing?


You're missing Trading. Here's your new list:

1. Buy and hold 
2. Trade
3. Diversify


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## doctrine (Sep 30, 2011)

Because 10 years ago, most stocks were overvalued? If you buy blindly, you may walk into a wall. Valuation matters.


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## Belguy (May 24, 2010)

I have been a buy and hold index investor for many years now.

So far, I am not getting rich but I have experienced one heck of a lot of volatility over the past few years.

However, I do get a lot of neat literature in the mail from my discount broker most of which I promptly toss in the garboge.

I am however making plans to become rich from investing in the stock market in my next lifetime since I have used up the majority of this one.

Buy, hold and ?????:frown:

Winning the lottery might be a better bet!!!


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## dave2012 (Feb 17, 2012)

snamin said:


> I'm looking at the iShares S&P 500 Index C$-Hedged (XSP) chart at:
> http://quote.morningstar.ca/QuickTakes/ETF/etf_chart_ca.aspx?t=XSP®ion=CAN&culture=en-CA
> 
> How is that a good strategy if XSP 10 years chart shows a loss of 12.43%? Does the chart include dividend distribution? What am I missing?
> ...


XSP has done well over the last year. I don't worry about past / pre 2008 (ie 10 year chart). Forward thinking I see XSP as a good pick. It's been my best ETF and I am waiting for a bit more of a pull back to buy more.


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## snamin (Apr 3, 2012)

Thanks All.
First, I wanted to know that I read the chart correctly  Apparently I do. 
It seems all of you point in the same direction - Buy and hold - but for how long?
The moneysense couch potato doesn't mention it. They just give a couple of basic scenarios. If I followed their advice 10 years ago I would be menus 12% now. So for how much longer I should have waited to make the couch potato approach work in this case? I understand that couch potato is a combination of indexes but even if I would have invested 20% of my portfolio in XSP it would have taken a big bite out of the total return.


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## Soils4Peace (Mar 14, 2010)

XSP is only US large caps. No one knew which part of the market would perform the best, but it is not a good idea to put your money all in one company size or all in one country. 

Choose an asset allocation plan, and then follow it. A typical Couch Potato will have:
- stocks / bonds
- Canada / US / Developed Markets / Emerging Markets

For example, maintain
20% Canadian bonds
30% Canada
20% US
15% Developed
15% Emerging


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## KaeJS (Sep 28, 2010)

Do people not see that buy and hold is dead? I don't understand.

I must be blind.


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## mart (Apr 2, 2012)

KaeJS said:


> Do people not see that buy and hold is dead? I don't understand.
> 
> I must be blind.


So the couchpotato is no more?


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## ffej49 (Apr 6, 2012)

mart said:


> So the couchpotato is no more?


My question exactly. I'm just about to get started in the market, and have settled on (at least to start) a $-cost-avg strat in index's until I can build up some diversification and get going in Cdn Div payers. 

I have read so much that is positive about the Couch Potato. This is the 1st negative vibe I've seen.


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## Eder (Feb 16, 2011)

The fact that there is some sentiment that its different this time and "buy & hold" is dead leads me to think it is probably still one of the best ways to create long term wealth.


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## Dibs (May 26, 2011)

I don't think buy and hold is dead. Buy and hold could mean investing in a few good dividend companies. It could also mean investing in index funds over the long term. They are both good strategies. A DYI active strategy is also doable, but in my opinion takes a lot more time and effort to get similar results.


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## dogcom (May 23, 2009)

Ffe49 there is almost always something negative or positive to say on just about everything we might invest in. Buy and hold is dead in this time period we are in but not if you hold forever, how ever long that is. During secular bull markets buy and hold is the in thing and during secular bear markets it is the yesterday thing. Probably the best thing you can do as you already mentioned is dollar cost average in the index and then don't think to much about it. In fact a secular bear market is probably the best time to be averaging in as you see yourself getting more units at better and better prices.


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## doctrine (Sep 30, 2011)

Agreed, I am personally loving the TSX at this level. In fact, I only hope it goes lower. It would be better for anyone who is building equity that the market goes low and stays there for a long time.


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## KaeJS (Sep 28, 2010)

doctrine,

I like it when the TSX drops, too.

However, some things need to stop dropping and come back to reality.

Like Goldcorp and Suncor for instance. Did they both deserve a drop? Yes. Are they oversold? I think so.

I mean.... the price of gold hasn't really changed, and yet, Goldcorp is at $40. And oil hasn't changed that much (still above $100 bbl) and there was a 9M barrel surplus. Big Deal. I don't think SU needs to be at $30. Even take a look at CPG, its gotten beat up a bit, too. CPG is down 8.5% in the last 30 days.

There have been quite a few stocks that are oversold in my opinion. Like I said, we deserved a drop. But this much of a drop? No, I don't think so.

If I had cash, I'd start going into buying mode around now...


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## Belguy (May 24, 2010)

Well, trying to time the markets hasn't proven to be a very successful long term strategy for most small investors. So, what is left?


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## KaeJS (Sep 28, 2010)

Said it before, I'll say it again.

Certain stocks are meant for trading, others are meant for buy and hold.

A savvy investor has both. :biggrin:


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## Belguy (May 24, 2010)

Let's meet here in fifty years and see which strategy has worked out best in the long run.

Do we have a date?


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## KaeJS (Sep 28, 2010)

If the volatility doesn't kill ya first! :biggrin:

Maybe we should make it 20 years. :wink:


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## clovis8 (Dec 7, 2010)

Honestly this is like arguing over the reality of gravity. All the research shows that trading is a far far less successful strategy than buy and hold. Could it be different in the future? Sure? But anyone who says trading is superior is simply arguing against the evidence. They are nothing more than astrologers. 

That is not to say some people don't make money trading but if you have to pick one of the two any sane person who believes in science would choose buy and hold.


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## doctrine (Sep 30, 2011)

If Goldcorp and Suncor are truly undervalued, then keep buying them and you'll be laughing when the market realizes their true potential. Patience is the name of the game, especially in value investing. I don't own either though.


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## Toronto.gal (Jan 8, 2010)

clovis8 said:


> 1. Honestly this is like arguing over the reality of gravity.
> 2. All the research shows that trading is a far far less successful strategy than buy and hold.
> 3. But anyone who says trading is superior is simply arguing against the evidence. They are nothing more than astrologers.
> 4. if you have to pick one of the two any sane person who believes in science would choose buy and hold.


1. The ones that argue are mostly the buy/hold type investors. 
2. Over a long period of time, absolutely, but over a very volatile period of time, absolutely NOT!
3. I never say that my strategy is superior, and I most definitely am not an astrologer [though I'm studying birds and astrology at the moment]. :bee:
4. I have recently been called 'insane', though I do believe in science! :moon:

I just don't understand why people keep arguing about this point. It is not one OR the other, it can/should be a blend of both [& other strategies] at present time.

- There are times when to add to long term positions; what I like to call screaming buys, ie: when everyone else is selling.
- And times when to reduce them, such as on price strength and/or a parabolic rise, ie: when everyone else is buying. 

By booking profits at the highs [as cash is king in these markets] as well as trading, those strategies have allowed me to: raise capital/average down as well as add shares with profits made & without committing a much higher fresh capital. For example, last week I bought additional SU shares [66 of which were financed with funds made from booking profits of same stock last February]. And not the first time I did this either.

Where would you be, if for example, you had entered the market in 2011 and had bought some of the well-known/solid stocks below & simply held without making any adjustments to your portfolio? 










- CCO: $41
- ECA: $34 
- G: $55 
- POT: $60 
- RY: $62 
- SLF: $32 
- SU: $47 










- CCO: $20
- ECA: $19
- G: $40
- POT: $45
- RY: $57
- SLF: $23+
- SU: $30+

Volatility has been non-stop for years and likely will continue for years to come, so the strategy/mantra of simply holding, has and will have burned many investors, or at the very least, limit their profits. If the Eurozone/ U.S. debt crisis were not enough to convince people that a passive approach alone is not enough these days, then I don't know what it would take. I wish that I myself had realized this several years ago, rather than just in the last couple of years.

'Buy and trade' has beaten 'buy and hold' for a lot of stocks these days & I for one, prefer not to ignore what the markets are doing. I have done really well by buying close to the 52 week lows and booking profits close to the highs & hence taking advantage of the volatility. Simple, isn't it? Buy low, sell high [not waiting for lowest/highest]. As carverman would say, 'no rocket science'. 

I recall someone saying here once that 'so what if you sell and then buy again, but the stock goes down?' It made me think and the answer [to myself], was that regardless of what a stock would do after it is purchased, one would still have more shares to sell when the time came to sell [of same or other stock]. For example, no matter what SU will do on Monday, I will still have those 66 additional free shares that I would not have had, had I not sold a portion of my shares at this year's high, so when the time comes to sell, I will have those purchased with my new capital as well as those purchased with profits.

*I have never, nor will I ever abandon the long-term strategy, all I'm doing is taking advantage of volatility.*

I rest my case!


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## olivaw (Nov 21, 2010)

I agree with clovis8. Research demonstrates that a broad based buy and hold strategy has been the more successful long term strategy. It has historically returned economic growth (or shrinkage) plus dividends over a twenty to forty year period. 

Interesting article about pension funds chasing higher returns with riskier investments and trades. They seem to be falling behind the funds that stuck with the traditional model. 
http://www.nytimes.com/2012/04/02/b...lternative-bets-struggle-to-keep-up.html?_r=1



> Searching for higher returns to bridge looming shortfalls, public workers’ pension funds across the country are increasingly turning to riskier investments in private equity, real estate and hedge funds.
> 
> But while their fees have soared, their returns have not. In fact, a number of retirement systems that have stuck with more traditional investments in stocks and bonds have performed better in recent years, for a fraction of the fees.


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## Argonaut (Dec 7, 2010)

Coordinated offensive is the way to go, right T.Gal?


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## Toronto.gal (Jan 8, 2010)

Indeed Argo! :greedy_dollars: :encouragement:

You're a creative writer [among other things] & master of metaphor! [loved the golf explanation on another thread btw].


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## marina628 (Dec 14, 2010)

Can't wait to see what 2013 numbers are on those stocks T.gal  I was always buy and hold and DCA but over last year I started trading .It has been a crazy ride for markets the last year or so but a couple good sells and taking profits has given me a nice cushion to meet my target .
I have about $25,000 cash I am playing with now so always watching with interest what Argonaut does lol


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## fatcat (Nov 11, 2009)

i love the old argument of buy/hold index vs. trading, i tend to throw in with the buy/hold crowd

but i think it really comes down to, not what is a better way or produces the best results but what you like, what you enjoy

some people love to trade for the action and the research and the risk taking

that seems to me to be a perfectly good reason to be a trader

i have some interest in that but not a lot, i invest strictly so i don't outlive my money and end up getting breakfast out of a dumpster


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## KaeJS (Sep 28, 2010)

olivaw said:


> I agree with clovis8. Research demonstrates that a broad based buy and hold strategy has been the more successful long term strategy.


But do you know why this is?

Because lots of people can't trade. They can't stomach the volatility. Their emotions run deep. They make all the wrong moves. That's why.


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## KaeJS (Sep 28, 2010)

Tough times don't last - tough people do.


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## donald (Apr 18, 2011)

It seems like buy&hold is the superior way(imo-of well selected companies)Most of the wealthy seem to be buy&hold(@least 3/4 of there portfolio)Look @ frugal(he is a buy&hold)look @ qcash who was profiled on his website(he is a buy&hold)Look @ the forum members that are wealthly in cmf they are buy&hold-square root-cc-eder ect.Warren buffet said the best approach is to buy a cross section & hold.Your going to find way more wealth builders in the "real world" who are buy & hold i would think than traders.....I think someone should have a portion for trading but there portfolio should be rooted in core holds.The wealthly are buy&holders not trading in&out???


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## londoncalling (Sep 17, 2011)

I've said this before but apparently it needs to be repeated....

There are many roads to wealth. 

Some roads are long and smooth and others are bumpy. Some people do buy and hold. some trade, some do hybrids. I would agree with most that you can do buy/hold for part of your portfolio and juice returns with trading,options etc. There are some here that use margin as well. I personally have yet to venture into trading but have left the land of indexing as I have so far beat the index with my style. Will this always be the case? Most likely not. Over the long run I think it can be because I am not willing to spend the money without putting in the time and effort. Have I made mistakes along the way? Of course. But as long as they are not repeated and are not too costly it is the price of learning. For me this is a long tedious learning process, like many of the others more experienced have realized. 

Trading takes time, effort and understanding and is not for the average investor. To spew numbers that buy and hold wins most of the time is dependent on one key element... Most of the time. As mentioned, I myself am not a trader (might be some time but right now I am content to study the ebbs and flows of the market). There are a ton of strategies that one may use. Pick a strategy that matches your risk tolerance, level of understanding and time commitments. These strategies are affected by investor sentiment, macro economic events, seasonality, cyclicality and a myriad of other factors. This is what makes investing difficult but also makes it rewarding. 

The funny thing about the term average is that most people consider themselves better than average at most things. The reality is that this is an impossibility. 

I do appreciate that this forum offers a lot of knowledge and most of the posters are polite and helpful most of the time. For this I am grateful. I have learned a lot in the short time that I have been here and realized I have a lot of opportunity to learn more. I have seen a lot of people come to this board and make a lot of mistakes because they fail to realize that the people posting these great results have done the following: spent a lot of time studying, spent a lot of time watching and spent a lot of time(and sometimes money) making mistakes.

There are others that are easily swayed by what they read in a post and feel that they should immediately adapt a style that has worked well for someone else. Here's something that should be obvious... You or I are not someone else. Figure out who you are first (by doing the things mentioned earlier in this post) and you will find a style that will work for you most of the time in most market conditions. In the long term everyone should be able to make money in the market. For some long term may be longer than life span. Good luck to all and remember that this board is a place of learning and sharing ideas. I have seen some amazing ideas put forth that I initially jump on and study (Africa Oil comes to mind) but soon realize I do not have the skill set to understand how to exploit those opportunities yet (maybe I never will). That doesn't mean that I shouldn't take the knowledge that is comes from someone else's hard work and adapt it to my own investing style if applicable. Hopefully after a few years of DIY I will be able to see these opportunities... 

I am now reminded of something a former coworker once told me... No matter who you work with you will always learn something... Either you will learn how things should be done or else you will learn how things should not be done....

Take it a step further... this forum provides the member the opportunity to learn how things can be done for some.. and to learn how things should be done by them.. If we figure this out we should all make money.

Is buy and hold dead? Most likely not. Are there better ways to get better returns right now? Possibly... 

Cheers


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## dogcom (May 23, 2009)

For many people the problem with buy and hold is they chase after yesterdays winners or the funds, sectors or stocks that have done the best in the last 10 years. They will often stick themselves into years of underperformance as the overpriced investments work there way back to being good investments, making the kind of return you might have expected or in the case of mutual funds maybe never if the fund has changed for some reason. Or they spend years sticking with a poor advisor who says that they just have to buy and hold and hold and hold.

I think having a mix of low cost indexes that include bonds and some precious metals and always contributing will win out over time for the average investor that doesn't know a lot.


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## Toronto.gal (Jan 8, 2010)

marina628 said:


> Can't wait to see what 2013 numbers are on those stocks T.gal  I was always buy and hold and DCA but over last year I started trading .It has been a crazy ride for markets the last year or so but a couple good sells and taking profits has given me a nice cushion to meet my target .
> I have about $25,000 cash I am playing with now so always watching with interest what Argonaut does lol


It has been a crazy ride indeed; a stomach turner roller-coaster spin, but a serious learning period for many!

Imagine those who bought in 2007 before the crisis of 08? Not surprisingly, 5 years later, only a couple from the list I posted are ahead today.


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## Belguy (May 24, 2010)

If you are a buyer of a particular stock, then someone else had to sell it. Which one of you knows more than the other? You had better hope that the seller is not the more knowledgeable and has more information than you. Often, these sellers are the professionals working with banks of computers and with the backing of large research arms. How can the small investor hope to compete and win over the long term with the comparatively meagre resources that they have to draw on? You are trying to outsmart the big guys and all that I can say is good luck to you with that over the long term.


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## londoncalling (Sep 17, 2011)

One way is to buy stocks that are somewhat restricted to banks and advisors. They have mandates to follow in regard to cap size, share price etc. also, these same advisors will dump losers and buy overpriced winners at certain intervals to pump their numbers. I have been trying to find stocks that have low coverage (avoid the talking heads) with large insider buying. who knows more analysts/fund advisors or those that actually run the company?


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## leoc2 (Dec 28, 2010)

Picking individual stocks and market timing is extremely difficult. Professional managers cannot outperform the market on a regular basis. Picking too few stocks (15 to 30 stock portfolio) is not diversified enough for me to risk my families financial future. I invest in a diversified stock portfolio made of index funds. The funds contain thousands of stocks. I use an asset allocation of stocks and bonds to create a risk level that I can live with through hell or high water. I read an analogy on another forum that said buying an individual stock is like buying one popcorn seed in the hopes it will pop. Buying an index fund is like buying a bagful of seeds. You may not know which one will pop but there is a good chance you'll get a decent bowl of popcorn.


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## donald (Apr 18, 2011)

The stock market should be Secondary not primary source.Most stock holders hold stocks because they have a sum of wealth built up(guessing) and they are almost "forced" to go to the market(tax reasons ect).I did'nt enter the market via diy until i had over 6 figures-converted mutuals & adding(id personally never start investing as a primary way or my main way to make $)I don't think any small investor is thinking of competing with the "big boys" that would be nuts!To beat inflation ect sooner than later you have to take a stake in the market......how else are you suppose to do it?and buy and hold is the simpiliest and markets do rise more than they drop over the longterm.(maybe i'm out to lunch and a sheep-i got 25yrs to 57 when i want to roughly exit work for good)seems like a better bet than trading?Trading has to be more riskier longterm all thing being equal.


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## jasone (Apr 5, 2012)

Don't buy the hedged fund..


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## blin10 (Jun 27, 2011)

you can't say that 100%... you trade to make $20 on your trades and that's not trading, that's waisitng time while making bank rich.... go try to trade $100,000 a pop where each 10 cents down will be $1000 down, your reaction will be different then your trades I garantee you that and you will stop loss way faster then now...



KaeJS said:


> But do you know why this is?
> 
> Because lots of people can't trade. They can't stomach the volatility. Their emotions run deep. They make all the wrong moves. That's why.


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## Toronto.gal (Jan 8, 2010)

blin10 said:


> go try to trade $100,000 a pop where each 10 cents down will be $1000 down..


No need to invest that amount in a single trade to have success trading. 

Often times, less risk [smaller trades] can equal higher returns as well.

Position sizing & several other factors are a must.


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## blin10 (Jun 27, 2011)

true, but if you're trying to make 20-100$ a trade with $10-20 comissions both ways it's a joke... not to mention the success rate will not be over 70% overall either, you can have 5 trades where you make money and then loose it all in the next two... Position sizing is important you're right but you also need to be realistic if such a small position is worth even trying while throwing away $500-1000 in fees monthly to the bank



Toronto.gal said:


> No need to invest that amount in a single trade to have success trading.
> 
> Often times, less risk [smaller trades] can equal higher returns as well.
> 
> Position sizing & several other factors are a must.


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## Jon_Snow (May 20, 2009)

The average Joe would be better off avoiding stocks altogether and focus on increasing income and embracing a LBYM lifestyle. We are trying to do both, but with our 70% savings rate I wonder if I should even bother with the markets.


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## humble_pie (Jun 7, 2009)

broadly speaking, i am only aware of 3 ways to do better than buy & hold an index.

the easiest way, for me, is to own hi quality common stock & sell otm puts & calls against it. The positions are adjusted & rolled foward so that assignment rarely occurs.

another way, which i practice to a limited extent, is to identify stocks according to certain criteria & trade them actively within their trading bands. This approach is similar to the short option approach since both work with similar trading bands. However i find this approach to be more difficult - perhaps because option positions are easier to undo or repair - so short-term i only trade a few small cap stocks that have interesting stories but no options.

and the 3rd way, which would be the most difficult approach of all, would be to consistently choose & hold a portfolio of super-achievers. OK, scratch that idea, it's a pipe-dream.


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## clovis8 (Dec 7, 2010)

Toronto.gal said:


> 1. The ones that argue are mostly the buy/hold type investors.
> 2. Over a long period of time, absolutely, but over a very volatile period of time, absolutely NOT!
> 3. I never say that my strategy is superior, and I most definitely am not an astrologer [though I'm studying birds and astrology at the moment]. :bee:
> 4. I have recently been called 'insane', though I do believe in science! :moon:
> ...


Great post and one I agree with. I think I was a little unclear. Of course taking advantage of short term volatility is a good idea but this is a VERY difficult thing to do for 99% of people. T.Gal possessions knowledge and skill that most investors do not. Of course she should mix trading with buy/hold. 

However, the research shows that the vast majority of people will make the wrong trading decisions and be eaten alive by trading costs. 

For most people buy/hold is the way to go. Only the most dedicated investors willing to do a lot of work should ever consider trading. 

Of course, trading and buy/hold are not opposing strategies. All investors exist somewhere on a continuum. I just think the research shows that most people should stay a close to the buy/hold as possible.

Here is a graphic to help explain my thinking (sorry T.Gal if I miscategorized you)


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## olivaw (Nov 21, 2010)

KaeJS said:


> But do you know why this is?


The efficient market hypothesis is a good explanation for the lack of success that most traders enjoy. Add in fees and most traders underperform the market. 

IMO, it's important for traders to calculate their Internal Rate of Return and compare it to the returns from a simple couch potato strategy. 

Finally, 
you can cherry pick periods that appear to demonstrate the failure of a buy and hold strategy but the examples often assume that an investor makes a single purchase right before a bear market. Most of us accumulate over a period of years to take advantage of dollar cost averaging.


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## Toronto.gal (Jan 8, 2010)

clovis8 said:


> 1. advantage of short term volatility is a good idea but this is a VERY difficult thing to do for 99% of people.
> 2. However, the research shows that the vast majority of people will make the wrong trading decisions and be eaten alive by trading costs.
> 3. Only the most dedicated investors willing to do a lot of work should ever consider trading.
> 4. Here is a graphic to help explain my thinking (sorry T.Gal if I miscategorized you)


1. I agree, except that I would lower that number a bit as people are becoming more & more knowledgeable & interested in learning these days [especially women]. :encouragement:
2. Trading costs are negligible for many, but more than that, I think worse mistakes have more to do with lack of discipline/knowledge/plan/skills; greediness, etc.
3. It goes without saying.
4. Nice chart, especially since it has my name on it. :applouse:

No worries Clovis, I was having fun while writing my previous post [couldn't you tell?]. :wink:

It is a discussion forum and while I don't agree with all views [and don't expect others to agree with mine], I certainly pay attention to people's ideas/opinions, especially to those with much more experience than I have.

I know all about EMH [efficient-market hypothesis], except that many stocks are not valued fairly at all times, but admittedly, that is the nature of the markets, except that at times, not even close to fair value as we have seen recently; what we have experienced is not good, but great volatility that has done great damage to many portfolios as well. Further, I don't always buy the argument about stock market fluctuations not making a difference in the 20/30/40+ year time horizon as a lot of damage can occur in say 1 to 5 years & conversely, a lot of damage control can be done in that period of time as well. For example, I have accumulated free shares over the last year or so that will surely have an impact in the future.

You think that even 50 free shares wouldn't make a difference 20 years from now? Think again! Take AAPL for example, if bought with profits just a year or two ago, what would your return be today for a mere 50 shares? If you had bought in 2010 x $200 & sold today x $642, 50 shares would have given you a return of $22,100, but in reality, if you had purchased [all or some of the shares] with profits and not your own capital, the return would be higher. 

I picked AAPL simply to illustrate the impact that just 50 shares of the right stock could be worth in the near or distant future. Who is to say that 20 years from now, SU shares wouldn't be worth $200 for example & if you had purchased 200 shares x $30 [with trading profits], that will have given you a return of $34,000 [not really concerned with the % over whatever period of time at the moment as that's not the point I'm trying to make].

Anyway, it's not about arguments, but about colourful discussions & my point has always been that an investor needs a mixed strategy.


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## olivaw (Nov 21, 2010)

Toronto.gal said:


> I know all about EMH [efficient-market hypothesis], except that many stocks are not valued fairly at all times, but admittedly, that is the nature of the markets, except that at times, not even close to fair value as we have seen recently; what we have experienced is not good, but great volatility that has done great damage to many portfolios as well. Further, I don't always buy the argument about stock market fluctuations not making a difference in the 20/30/40+ year time horizon as a lot of damage can occur in say 1 to 5 years & conversely, a lot of damage control can be done in that period of time as well. For example, I have accumulated free shares over the last year or so that will surely have an impact in the future.


Obviously stock market fluctuations make a difference but the most reliable methodology for most investors is to accumulate over a period of years and allow dollar cost averaging to smooth out the fluctuations. 

The average investor can only match the market less commissions. i.e. if the market rises by 10% then the average money made by all investors is 10%. If somebody makes 11% then somebody else makes only 9%. In a flat or sideways market, every dollar made means a dollar lost by somebody else. Obviously this is an oversimplification. There are millions of investors but the average of ALL investors IS the market. 

The efficient market hypothesis suggests that there are no undervalued or overvalued equities in a market that incorporates all of the available pricing "factors". Prices should always equal expected discounted cash flows. If equities are undervalued then savvy investors (or trading programs) would rush in to purchase those equities and quickly bid the price to a price equal to the price that incorporated all pricing factors. 

My biggest fear about counselling retail investors to trade is that they are trading against large trading houses and complex computer systems. Even if there were models that could be used as a basis for trading, the odds are probably going to favour the large houses or the computer systems. 

(To counter my own argument, a mathematician wouldn't pick up a ten dollar bill laying in the street. He'd argue that somebody would have already picked it up if it was really there.  Graham [and presumably Buffet] argued that there really are cheap/value stocks that should be accumulated and held for a long period).


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