Comments on: Does Buy And Hold Work? http://wheredoesallmymoneygo.com/does-buy-and-hold-work/ A personal finance blog written by Preet Banerjee Sat, 11 Feb 2012 16:22:10 +0000 hourly 1 http://wordpress.org/?v=3.1.2 By: Hot Link » Blog Archive » Labour Day Weekend Roundup - Aug 31, 2008 http://wheredoesallmymoneygo.com/does-buy-and-hold-work/#comment-997 Hot Link » Blog Archive » Labour Day Weekend Roundup - Aug 31, 2008 Sun, 05 Oct 2008 09:59:04 +0000 http://www.wheredoesallmymoneygo.com/?p=793#comment-997 [...] WhereDoesAllMyMoneyGo answers a reader question Does Buy And Hold Work? [...] [...] WhereDoesAllMyMoneyGo answers a reader question Does Buy And Hold Work? [...]

]]> By: Labour Day Weekend Roundup - Aug 31, 2008 | Million Dollar Journey http://wheredoesallmymoneygo.com/does-buy-and-hold-work/#comment-996 Labour Day Weekend Roundup - Aug 31, 2008 | Million Dollar Journey Sun, 31 Aug 2008 10:31:26 +0000 http://www.wheredoesallmymoneygo.com/?p=793#comment-996 [...] WhereDoesAllMyMoneyGo answers a reader question Does Buy And Hold Work? [...] [...] WhereDoesAllMyMoneyGo answers a reader question Does Buy And Hold Work? [...]

]]> By: Friday Linkstuff http://wheredoesallmymoneygo.com/does-buy-and-hold-work/#comment-995 Friday Linkstuff Fri, 29 Aug 2008 09:02:32 +0000 http://www.wheredoesallmymoneygo.com/?p=793#comment-995 [...] Does All My Money Go did some analysis on whether a “buy and hold” investment strategy is the best way to [...] [...] Does All My Money Go did some analysis on whether a “buy and hold” investment strategy is the best way to [...]

]]> By: Preet http://wheredoesallmymoneygo.com/does-buy-and-hold-work/#comment-994 Preet Wed, 27 Aug 2008 20:15:02 +0000 http://www.wheredoesallmymoneygo.com/?p=793#comment-994 @TMW - Sounds like an argument for holding a world market portfolio. The fall of Bear would in and of itself be hardly noticeable in such a portfolio (of course the financial sector's decline would be very noticeable!). Part of the problem is when do you decide to make these active calls, and where do you draw the line? Not that I'm against it, I think a prudent investor can have no problem making these distinctions. But Buffett is the poster boy for buy and hold - I don't have the exact info in front of me, but I'm guessing you can count on one hand how many times he's sold positions. Anyone know? @TMW – Sounds like an argument for holding a world market portfolio. The fall of Bear would in and of itself be hardly noticeable in such a portfolio (of course the financial sector’s decline would be very noticeable!). Part of the problem is when do you decide to make these active calls, and where do you draw the line? Not that I’m against it, I think a prudent investor can have no problem making these distinctions. But Buffett is the poster boy for buy and hold – I don’t have the exact info in front of me, but I’m guessing you can count on one hand how many times he’s sold positions. Anyone know?

]]> By: thickenmywallet http://wheredoesallmymoneygo.com/does-buy-and-hold-work/#comment-993 thickenmywallet Wed, 27 Aug 2008 19:59:32 +0000 http://www.wheredoesallmymoneygo.com/?p=793#comment-993 I sit in Mark's camp as well. I give the notion of buy and hold in funds or stock less and less weight as the movement of capital increases cross-border. When Bear Sterns can collapse in a week, its up to us as investors to keep alert all the time and know what is happening around us and make the appropriate adjustments (with their advisors of course!) Certainly, I am not supporting day trading but actually watching your portfolio and make adjustments is required. Even Buffet will on occasion shake up his portfolio. I sit in Mark’s camp as well. I give the notion of buy and hold in funds or stock less and less weight as the movement of capital increases cross-border. When Bear Sterns can collapse in a week, its up to us as investors to keep alert all the time and know what is happening around us and make the appropriate adjustments (with their advisors of course!)

Certainly, I am not supporting day trading but actually watching your portfolio and make adjustments is required. Even Buffet will on occasion shake up his portfolio.

]]> By: Preet http://wheredoesallmymoneygo.com/does-buy-and-hold-work/#comment-992 Preet Wed, 27 Aug 2008 17:03:18 +0000 http://www.wheredoesallmymoneygo.com/?p=793#comment-992 @Xenko - a very valid observation. I believe this same point was raised in the comments of the original article which is why I omitted it from my post. Also clouding the fact (to his credit) is that funds that have long underperformed are not included in today's analysis. To which I wonder why the companies who own those funds haven't wound them down! :) @Xenko – a very valid observation. I believe this same point was raised in the comments of the original article which is why I omitted it from my post. Also clouding the fact (to his credit) is that funds that have long underperformed are not included in today’s analysis. To which I wonder why the companies who own those funds haven’t wound them down! :)

]]> By: Xenko http://wheredoesallmymoneygo.com/does-buy-and-hold-work/#comment-991 Xenko Wed, 27 Aug 2008 15:19:41 +0000 http://www.wheredoesallmymoneygo.com/?p=793#comment-991 "Think five years is a good, long time to hold a fund? Then you should know that 241 mutual funds of all types have lost money annually on average over the five years to July 31. Does a decade sound like a better bet? Okay, but 133 funds have been money losers over the past decade. Fifteen years? There are eight funds that have been money losers over that period of time, and there are three that are underwater over the past 20 years." That is a quote from the article that is distorting the reality of the situation. So over 5 years, 241 funds lost money... out of how many funds? 1,000? 10,000? In 2002, the Canadian government reports that there were approximately 2,000 Mutual Funds in Canada (http://www.fin.gc.ca/toce/2003/cmfi_e.html). So making the assumption that the number of mutual funds in Canada was constant over the past 20 years (not accurate, but I don't have ready access to the data I'd need): Over 5 years: 241/2000 = 12.05% of all funds lost money. Not great, but you have a 9 in 10 chance of making money, so not bad. Over 10 years: 133/2000 = 6.65% of all funds lost money. Over 15 years: 8/2000 = 0.40% Over 20 years: 3/2000 = 0.15% Basically, a little context from Rob about what pool of funds he looked at would give the article a little more credibility, but it would probably make his argument harder to believe. “Think five years is a good, long time to hold a fund? Then you should know that 241 mutual funds of all types have lost money annually on average over the five years to July 31. Does a decade sound like a better bet? Okay, but 133 funds have been money losers over the past decade. Fifteen years? There are eight funds that have been money losers over that period of time, and there are three that are underwater over the past 20 years.”

That is a quote from the article that is distorting the reality of the situation. So over 5 years, 241 funds lost money… out of how many funds? 1,000? 10,000? In 2002, the Canadian government reports that there were approximately 2,000 Mutual Funds in Canada (http://www.fin.gc.ca/toce/2003/cmfi_e.html).

So making the assumption that the number of mutual funds in Canada was constant over the past 20 years (not accurate, but I don’t have ready access to the data I’d need):
Over 5 years: 241/2000 = 12.05% of all funds lost money. Not great, but you have a 9 in 10 chance of making money, so not bad.
Over 10 years: 133/2000 = 6.65% of all funds lost money.
Over 15 years: 8/2000 = 0.40%
Over 20 years: 3/2000 = 0.15%

Basically, a little context from Rob about what pool of funds he looked at would give the article a little more credibility, but it would probably make his argument harder to believe.

]]> By: Mark Wolfinger http://wheredoesallmymoneygo.com/does-buy-and-hold-work/#comment-990 Mark Wolfinger Wed, 27 Aug 2008 03:19:05 +0000 http://www.wheredoesallmymoneygo.com/?p=793#comment-990 I agree. Too many option rookies want to jump right in. It's crucial to learn to <i>understand</i> how options work before trying to use them (or any other investing tool). That's why people like you are needed - to provide good guidance and good advice. Keep up the good work. Mark I agree. Too many option rookies want to jump right in. It’s crucial to learn to understand how options work before trying to use them (or any other investing tool).

That’s why people like you are needed – to provide good guidance and good advice.

Keep up the good work.

Mark

]]> By: Preet http://wheredoesallmymoneygo.com/does-buy-and-hold-work/#comment-989 Preet Wed, 27 Aug 2008 02:53:40 +0000 http://www.wheredoesallmymoneygo.com/?p=793#comment-989 @Mark - good to hear from you, and appreciate the comment. Perhaps I made it sound worse than I believe it to be, as the likelihood of negative performance persisting that long is relatively low, but it can happen. Also assuming that an investor diversifies across different equity markets, then stretches of underperformance in any one market can be offset by other markets covered in the portfolio. While the different portfolio constituents may be moving in different cycles, over the long term they can be expected to each have a positive return, while occasionally moving in tandem enough that the entire portfolio has negative periods (kind of like right now!). The concerns over longer periods of underperformance were more centered on individual markets (actually I will amend the post to reflect this). With respect to option trading, yes I practice option trading for some clients, but not many. I do talk about covered calls and sometimes naked puts and collars, but beyond that if a client can understand these things they may not need an advisor for investments, perhaps only the financial planning! :) I certainly encourage people to visit your blog on option strategies, and you are certainly much more an authority on option trading than I could ever imagine to be, but for those not in the industry, it's a pretty rare breed that can take to option trading without first taking a long, long time to educate themselves - which few are willing to do. @Mark – good to hear from you, and appreciate the comment. Perhaps I made it sound worse than I believe it to be, as the likelihood of negative performance persisting that long is relatively low, but it can happen. Also assuming that an investor diversifies across different equity markets, then stretches of underperformance in any one market can be offset by other markets covered in the portfolio. While the different portfolio constituents may be moving in different cycles, over the long term they can be expected to each have a positive return, while occasionally moving in tandem enough that the entire portfolio has negative periods (kind of like right now!). The concerns over longer periods of underperformance were more centered on individual markets (actually I will amend the post to reflect this).

With respect to option trading, yes I practice option trading for some clients, but not many. I do talk about covered calls and sometimes naked puts and collars, but beyond that if a client can understand these things they may not need an advisor for investments, perhaps only the financial planning! :)

I certainly encourage people to visit your blog on option strategies, and you are certainly much more an authority on option trading than I could ever imagine to be, but for those not in the industry, it’s a pretty rare breed that can take to option trading without first taking a long, long time to educate themselves – which few are willing to do.

]]> By: Mark Wolfinger http://wheredoesallmymoneygo.com/does-buy-and-hold-work/#comment-988 Mark Wolfinger Wed, 27 Aug 2008 02:25:22 +0000 http://www.wheredoesallmymoneygo.com/?p=793#comment-988 Preet, I agree that trying to time the market is a bad idea. But, I also believe that buy and hold is an idea whose time has past. Why would anyone be willing to invest under circumstances in which one may have to "be prepared for years of negative performance, perhaps even decades." Decades? When the markets tank, they tank. But an investor can be prepared. There are option strategies one can adopt that increase the probability of earning a profit (vs. buy and hold) every year. When the markets surge, buy and hold is better. But <i>at all other times</i> buy and hold lags. The strategies: Collars for the most conservative; covered call writing for those who want to maintain a bullish stance. And other strategies are available that depend on the investors investment goals, tolerance for risk, and comfort zone. Learn more: http://blog.mdwoptions.com/options_for_rookies/ Mark Preet,

I agree that trying to time the market is a bad idea. But, I also believe that buy and hold is an idea whose time has past.

Why would anyone be willing to invest under circumstances in which one may have to “be prepared for years of negative performance, perhaps even decades.” Decades?

When the markets tank, they tank. But an investor can be prepared. There are option strategies one can adopt that increase the probability of earning a profit (vs. buy and hold) every year. When the markets surge, buy and hold is better. But at all other times buy and hold lags.

The strategies: Collars for the most conservative; covered call writing for those who want to maintain a bullish stance. And other strategies are available that depend on the investors investment goals, tolerance for risk, and comfort zone. Learn more: http://blog.mdwoptions.com/options_for_rookies/

Mark

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