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:

  • "There is no real feasible way to know whether the market is going to be up or down and when exactly to invest.

  • "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%.

  • "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?

    About The Author

    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; http://www.successful-investment.com

    affordable house cleaning Park Ridge ..
    In The News:

    Scammers are sending fake Facebook settlement payout emails that mimic legitimate notices from the privacy settlement administrator to deceive users.
    Holiday shopping scams surge as fake refund emails target distracted consumers during Black Friday and holiday seasons, costing Americans billions annually.
    The AI-powered IRMO M1 exoskeleton features four modes, including turbo, eco, training and rest for hiking, running, cycling and sports with eight-hour battery life.
    OpenAI announced upgrades for its ChatGPT Images platform on Tuesday, saying the program can now make more precise edits and produce images more quickly.
    Chrome for Android now turns web articles into AI-powered podcast conversations. Get hands-free browsing with Google Gemini's natural audio summaries.
    LastPass faces $1.6 million fine from U.K. regulators after 2022 data breach exposed 1.6 million users. Password manager failed proper security controls.
    Petco disclosed a data breach exposing customer Social Security numbers, financial account details, and driver's license information due to a software error.
    Baseball teams can now analyze complete swing mechanics in normal training environments using Theia's markerless AI system that processes standard high-speed footage.
    Smart home hacking fears overblown? Expert reveals real cybersecurity risks and simple protection tips to keep your connected devices safe from hackers.
    MIT develops needle-free glucose monitor using light technology. Revolutionary device could replace painful finger pricks for diabetes management.
    The ClickFix campaign disguises malware as legitimate Windows updates, using steganography to hide shellcode in PNG files and bypass security detection systems.
    Researchers from Osaka Metropolitan University designed a 21-foot dome that combines aquaculture and hydroponics to create a self-sustaining urban food system.
    The Fox News AI Newsletter gives readers the latest AI technology advancements, covering the challenges and opportunities AI presents.
    ChatGPT data breach exposes personal info of users through partner Mixpanel. OpenAI confirms names, emails compromised in security incident.
    Android rolls out Emergency Live Video for 911 calls, letting dispatchers see real-time scenes during emergencies. Great for holiday travel safety.
    Malicious Chrome and Edge extensions collected browsing history, keystrokes and personal data from millions of users before Google and Microsoft removed them.
    Google's new Call Reason feature lets Android users mark calls as urgent before dialing, displaying an urgent label to recipients using Phone by Google app.
    Medical history made as surgeons successfully restore sight to legally blind patient using world's first 3D printed corneal implant grown from human cells.
    Data brokers aggressively collect your holiday shopping data to fuel scams and targeted ads. Learn how to delete your digital profile before 2025 starts.
    Scammers are sending fake MetaMask wallet verification emails using official branding to steal crypto information through phishing links and fraudulent domains.
    Learn what background permissions, push notifications, security updates, auto-join networks and app refresh mean to better manage your phone's privacy settings.
    Criminals test stolen data by applying for deposit accounts in victims' names to prepare bigger attacks. Learn why banks won't share fraud details.
    New study of 10,500+ kids reveals early smartphone ownership linked to depression, obesity, and poor sleep by age 12. Earlier phones mean higher risks.
    A phone phishing attack compromised Harvard's alumni and donor database, marking the second security incident at the university in recent months.
    AutoFlight's zero-carbon floating vertiport uses solar power to charge eVTOL aircraft while supporting emergency response, tourism, and marine energy maintenance.
  • Lifestyle Funds Provide Greater Security?

    With the stock market stubbornly refusing to settle down and... Read More

    The Club

    Yesterday I received my monthly issue of MONEY magazine. This... Read More

    Online Broker Trade History Not Doing the Job

    Let me start by saying that...Most online brokers do not... Read More

    Some Good News for A Change

    Before we get into all the good news out there,... Read More

    Stocks Options Trading

    Let's assume that you want to make some serious money... Read More

    Trading Systems

    To become a successful trader you must have some kind... Read More

    Do You Know What is the Single MOST Critical Mistake in Trading the Stock Market??

    Well maybe that's overstating it a little, but it's certainly... Read More

    How Eating Bitumen Made Me a Better Trader

    Trading is a fascinating activity.There are so many layers to... Read More

    Selection Vs Direction

    As I have said many times before in this column... Read More

    Investing Basics - Stocks, Mutual Funds, Real Estate & Online Investing

    Have you ever thought of investing? Do you have a... Read More

    The POWER of a Proven Stock Investment Plan

    When you invest in the stock market for ever-increasing cash... Read More

    Pathways

    During our travel down life's path we come to many... Read More

    Bottoms Ups

    If you have talked to a stock broker or financial... Read More

    Overvalued & Underbought

    With all the bad news that has been dumped upon... Read More

    Trading as a Business

    What can I expect to make my first year of... Read More

    365/7/24

    What does it take to be a stock trader? It... Read More

    Diversification

    Wall Street's watchword has always been diversification, but what does... Read More

    Stock Market Diversification

    In one of my previous articles (Investing in the stock... Read More

    Its A Duck

    If it walks like a duck, quacks like a duck... Read More

    Eternal Sunshine

    There is a current movie entitled "Eternal Sunshine of the... Read More

    Investing in the Stock Market

    From the book 'The Stockopoly Plan' by the author Charles... Read More

    Advantages and Disadvantages of Mutual Funds

    Outlined below are some of the advantages and disadvantages of... Read More

    Zero Sum Game

    Most people think the stock market is a zero sum... Read More

    The Value of Stocks of a Company

    The debate rages all over Eastern and Central Europe, in... Read More

    Analyst Reports

    When you become interested in a stock or mutual fund... Read More

    affordable house cleaning Mundelein ..