We have been writing on the topic of buy-and-hold investing for the past few weeks now. We have discussed the need for entries AND exits when market timing, how long run returns are a function of many short term returns and the prospects for buy and hold in the next decade.
We recently come across a handful of other posts on the related topics of index and buy-and-hold investing. We decided to provide some links and excerpts to whet your appetite. Without further ado some food for thought.
Kent Grealish at IndexUniverse notes the ways in which our brains fool us as investors. One antidote to that is index and avoiding market timing. He writes:
Indexing is a strategy that accepts the futility of timing the market—that there is no reliable system for participating in the good markets while avoiding the bad. Instead, indexing addresses one problem that can be controlled: emotional decision-making.
It seems clear to me that the biggest obstacle to successful investing is our own human nature. Indexing may have its faults, but it can still help protect us from our own natural, but misguided, impulses.
Carl Richards at behavior gap asks a relevant question in light of the many interventions by the federal government in the economy in the past year:
So if traditional buy and hold investing is a bet on the concept of free market capitalism, what if the current version is not quite as free as the model assumed it would be?
James Picerno at The Capital Spectator warns us on the many temptations facing an investor trying to invest with a strategic approach.
The point is that investing requires (demands) constant vigilance on the critical issue of maintaining strategic perspective. It’s tempting to cherry pick a few tidbits of the analytical pie in the belief that a few simple rules and/or market metrics will dispense triumph. Too often they lead to something less.
Jason Zweig was interviewed by Christine Benz over at Morningstar. In the wide ranging discussion Zweig touches on the topic of (strategic) asset allocation and whether there is an alternative.
The problem with this whole “asset allocation is dead” argument is–let’s just assume for the sake of argument that asset allocation is dead–what’s alive?…Asset allocation hasn’t worked in certain years, but nothing else has either. That’s the problem I have with this whole debate, which is it’s easy to say what hasn’t worked well lately, but it doesn’t mean that all the things that never worked have suddenly started to work.
John Rekenthaler at Morningstar echoes our thoughts on the challenges of the re-entry decision when it comes to market timing. Although there may be times to be shy of the market, he notes:
To echo Mr. Churchill, buy-and-hold is undoubtedly the worst form of investing — except for the alternatives.*
The thrust of these articles is that buy-and-hold is decidedly flawed, but it may makes up for it by allowing investors to make fewer decisions. That is a good thing, because for most investors decision making is an experience fraught with potential error. As William Bernstein notes that “..no more than a few percent of the population is qualified to manage their own money.” If that is truly the case then a buy-and-hold, or “strategic policy with re-balancing” may be a sub-optimal strategy that may turn out to be the best solution for the vast majority of investors.