Buy-and-hold is simply defined as buying a diversified portfolio of high-quality stocks and/or a diversified group of mutual funds or exchange-traded funds (ETFs) or a combination of all three and holding them for the long term—typically defined as 10 to 20 years or longer—and typically rebalancing at least once a year. This investing approach is well entrenched in books on investing, in the mutual-fund marketing literature, and in the verbiage of financial advisors, academicians, and financial journalists. As you know, it is almost impossible to change the conventional wisdom.
According to Chicago research firm Ibbotson Associates, based on the Standard & Poor’s (S&P) 500 Index, there was a 29 percent probability from 1926 to 2001 that an investor would lose money in the mar ket if he or she were investing for a one-year time frame. However, if he or she were to invest for a five-year period, the probability of loss dropped to 10 percent. For a 10-year period, it dropped to 3 percent, and for a 15-year period, there would be no loss whatsoever.
Translating these three numbers into actual dollar amounts, a $1,000 investment in stocks over the 76-year period would have been worth $2,279,000, whereas a bond investment of the same magnitude would have been worth $51,000, and T-bills would have been worth $17,000. Remember, now, these results apply only if you held for 76 years!
Moreover, if the investor restricted his or her investments to large-cap stocks for this 76-year period, then he or she would have realized a compounded annual return of 10.7 percent compared with 5.3 percent for U.S. Treasury bonds and 3.8 percent for T-bills.
Thus the argument for buy-and-hold is that a long-term investor makes out well, whereas those in the market for short periods of time have a higher probability of loss. This is true, but bear markets can reduce investors’ capital significantly. Therefore, investors need a plan of action to limit those situations and preserve their capital. The last disastrous investing decade should give you enough reason to question the buy-and-hold approach going forward.
You would think that while investors were getting pummeled during a bear market they would have the common sense and the fortitude to cut loose from buy-and-hold and bail out. But this is not what a CNN/USA Today/Gallup poll found in a random sampling of 720 investors done on July 29–31, 2002 (when the market had already dropped by a substantial percentage for the year). Overall, according to that survey, 63 percent of the respondents felt that buyand- hold was the best strategy for them, 30 percent felt that some other strategy they did not name was better, and 7 percent had no opinion. According to a CNBC/Associated Press poll conducted from August 26, 2010, through September 8, 2010, 78 percent of investors still think that buy-and-hold works (source: Fortune Magazine, October 18, 2010). Therefore, even after the terrible stock market performance as recently as March 2009, investors are still tilting heavily toward buy-and-hold. This is sad for many reasons.
The buy-and-hold strategy can’t be used for all stocks because, in practice, it only works with specific stocks during specific time periods. Remember the research provided by the Blackstar Funds in the Appendix pointing out the small percentage of stocks that really do well. Investors should diversify to insulate themselves from the risk of any particular stock going totally sour. Thus, if you own a portfolio of, say, 10 stocks, the odds that the buy-and-hold strategy will produce positive results for all your holdings over a period of time are probably nil—unless there is a bull market going on. Even a few bad apples with large losses can reduce your overall return to less than you could have earned in an index fund. There are a certain percentage of stocks in the universe for which buy-and-hold has worked well, but that is the short list, and those stocks are in the minority.
BUY-AND-HOLD ARGUMENTS: PRO AND CON
Almost 100 percent of the Wall Street pros, including well-known financial authors, mutual fund managers, money managers, and others, speak convincingly about the wisdom of the buy-and-hold strategy. High-level Wall Street professionals and mutual-fund executives have put forth numerous arguments as to why buy-andhold is a superior strategy to market timing, but their arguments lack sufficient detail or facts to back up their claims, or they produce backtest results with dubious assumptions. They may refer to one or two academic studies published in financial journals a few years ago to back themselves up. But I have read those studies, and I find that the key assumptions made by the authors are not always clearly spelled out or are not realistic. This leaves the investor with a problem as to the study’s methodology, time frame, choice of investment vehicle, and hypothesis being tested. Let’s first take some of the more popular buy-and-hold arguments and then present the flip side to that argument.
Common arguments in favor of buy-and-hold include
- No one can predict the stock market’s future performance. Therefore, it is best to buy and hold good-quality stocks and a bevy of diversified mutual funds because good companies always will persevere in the long run.
- If you were out of the market and “missed the 10 or 20 best” trading days, then your average annual return would be much lower than if you had been in the market and fully invested on those days. Therefore, you must be in the market all the time so that you don’t miss the best time days.
- There are no market timing strategies that work consistently or as well as buy-and-hold over long periods of time.
- The famed Peter Lynch, money manager in the heyday of the Fidelity Magellan Fund, said, “There are no markettimers in the Forbes 400.”
- According to many academicians, stock prices are a “random walk,” and future stock price movements cannot be predicted. They also argue the efficient-market hypothesis, which is another side of the coin and holds that all the information about a stock is “baked into” its stock price instantly, holds so that no one can consistently beat the market over the long term because the stock price has already taken it into account. Therefore, buy-and-hold is the only game in town.
- I’ve never met a market-timer who, over the long term, has consistently equaled or beaten the results of buy-and-hold.
Let’s take each one of these arguments and provide the counter – argument.
No One Can Predict What the Market Will Do in the Future
It is true that no one can predict the market’s future course. This does not mean that you just give up and keep your money invested 100 percent of the time when you know with 100 percent certainty that bear markets will occur and take away a major percentage or all of your profits every three to six years. Market timing has nothing to do with predicting the future but instead with providing you with a way to invest with the odds in your favor. Buy-andhold is a defeatist attitude that only costs you money and grief. There is no rea son to default into this defective strategy when a better one is available. It is true that most of the time a diversified portfolio will cushion the blow in bear markets, but in bear markets you still will have losses in the portion of your portfolio invested in equities. Moreover, diversification failed miserably in the latest bear market, where only Treasury bonds had gains.
Buy-and-hold has had disastrous returns, even for the wellknown “nifty fifty” stocks of the 1970s. In the 1970s, the current vogue was to invest in the 50 largest blue chip growth companies with the expectation that they would continue to provide investors with substantial returns on their investments. Those who invested in Xerox under that theory saw their investment lose 72 percent of its market value in the 1973–1974 bear market, and it took them 24 years to recover their money. From October 1990 until May 1999, Xerox rose 1,100 percent but then dropped 93 percent from May 1999 through December 2000. Thus an investor buying $100 worth of Xerox stock in October 1990 saw the value of his or her stock rise to $1,200 by May 1999 and then saw it plummet to a value of $84, thus ending up with a loss of $16 over the 10-year period!
Polaroid Corporation lost 90 percent of its value from its peak price and took 28 years to break even again. Then it went into bankruptcy. Avon Products stock was stagnant for 24 years, and Black & Decker took 23 years to get back to its peak price. More currently, Enron peaked at $90 in August 2000 and then traded at $0.38 by year end 2002 and then went bankrupt. And hundreds of Internet and technology stocks lost 90 percent or more of their value three years after the market top in 2000. Even the stable stocks and growth stocks suffered substantial damage; witness what happened in the banking sector, Internet sector, automobile sector, and chemicals.
To look at the double speak of the mutual-fund managers, you only need to know that equity mutual-fund portfolio turnover, as measured by Morningstar, was around 15 percent in the 1950s through 1964, rose to 48 percent in the early 1970s, to 75 percent in 1983, to 111 percent in 1987, dropped back to 74 percent in 1993–1994, rose again to 90 percent in 2000 and 111 percent in June 2002, and was 90 percent in September 2010. Clearly, mutual-fund managers do not practice buy-and-hold with the funds entrusted to them but somehow inexplicably find it appropriate for individual investors to use that approach. I have already stated that the reason for this is that mutual funds cannot stay in business if the fund holders embark on large-scale redemptions of their funds.
You Will Miss the 10 Best Days if You Are Not Fully Invested
The argument that you would have had much lower annual returns if you missed the best 10 days or months of the year is true. Keep in mind, though, that the 10 best days or months are not consecutive but occur randomly over the years. Second, the purveyors of that information rarely tell you the other side of the story—that you would have had an even higher annual return if you had missed the 10 worst days or months. And missing the worst days produces a far better overall return for you than missing the best days.
There Are No Market Timing Strategies that Beat Buy-and-Hold over the Long Run
This statement is pure bunk. Of course, there are market timing strategies that beat buy-and-hold over the long run. But these types of results are not discussed very much in print or on the airwaves because of the vested interest in favor of buy-and-hold. There are more than five strategies presented in this book that have outperformed buy-and-hold over decades, and there are many more in print (such as in Robert Colby’s classic book, The Encyclopedia of Technical Market Indicators, listed in the Bibliography) that do so by wide margins. The ones that I’ve chosen to present in this book have the advantage of being easy to put in practice, are simple strategies, and have shown profits over many years.
An illustration of a simple timing strategy that beats buy-andhold is one that uses a moving average on an equity index price chart with price crossovers above and below the moving average giving the buy and sell signals. Here’s one example during the period 1929–1998. Had you used a 130-day moving average on the S&P 500 Index and bought that index or an equivalent portfolio when the price crossed above that moving average and sold it when the price penetrated below that moving average and remained in cash, you would have achieved an annual gain of 12.5 percent during that period. Compare that with a return of 10.3 percent for the same period for buy-and-hold with dividends reinvested. Over the 70- year period, the significant difference of 2.2 percentage points a year resulted in a huge difference in total return.
There Are No Market-Timers Among the Forbes 400 Wealthiest People
True, there probably are no market-timers on the Forbes 400 list. So what? You still can get very rich without being on that list of billionaires. There are probably more than a few private individuals worth hundreds of millions of dollars who have developed and used market timing to become very wealthy. Except for a handful of hedge-fund managers (some of whom probably use a market timing component for their trade exit and entry points), the remainder of people on the Forbes list made their money by founding fledgling businesses that grew into stel lar companies where they amassed millions of shares of stock. They have great wealth because they were the major shareholders in their own companies. Examples include Warren Buffett (Berkshire Hathaway), William Gates III (Microsoft), Michael Bloomberg (Bloomberg LP), and Lawrence Ellison (Oracle Corporation). These people have to buy and hold the majority of their shares for a number of reasons. It is interesting to note that when Peter Lynch was running Magellan Fund, his portfolio turnover in some of his best-performing years approached 300 percent—certainly not a buy-and-hold practitioner.
Future Stock Prices Are Random and Cannot Be Predicted with Accuracy
You hear academicians profess the ran dom-walk theory and the efficient-market hypothesis to bolster their case that no one can consistently outperform the market. If those two hypotheses were true, then only the lucky few investors would ever make any money in the market. Clearly, many individuals, hedge funds, and private investment firms do beat the buy-and-hold strategy by a long shot and with less risk over many years.
I Never Met a Market-Timer Who Has Beaten Buy-and-Hold over the Long Term
This statement by itself is ridiculous and insulting to successful market-timers. It implies that the individual who makes the statement knows every market-timer in the United States and has determined that none of them has a long-term track record of success. This is patently absurd.
I would not take at face value the statement of some stock market guru or famous investor who says that he or she has not met a successful long-term market-timer because there are many timers around. If such people really were interested in finding successful market-timers with long-term track records, they could subscribe to TimerTrac, Timer Digest, or the Hulbert Financial Digest. They also could contact the National Association of Active Investment Managers (NAAIM), which has hundreds of assetallocators and market-timers as members. The Web site for NAAIM is www.naaim.org.
I suspect that individuals who profess that market timing does not work are either not being totally honest with you or have not researched the issue for themselves. As I have indicated, market timing is a threat to many people’s business models. In most cases, failure to acknowledge the viability of market timing as a genuine investment strategy is all about the dol lars and cents of the antagonist and not about anything else—and you can quote me on that!
MORE NAILS IN THE BUY-AND-HOLD CASKET
You won’t see the title of this chapter, “The Buy-and-Hold Myth,” mentioned very often on financial shows or written about in the financial press. This is so because the buy-and-hold mantra has been pummeled into investors’ psyches by the top Wall Street pros for decades. If the stock market rose 80 percent of the time, with correc tions of 5 to 10 percent along the way, then perhaps the buyand- hold strategy would make sense. But I will let the record speak for itself.
Many individuals believe that time is on their side in investing, and no matter what happens in the short run, they will come out fine in the long run. Nevertheless, cumulative short-term performance determines overall long-term performance. During 2002 and 2008, there were numerous stories of individual investors whose portfolios dropped by 50 percent or more. They had to go back to work or postpone their retirement. According to James Stack, editor of InvesTech Market Analyst Newsletter (October 1994), “The closer an investor is to retirement or needing his [or her] capital, the more dangerous a buy-and-hold strategy becomes.” This certainly has been borne out in spades in the past decade.
Diversification through allocation of investments in a portfo – lio with, say, 60 percent stocks and 40 percent bonds can help to reduce market risk. Overall, you have less risk than the investor who is fully invested in stocks. But this didn’t help much in this last market crash because all assets took a beating, except Treasury bonds. Thus diversification is not as good as it is cracked up to be.
For aggressive investors, the optimal scenario is to be 100 percent in investments such as equity ETFs in bull markets to capture the highest returns. Alternatively, such investors should be 100 percent in cash or cash equivalents (or to be short the market) during bear markets. By watering down their portfolios with bonds, they are denying themselves the incremental profits from equities. If bear markets are inevitable, then prepare for them, and sell your equity positions as the market trend begins to turn down. Consider using market timing to help you achieve this goal. This is what the heart of this book is all about—providing simple strategies to keep you on the right side of the market.
What leads to an investor’s downfall in following a timing approach is the execution. When it is time to exit your position, you may rationalize that this time will be dif ferent, and you decide not to sell now. You say to yourself, “This year the decline in the market will not happen because of certain factors; therefore, I will stay put despite the historical record and the readings of the indicators.” Or, you may say, “Even if the market should fall, the story behind my stock is so compelling that it cannot possibly decline.” This is a gambler’s approach, not a viable approach to investing. The odds are heavily against you, and you are bucking the odds. Far better to forego the profits you anticipate from that stock than for it to disappoint you and fall under the weight of the bear market. Preservation of capital is the ultimate consideration and is well worth the cost of foregone profits.
Look at Table 2-1, which provides a comparison of specific percentage allocations of stocks and bonds with their resulting risk and returns. Being 100 percent invested over the 76-year period from 1926 through 2002, each rolling 12-month period produced an average annual return of 13 percent with a risk of 22 percent. (Risk is the variability in return over the 76-year, 12-month rolling periods. In this example, with a return of 13 percent, the risk of 22 percent means that the return fluctuates between a high of 35 percent to a low of –9 percent.) A 60/40 percent split between stocks and bonds reduced the return to 10 percent from 13 percent, with risk falling from 22 to 14 percent. And at the other extreme, if you were all in bonds, your appreciation suffered greatly with a 5.8 percent return and a 9 percent risk factor.
As expected, the higher the return, the higher is the risk. What if I told you that you could obtain the returns of buy-and-hold (being 100 percent invested) but with half the risk? It is really simple.You will see that you can beat buy-andhold and be out of the market for six months in a money-market account. This means that you are getting a higher risk-adjusted return for your money. The sweetener is that you are accruing some interest income in a money-market account while almost everyone else’s portfolio is most likely sinking in value.
RISK MUST BE TAKEN INTO ACCOUNT
Investors usually do not consider the risk of investing until they’ve lost a big chunk of their money. Unfortunately, investors are fixated on how much money they are going to make in the market instead of “how do I protect my capital from eroding.” Investors may not fully understand that all investments are risky. The alternative is to invest in a U.S. Treasury bill, note, or bond, all three of which are the safest investments there are—but the yield is pitiful compared with stocks or equity mutual funds over long time frames. Usually, the more risky the investment is, the greater the returns will be. However, in a down market, the added risk results in worse-than-average returns.
Every investor has to decide, before investing in any invest – ment vehicle, what level of risk he or she is comfortable with. For example, can you withstand a drop of 20 percent in your equity portfolio in a 4- or 52-week time frame without feel ing upset and concerned? If this level of risk is unacceptable, then you should consider a diversified portfolio of equity ETFs (composed of growth and value, domestic and international, small-cap and large-cap stocks) and a certain percentage of bond ETFs because they typically rise when stock funds decline so that there is a counterbalance.
Market timing can be used successfully with a diversified ETF portfolio to lower the risk of buy-and-hold even further. On a riskadjusted basis, therefore, market timing used with a diversified portfolio should be able to equal or beat buy-and-hold.
BUY-AND-HOLD IS VERY RISKY
Buy-and-hold exposes investors to every twist and turn in the market, and big drops in the market can devas tate the value of their portfolios. Market timing usually underperforms buy-and-hold in long bull markets but will outperform it in bear mar kets. Investors who dismiss market timing as a viable investing strategy therefore are doing themselves a major disservice.
The last two bear markets are just examples over the last decade where buying and holding equities was not a wise, rational, or money-protecting strategy. Actually, it was financial suicide. Don’t forget that there is something called the opportunity cost of money. It relates to the income foregone because an opportunity to earn income was not pursued. If you are not earning interest or capital gains on your money, then you are losing out. Had you sold in late 2007 instead of staying fully invested and losing over 50 percent by March 2009, and had you put your money into a moneymarket fund earning an average of 2 percent per year over the past few years, you would have been way ahead. By being fully invested, you gave up the opportunity to earn an average of 2 percent a year. Thus, in this case, you lost 50 percent of your money when you could have earned 6 percent over three years (not including compounding), so your opportunity cost was 0.6 percent.
Keep in mind the sage advice of Dan Sullivan, editor of The Chartist Mutual Fund newsletter:
Without a set of clear and concise rules to direct them, investors do not stand much of a chance. The investor without a feasible and sim ple plan will almost assuredly do things which are self-defeating. A disciplined approach to the market will protect us from making decisions based solely on emotion. The inexperienced investor falls prey to the demanding pressures exerted by investing one’s own money. They will jump from one investment to another, hold a los ing position too long or cut a winning position too soon. They will become greedy, or impatient, or after a few set-backs they become disheartened and throw in the towel.
MISSING THE BEST AND WORST DAYS (MONTHS) IN THE MARKET
Numerous articles and brokerage firm newsletters and information updates refer to the meager investment performance realized by the hypothetical investor who was unlucky enough to miss the best days or months in the stock market. The argument goes like this: Unless you are invested all the time using a buy-and-hold approach, you have no way of knowing when the market’s best days or months will occur. Since these big up moves do not occur that often, an investor must be fully invested to take advantage of them. Unfortunately, this argument is only half the story.
The other half of the story should be told. And that is the very positive impact of missing the worst days or months in the market. This critical information is rarely mentioned in the financial press. The entire discussion of missing the best days is contrived for the benefit of the bogus buy-and-hold argument.
RESEARCH ON MISSING THE BEST AND WORST TIME PERIODS
Interestingly, in 1994 and again in 2004, Towneley Capital Management, Inc., commis sioned a study conducted by Professor H. Nejat Seyhun, Ph.D., at the University of Michigan School of Business Administration to research the effect of daily and monthly market swings on a portfolio’s per formance, initially from 1926 to 1993 and then from 1926 to 2004, respectively. Both studies analyzed the best and worst days’ and months’ performance.
These studies were titled, “Stock Market Extremes and Portfolio Performance.” The two full studies can be accessed at the firm’s Web site: www.towneley.com. A few of the crit ical findings of the earlier study are as follows:
- From 1926 through 1993, a capitalization-weighted index of U.S. stocks [New York Stock Exchange (NYSE) for the entire period, American Stock Exchange (AMEX) from July 1962, and the Nasdaq from December 1972] gained an average of 12.02 percent annually (buy-and-hold). An initial investment of $1.00 in 1926 would have earned a cumulative $637.30.
- From 1926 through 1993, missing the 48 best months, or only 5.9 percent of all months, decreased the annual return to 2.86 percent from 12.02 percent, and the cumulative gain amounted to only $1.60.
- From 1926 through 1993, eliminating the 48 worst months, or only 5.9 percent of all months, increased the annual return to 23.0 percent, and the cumulative gain swelled to a total to $270,592.80.
- From 1963 through 1993, missing the best 1.2 percent of all trading days resulted in missing out on 95 percent of the market’s gains.
- From 1963 through 1993, missing the 10 best days lowered the annual return to 10.17 percent compared with 11.83 percent for buy-and-hold. However, missing the worst 10 days improved the annual return to 14.06 percent.
- From 1963 through 1993, missing the 90 best days lowered the annual return to 3.28 percent compared with 11.83 percent for buy-and-hold. However, missing the worst 90 days improved the annual return to 23.0 percent.
- The study clearly shows that “the returns from trying and failing to be an outstanding market-timer are highly likely to be less than simply owning Treasury bills.”
The more recent study findings confirm the earlier study findings. Here are some of the key findings:
- The results from the more recent data were very similar to the prior study. Between 1926 and 2004, more than 99 percent of the market gains occurred during only 5.1 percent of all months. Also, a miniscule 0.85 percent of the trading days accounted for 96 percent of the market gains.
- From 1926 through 2004, a capitalization-weighted index of U.S. stocks gained an average of 10.04 percent annually (buy-and-hold). An initial investment of $1.00 in 1926 would have earned a cumulative $1,919.18.
- From 1926 through 2004, missing the 48 best months, or only 5.1 percent of all months, decreased the annual return to 7.01 percent, and the cumulative gain amounted to only $6.46.
- From 1926 through 2004, eliminating the 48 worst months, or only 5.1 percent of all months, increased the annual return to 20.26 percent, and the cumulative gain swelled to a total to $1,023,557.70.
- From 1963 through 2004, the results were similar, with an annual return of 10.84 percent. Missing the best 90 trading days, or 0.85 percent of the 10,573 trading days, an annualized return drops to 3.2 percent, and the cumulative gain drops to $1,693.68.
- From 1963 through 2004, missing the worst 90 days raised the annual return to 19.57 percent compared with 10.84 percent for buy-and-hold.
The study concludes: “The implications of this study could well be critical for the average investor. By being ‘out of the market’ for as few as even one or two of the best-performing months or days over several decades, a portfolio’s return is significantly diminished. Since the study also shows that most of the damage to portfolio performance occurs during a very few months or days, if an investor could avoid such periods, the result would be to sidestep losses and substantially grow one’s portfolio.”
Invesco AIM funds issued a report entitled, “Rethinking Risk: The Tale of 10 Days,” in November 2009 analyzing the consequences of missing the best 10 days over an 81-year period from January 3, 1928, to March 31, 2009, using S&P 500 Index data. One key finding was that stock market returns more than tripled by missing the worst-performing days. There full study results are summarized in Table 2-3.
Interestingly, the research found that all 10 worst-performing days occurred during bear markets—six during October and one in July, September, November, and December. Also, seven of the best days also occurred during bear markets. The report says, “But who has 81 years to invest? Depending on your investment time horizon, it may be impossible to recover from losses of the bear
market.” Also, “. . . depending on your time horizon, a buy-andhold strategy may not work either. . . . Your first investment priority should be to minimize risk, not maximize returns.”
Will Hepburn of Hepburn Capital Management, LLC, has conducted research on the “best and worst” days over the past decade. According to his latest research, over a 25-year period ending in year 2008 (Table 2-4), he found that the average return of the S&P 500 Index was 7.06 percent. His research found that missing the worst days was much more valuable than missing the best days, and of course, missing the best and worst days resulted in a better performance by at least 1 percentage point a year than the buy-and-hold approach.
On November 5, 2001, Barron’s published an article by Jacqueline Doherty entitled, “The Truth About Timing,” that was based on a study of the five best and worst days by Birinyi Associates. The investment research firm evaluated the performance of the S&P 500 Index from 1966 through October 29, 2001, on an annual return basis each year (buy-and-hold) compared with missing the five best and worst days each year. A $1 investment at the beginning of the period held until the end of the period was worth $11.71 (a 1,071 per cent gain). But missing just the five best days each year resulted in an astonishing ending value of $0.15 (an 85 percent loss) compared with a mind-boggling $987.12 (a 98,612 percent rise) by missing the worst five days each year.
This study puts another notch in the casket of the argument that missing the best days is more important than missing the worst days. It’s amazing that 5 days out of 250 in the trading year, or 2 per cent of the trading days a year, can have such a dramatic impact on the annual and compounded performance of investing. This is another reason why an investor should try to minimize his or her time in the market so that bad things do not happen to good people.
A study of the best and worst days (months) would show similar results no matter which stock markets were analyzed. For example, a study of the India stock market represented by the SENSEX and conducted by Munjunath Gaddi, research analyst, Fundsupermart, showed the value of a rupee and its annualized performance for almost a 30-year period (Table 2-5).
While watching CNBC on December 16, 2002, I saw an interview with Vern Hayden, certified financial planner at Hayden Financial Group. In the interview, Hayden said that buy-and-hold was no longer a viable strat egy. He suggested that investors diversify their holdings and do their own asset allocation. I was encouraged to finally hear a financial advisor say this on the air. One can hope that he will not be the only voice of sanity on the airwaves in the future.
Buy-and-hold is a great strategy during long-term (secular) bull markets, but it is a very poor strategy during secular bear markets, where loss of principal can be extensive while inflation eats away at what’s left.
Since history shows that bear markets follow bull markets, it is smart to sell at the end of the bull market and put your proceeds into money-market funds or other safe investment vehicles until the bear market is over. Alternatively, you may wish to short the market by shorting with inverse ETFs.
If investors were to sit down and really think about the fre – quency of bull and bear market cycles, they would realize that their inaction (e.g., adopting a buy-and-hold strategy) is not an intelligent move. Therefore, the only other choice is to have a solid, timetested action plan for investing in the market.