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Why buy and hold doesn't work anymore

I'm sure most of you saw this, but just in case...
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Quick summary: Andrew Lo (MIT economist) says technology is one of the major driving forces of stock market volatility. And volatility is so high now that buy-and-hold investors are getting shellacked.
--Bill
Reply to
Bill Woessner
Bill Woessner writes:
It would be interesting to see some of the real research behind his claims rather than just a CNN reporter's summary. Because the summary boils down to nothing more than "markets are riskier these days and that sucks for investors". Which you could have easily figured out without any deep research.
Also, the markets being riskier/more volatile doesn't mean they're any less efficient. Efficiency is not the same as rationality. A market diverging from some alleged "rational" value as it swings way above and way below the "rational value" doesn't a priori mean the market isn't efficient.
I'm sure Lo knows all that, which it why it would be interesting to see what he actually said.
--
Rich Carreiro                            rlc-news@rlcarr.com
Reply to
Rich Carreiro
driving forces of stock market volatility.  And volatility is so high now that buy-and-hold investors are getting shellacked.
Inscrutably, Andrew Lo says that buy-and-holders are getting shellacked because they do not buy-and-hold. For example:
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Q: Even during the so-called lost decade (2000 to 2010) someone who
regularly put money into a 60% stock/40% bond portfolio would have had
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Reply to
Elle
Yes, exactly! The example he gives for why buy and hold doesn't work has the investor bailing out, instead of buying and holding - and doing it at exactly the wrong time.
Which is one of the arguments for buy and hold! If it's your strategy, you don't do that - maybe you don't even know the market went down. Even better, you buy-hold-rebalance and take the opportunity to "buy low." That's low, not Lo, which I'm just not buying.
On the bright side, with another 6 months like the last 6 this genre of article/economist will fade from view, replaced by "Did you just miss that? The virtues of buy & hold." Remember when everyone was so freaked out by high frequency traders that they didn't notice that the US stock+bond market was at an all-time high? (as were the balanced index funds that track those markets)
-Tad
Reply to
Tad Borek
I'd written "For the 20 years ended Dec. 31, 2006, the average stock fund investor earned a paltry 4.3 average annual compounded return compared to 11.8 percent for the Standard & Poor?s 500 index" Taken from a report by Dalbar. In a perfect world, one would see that 11.8 minus some very small cost, or perhaps even beating the 11.8 with the effect of averaging in over time. In a high fee world, even 10.8 looks great compared to the 4.3 they calculated.
Reply to
JoeTaxpayer
Now we're talking.
I almost spewed my dinner-salad onto my keyboard when I read the above. :-)
You bet.
You oughta join the folks at the Wall Street Journal site commenting on Bodie's article. Ninety percent are Dapperdobbs-type (bona fide) hotshots with all wisdom.
Reply to
Elle

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