Buy-and-Hold : the best strategy?

That was funny :):) and witty!!

Not as good as my "buy low, sell high" strategy.

Not at all. I am not sure how a "Buy and Hold" strategy can be described as a trading strategy - there is no trading. It is an investment strategy. The other bit that is missing is outperform what exactly? All trading in all markets? A bold claim indeed.

This is a huge area, tomes are written about it and it is the financial markets equivalent to the search for the holy grail.

The claim is only plausable in that it exists not that it is correct.

It would certainly be pointless to buy and sell without holding for a period. All strategies are buy-and-hold strategies.

It's a bit like saying you want a "people first" personnel strategy. Sounds good but means nothing.

1) is pretty much true, stockmarkets are definitely rather unpredictable, the debate is only whether there's a little bit of predictability or none :) Most of the academic research shows that the only significant consistent pattern is that markets overshoot, so strategies involving buying shares with prices which are low by some measure (low P/E, low price-to-book, high yield etc) have some degree of success - which is related to psychology, e.g. people are much less inclined to buy shares now than three years ago even though they cost half as much. 2) is clearly not true, there will always be other strategies which do better. The question is, can you identify them before the event?

Don't forget the sell high, buy low short strategy! An investment book I read gave an analogy that stocks can be like Animals in a wooded valley; The brilliant one's are hard to spot, but the sickly one's have a flock of vultures flying overhead.

If you are going to buy & hold routine watch the long term Price to Earnings ratio and compare it to the present (a clue that gave away the internet stocks with their "burn ratio's"). Wait for the market to deflate and then purchase solid stocks that pay consistent dividends. Dividends are key for your buy and hold strategy, stock appreciation is best for gambling, err... I meant day trading / cycle trading.

Don't bank on more than 7-8% and you'll be pleasantly surprised. Count on a consistent 18% and you might as well be buying Lotto tickets.

Stephen.

(You might want to read up on the Dollar Cost Averaging approach, might fit your temperament and approach). Diversification also tends to work well, the truly wealthy don't have more than 11% of their assets tied up in their personal real estate.

One of the central pillars of Motley Fool. Although that's left them with some embarrassment after three years of falling prices, no doubt they can still claim that in the (very) long term prices will return to a rising trend. For some suitable definition of 'very long term' of course.

Also it's interesting that in the 20-year survey, although they point out that the index is just about in the upper quartile of the fund results (i.e.

3/4 of the funds are below the index) the spread on the high side is quite a bit bigger - the best fund managed 18% vs 8% for the worst compared with an index return of 12% (i.e.

As a rule of thumb buying and holding is a good strategy when stocks are rising, but not quite so good when they are falling. A wise sage told me that. If you can't see the woods for the trees you shouldn't be investing.

unpredictable,

And an unwise sage would have said..................? :)

If they are so easy to spot why isn't that priced in to the stock? Why don't hedge funds that short stocks massively outperform other funds in the long run?

Thom

I know how to consistently outperform a tracker - buy shares directly and incur no charges ... without knowing what the funds were it's hard to know how easy/hard it would have been to pick the right ones.

As it happens I've been tracking my personal investment performance in detail since 1999. My capital return from equity investment (excluding dividends, and including overseas investments) compared with the All Share return has been (the formatting will be lousy here if you use a different font):

Year Me Index

99 +38.9% +20.3% 00 +0.7% -8.0% 01 -16.4% -15.4% 02 -21.0% -23.8% 03 (to date) +6.6% +2.0%

I don't know if 4.5 years is consistent ... (OK, in 2001 I was slightly behind). I tend to go for higher risk investments, hence the big gain in 99, so it's somewhat surprising that I've outperformed a falling market too. Also in 1999 I picked ten investment trusts for a fantasy portfolio, they are currently worth 23% more than at the start of 99, again excluding dividends, while the All Share is down 27%.

As I'm sure you know very well (not least because it was in my mail!) the index is heavily weighted to a handful of companies. If you put £7k in a tracker you will have nearly £700 in BP, but less than £10 in the smallest FTSE companies, never mind the other 600.

AFAIR it was wound up a few years ago ... probably it would have done pretty well in the last few years. I read somewhere that Govett closed their bear-fund unit trust in the late 90s for lack of interest and have recently re-started it, which might be a contrarian signal ... (For that matter, I see that the Gartmore UK Techtornado fund was folded in February, with a final value of about £7 million)

Over the long term the month-by-month volatility will cancel out, but you will still see the company effects (BP nearly did go bust in the early 90s, incidentally). The point is that that risk is completely unnecessary, there are plenty of companies around and you could easily have a flat-ish weight in one or two hundred companies - which is exactly what most managed funds do. In fact you can see the Vodafone effect directly on the FTSE, at the peak it was about 15% of the index and it fell by something like a factor 5 from peak to trough, so it knocked about 12% off the index value all on its own! (It didn't put a similar amount *on* the index on the way up because it bought Airtouch and Mannesman near the peak and increased its weight substantially.)

I don't think the mid 250 has been around longer than the early 90s, but in any case the point is not so much performance as volatility, I would expect the 250 to be substantially less volatile than the FTSE because it's much more diversified.