Tuesday, November 20, 2012

"Buy and Hold Is Dead (And Never Worked in the 1st Place)"

Here, here.
From The Big Picture:
CNBC, Market Watch, Forbes, Kiplinger, Wall Street Journal, CNN Money, The Street, Mark Cuban and others say that buy and hold is dead.
Lubos Pastor of the University of Chicago Booth School of Business and his colleagues have recently documented that buy and hold may never have been a viable investment strategy.
Wall Street Journal columnist Brett Arends wrote in 2010:
For years, the investment industry has tried to scare clients into staying fully invested in the stock market at all times, no matter how high stocks go…. It’s hooey…. They’re leaving out more than half the story.
Leading economist Robert Shiller strongly hinted at this possibility in research which he published 30 years ago.

As attorney, tax expert and financial writer Rob Bennett told us:
The story in brief is that Yale University Economics Professor Robert Shiller published research in 1981 that turns our understanding of how stock investing works on its head. Shiller’s findings let us all obtain far higher returns at greatly reduced risk. The problem is that, by the time Shiller published his research, many big names had already endorsed Buy-and-Hold (which was based on research discredited by Shiller). So the big shots in the field have been ignoring and then even covering up Shiller’s findings for 30 years now.
The thing that I have done that no one before me has done is to explain the
practical IMPLICATIONS of Shiller’s findings. Even Shiller has never done this.
Shiller’s book (“Irrational Exuberance”) is fantastic, but it is all theory. He never tells investors WHAT TO DO. He has explained why in public interviews. He has said that he would be branded “unprofessional” by the experts in this field if he were to do so.
Shiller and many others have been keeping their mouths shut about the practical implications of his theory for three decades now....

See also:

 Oct. 2008 
Is buy-and-hold dead and gone?
Nov. 2008 
Will Retail Investors Continue to Buy and Hold Stocks?
Dec. 2010
Société Générale's Dylan Grice-"Commodities: ‘Their Expected Long-Run Real Return is 0%’"
Well duh.
Commodities are for tradin' not investin'.
Which makes one wonder how CalPERS and the other big institutions got snookered by Goldman Sachs into being "Long-Only Index Investors".

Do you, gentle reader, think for one minute that Goldman's crown jewel, Alaron Trading, just buys and socks the stuff away?
Of course not. Alaron makes directional bets, both long and short, to take advantage of the movement.
To a competent trader, volatility is your friend....
April 2012 
Strategy: "Time for Some Trading?"
Gerald M. Loeb was writing something similar back in 1935, three years after the '32 bottom. Quoting from 2010's "Happy 75th Anniversary to one of the few MUST READ Investing Books: Gerald M. Loeb's "The Battle for Investment Survival"':

...For the rest of the month I am going to excerpt snippets from this timeless classic.
The book is written as a series of three and four page chapters, almost in the form of notes from a friend.

Today, the Fisher forward and part of the introduction:
"To a 1935 reader...nothing was more terrifying than the prospect of buy-and-hold..."

"Loeb's preferred strategy of continual in-and-out, concentrated, 'speculation' seemed radical, fresh and far safer than buy-and-hold."

"Loeb recommended swapping...eerily like churning...he specifically recommended against letting money ride in the market."
"That may not be sound advice today"
Remember, the forward was written in mid-2007, as it turned out selling your losers on single-digit percentage drops was the only way to save yourself, if long, from October 2007 through March 2009.
Buy-and-hold meant dead-and-gone....
So here we are, three years after the 2009 bottom. It must be a cyclical thing.
Barron's Feature article this week:
As global markets gyrate, a growing number of advisors are telling investors to set aside as much as 25% of their portfolio for shorter-term bets. Sizing up the risks and returns....
And my personal favorite:
Pitfalls in Prognostication: Fortune Magazine's August, 2000 "Ten Stocks to Last the Decade"
...So for help in finding the stocks best positioned to capitalize on these four trends, we sought out some of the top stock pickers in the country--Blaine Rollins, manager of the Janus fund, Kurt von Emster, manager of the Franklin Biotechnology Discovery fund, SunAmerica portfolio manager Frank Gannon, and strategist Marshall Acuff at Salomon Smith Barney, among others. We also did our own due diligence by poring through financial statements, talking to companies, and giving their products a test run. The result: ten stocks that we think will be winners over the coming decade....

...That means there's a huge market opportunity for companies that can cut through the clutter and actually make life (and business) easier. Who's positioned best? As we see it, four companies: Nokia (NOK: $54), Nortel Networks (NT: $77), Enron (ENE: $73), and Oracle (ORCL: $74). True, these four have entirely different businesses--wireless handsets, telecom equipment, broadband connections, and software--but all offer what are essentially supermarkets of products, which should help them overwhelm less diversified competitors. If you're looking for precedents here, think Cisco Systems and Microsoft.... 
It gets worse.