Buy, Hold, and Make Nothing for 75 Years
You've probably seen the headlines: GM Shares tumble to lowest level since depression
That's right -- if you bought shares of General Motors in 1933, you have no capital gains to speak of (though you did get dividends, for whatever those are worth -- not so much, if you revinested them). Shares of GM peaked in 1999 at close to $90, got to around $20 in 2005 before rebounding to almost $40 in 2007. Now it's worth about a buck.
But it's not like GM was a fabulous investment before the dot-com bust. Check out this Yahoo chart that goes back as far as the 1960s. The stock was above $50 in 1965, fell to the $30s by 1967, and wasn't above $50 again until 1993. During this period, GM was the global auto sales leader. Let this all sink in: You could buy and hold for decades stock in the worldwide leader of an industry that grew considerably -- one that sells something that most people (at least in the developed world) feel they need -- and still make diddly.
GM isn't alone in being a lousy long-term investment. Check out the charts of these other companies that were once considered blue chips: Xerox, Eastman Kodak, Dow Chemical, AIG. And, of course, we have the banks -- oh, the banks!
Even Coke, while doing nicely from 1982 to 1998, was not so refreshing from 1962 (the earliest point on the chart) until 1982, or since 1998.
Finally, we must trot out names like Enron, WorldCom, Lehman Brothers, and so on.
Which leads me to my point: I'm fairly confident buying and holding asset classes (e.g., U.S. large-cap stocks, small-cap value stocks, etc.) will work out over the long term. They're down now, but contributions to your 401(k) buy in at lower prices, the economy will eventually recover, yada yada yada. A higher stock market is not guaranteed, as investors in Japan will tell you. But I'm comfortable with the odds.
But buying individual stocks is trickier -- requiring more diligence, more research, and perhaps a funny mixture of faith/hope/arrogance. Not quite sure. But looking at my portfolio -- whcih includes individual stocks, actively managed funds, and index funds -- the term "buy and hold" really only applies to the latter.