Everything Is "Buy and Hope"
One of the phrases that has entered the investing lexicon over the past few years -- joining the likes of "zombie banks," "credit default swaps," "shadow banking system," and "where's my f&*%ing bailout money?" -- is "buy and hope." It's a derisive term, suggesting that there's little rational basis for buy-and-hold investing. It was even the first comment in my post yesterday about GM. It's understandable, given that the S&P 500 is lower today than it was 10 years ago.
But for all who like to throw around the term "buy and hope," I ask this:
What investment strategy isn't based on the hope that the future will be some approximation of the past (and only a chosen segment of the past, I might add)? Show me an investment with a guaranteed return, and I'll show you either 2% or a liar.
I recognize the doubts about buy-and-hold investing. In the recent issue of our Rule Your Retirement, we reviewed a market-timing strategy using simple moving averages, and interviewed Mebane Faber, author of The Ivy Portfolio and this study on tactical asset allocation. So I'm open to other strategies. But every alternative to buy and hold has its own "hopeful" elements.
You can invest in a hedge fund, and hope it's not run by Bernie Madoff. You can invest in an annuity, and hope it doesn't get taken over by the state insurance commissioner (which recently happened to a Rule Your Retirement subscriber -- he'll likely get his money back, but not for a while). You can invest in a corporate bond and hope it won't go the way of WorldCom bonds, which had a single-A rating less than three months before the company declared bankruptcy.
This is what I think the buy-and-hold naysayers are saying: Looking at all the different ways you can invest, buying an index fund or a stock and holding on for the next 10 to 20 years has a lower probability of providing the best return. And perhaps you're right. At least, you better hope so.
But enough from me. For those of you who have given up on buy-and-hold investing, what are you doing?