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The Life and Subsequent Death Of Buy and Hold Investing

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June 11, 2009 – Comments (42) | RELATED TICKERS: SPY

The Life and Subsequent Death of Buy and Hold Investing

 

Current market fluctuations over the past two years have bred new life into the age-old theory of whether or not it is better to buy and hold investments over the long-term making incremental investments over time or rather attempt to time the market or trade your way to profits. This thread is not my own personal idea but another branch off of Tom Gardner’s thread which discusses the merits of  buy and hold investing and what it takes to truly become a long-term investor. That article can be found here: http://www.fool.com/investing/general/2009/06/05/long-term-investing-doesnt-work.aspx

 

I don’t think you can truly appreciate how effectively buy and hold investing worked until you thoroughly examine its past and look at the multiple events, technologies and tools which enabled the individual investor to become more involved with Wall Street trading.

 

Since the early 1900s and through the mid to late 1990s Wall Street was essentially run by financial institutions. The majority of the investing public followed what they could through nightly news programs on television, although the business section of their local newspaper was generally the medium by which information was disseminated. Most of those investors were far too small to go it alone and the mutual fund scene dominated the landscape. Costs associated with buying and selling stock were high, volumes were relatively low based on what we see these days, and access to information as we just stated was difficult at times.

 

Although there had been corrections in the past, including the October Crash of 1987, the stock market had always proven resilient, and investors are always, if anything, willing to believe in the historical happenings of the stock market. Every bear market prior to this mid to late 1990s period had been met by a voracious recovery within a decade and as we’ve seen from fellow FOOLers on this site, many graphs show that the long-term value of buying and holding does indeed create steady profits.

 

But a major shift has occurred over the past 10-15 years that has changed the investing landscape and skewed it irreparably toward traders and away from long-term investors. Unfortunately, as I see it, there isn’t a simple one-part answer to this question as to how this occurred. I have come up with numerous factors that I believe played off of each other to create the momentum-oriented environment that you see before you today.

 

I think first and foremost what needs to be said is that the access to information is more viable now than ever. It’s not that we didn’t have access to company info in the 1980s, but access was not nearly as quick and instantaneous as it is now. The Internet has revolutionized the way we can evaluate a stock and place a trade. Recently, accounting scandals and poor business practices have caused an even greater shift toward investor independency. Individual investors simply can’t or won’t trust the research they receive from Wall Street institutions as much as they used to. They have a government so dedicated to increasing the transparency of Wall Street that they figure any research can be done on their own.

 

Pairing hand-in-hand with the ability to get company information at the click of a mouse is a general trend of Internet and financial institutions of decreasing trading costs. If you take a general trend of a round-trip stock trade back in 1999 and look at the average cost of a trade today you’d see that costs have nearly been halved, and not surprisingly the amount of trades made by individual investors has risen. What is even more incredible is just how drastically institutions have increased their trading and share turnover over the past decade, the reason(s) of which I will get onto later.

 

The nature of stock trades is also of interest. Prior to the mid-to-late 1990s the majority of trades were executed by brokerage houses and large financial firms in moderately sized blocks. With the individual investor getting more involved in the game over the last decade we have seen the average order size decrease dramatically. Frequently we see orders run through for just hundreds of shares which is yet another way that turnover can increase and volatility can rise.

 

One single factor that I think bears a huge responsibility for changing the nature of buy and hold investing and could be the “one” factor that attributed the most to its death is the reduction in the tick rules. Beginning in 1997, in order to increase trading and reduce the spread between the bid and ask, the minimum tick was reduced from 1/8th of a dollar to 1/16th of a dollar. Also in 2001, they took it a step further and eliminated the fractions altogether, going with the decimal system that is still in place today. These actions set the stage for the demise of the buy and hold investor! Since the tick reductions we have seen smaller spreads, higher volatility, increase share turnover, and more investor independency.

 

Other tools have added to the independence of the individual investor. Within the past couple of years we have seen the emergence of ETF’s- electronically traded funds. These funds take a basket of stocks, put them together and they trade like a tracking index. Prior to the past decade, there really wasn’t an effective way to buy into anything more than a single company at a time unless you knew how to play the commodities market, which very few people did back then (and still don’t now for that matter!). ETF’s have opened up a vast amount of possibilities for traders and institutions alike and we’ve seen an explosion in the amount of ETF baskets available. If you were to compare the performance of standard index funds versus most ETF basket funds, you would see that ETF’s have, in their short history, vastly outperformed the index funds.

 

Likewise, all you have to do is look at the Internet and a more educated investor/trader to understand why we have seen such a dramatic rise in options activity. As the individual trader has become savvier, he/she is able to do more with less. He/She is becoming more willing to take short-term risks in the options market, which in turn is increasing the underlying volatility in the overall stock market.

 

Volatility has a strange effect on the human psyche. It seems to be the one thing that can break the notion that history can repeat itself. We know that long-term investing has worked in the past, but we’ve been burned all too recently by the Nasdaq Crash of 2000-2001 and the financial crisis of 2008-2009 to factor that in. We have had the phrase “past returns are no guarantee of future results” burned into our minds for 11 years now. Stock market volatility and financial rhetoric dictates that our best route of survival is to approach the stock market with a 10-foot stick and jab at it now and then just to see if it still responds.

 

This market correction (or implosion) has also taught us a very valuable lesson about investing- we are not alone! In 1997 the world was still very much partitioned into trade regions and the US remained a dominant financial force. When Japan suffered a near financial collapse in 1997 our markets did react, but very quickly recovered while Japan languished for nearly a decade afterwards. Twelve years later we’ve seen world trade jump up dramatically and I’m not sure whether this is a good or a bad thing, but we’ve also seen a globalization of world stock markets. I’m not saying that a 10% drop in the Turkish stock index is going to collapse our financial system, but we are more tied into the success of the rest of the world than ever and unfortunately its going to be a very long time before most of those countries are firing on all cylinders again. Just as we like to look upon our 100 year old history which dictates that buy and hold strategies work, foreign markets like Japan make us think otherwise (65%+ negative return over the last 20 years with a buy and hold strategy).

 

I think the final nail in the coffin to long-term investing was the rise and subsequent fall of the Baby Boomers. Children are very impressionable and will tend to follow in the footsteps of their parents when it comes to investing. Baby Boomers were expected to be relied upon to sustain our economy for at least the next 15 years given that they had built up their savings during the practically uninterrupted bull market run from 1992 to 2007. The majority of Boomers are long-term investors with a mix of individual investors and institutional customers but nearly all have lost 35-60% across the board. With staggering losses like that most of these Boomers have no choice but to actively and aggressively get back to trading. Frankly, this generation doesn’t have a 20 year horizon to work with and tell me, just what do you think the Boomers’ children will take away from this experience? My guess would be that staying on top of your investments is paramount and sitting idly by is a poor financial decision.

 

The sting of short-term memory, the Baby Boomers financial decisions, trade regulations, the invention of the Internet and the subsequent reduction of trading costs, increased options volatility, the addition of ETF’s and a more globalized world have all contributed to the decade-long demise of long-term investing. They say certain genetic traits skip a generation, so perhaps after 20 years and the sting of this financial crisis are gone, maybe we’ll see an environment conducive to buy and hold investing, but as of right now, there is no clear evidence or indication that people have the fortitude or trust to buy and hold anything for a decade or two. It was nice knowing you long-term investors, now clear a path for the momentum and swing traders.

 

UltraLong

42 Comments – Post Your Own

#1) On June 11, 2009 at 9:34 PM, catoismymotor (< 20) wrote:

UltraLong,

You have laid out your arguement in a very understandable manner. As a result you have given me much to reflect on. As of this moment I consider myself a buy and hold, long term bull. I will have to see what kind of adjustments need to be to my approach. Thank you for your efforts.

Sincerely, 

Cato

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#2) On June 11, 2009 at 9:34 PM, DEALWITHTHEDAY (35.31) wrote:

Good information thanks.

You reinforced what I believe which is in more normal times will say in a year or two there will be stocks that are volatle and stocks that will be main stays. I am one of the later baby boomers. I am trying to learn to short trade volatility and long trade stable. Right now there is so much volatility that I find myself short trading much more than I ever thought I would.

 

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#3) On June 11, 2009 at 9:40 PM, KnightTrader4u (83.30) wrote:

thanks for your thoughtful explanation. I hadnt thought about it in terms of 

- access to info being easier

- trading costs being lower

- volatility

- dramatic rise in options (educated / more sophisticated investor) 

- ETFs - the basketing effect...

 

I think you have described me (minus the educated ;) to a tee... 

 

 

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#4) On June 11, 2009 at 11:06 PM, LongTermBull (93.52) wrote:

Your blog is very well thought out and written.  I do agree with you the the internet has changed many things in our lives, with investing being one of them, but I am not ready to write off buy and hold just yet.  I do think you can make more money by looking for values and not buying when things are way too expensive, but even those buy and holders have made money during this stretch. 

If you go through the last 10 years which includes not only the tech bubble but also a recession they have still averaged a 3.8% yearly return.  Plus they have paid exactly 0 taxes on these investments.  Now 3.8 is by no means incredible, in fact it sucks for the risk they are assuming, but we are also in one of the worst 10 year stretches in the history of the markets. 

I think buy and hold will always work.  There have always been up years and there have always been down years.  Unless the market goes on a perpetual decline buy and hold will still work.

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#5) On June 11, 2009 at 11:06 PM, checklist34 (99.72) wrote:

good luck on attaining the top spot, it must be very close by now.  I am 100% sure you know this, but the levered ETFs your CAPs game portfolio holds are subjec to time decay which will somewhat harm your return over time.

My strategy for investing is neither buy and hold or trading.  Its buying into big market crashes and getting out once the markets have approached or reached "fair value" or, alternately, when the individual stocks I own have.  And using alternate strategies in between.  :)

 

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#6) On June 11, 2009 at 11:11 PM, LongTermBull (93.52) wrote:

My strategy for investing is neither buy and hold or trading.  Its buying into big market crashes and getting out once the markets have approached or reached "fair value" or, alternately, when the individual stocks I own have.  And using alternate strategies in between.  :)

I feel this is the soundest strategy as well.  For most investors though this is not realistic as they are not able or willing to put in the time to find these companies.  I still think for the majority buy and hold will work, and it is the type of investing you can do without having to live and breath the market.

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#7) On June 11, 2009 at 11:18 PM, TMFUltraLong (99.95) wrote:

 #4) On June 11, 2009 at 11:06 PM, LongTermBull (83.96) wrote:

I think buy and hold will always work.  There have always been up years and there have always been down years.  Unless the market goes on a perpetual decline buy and hold will still work.

I don't disagree with this statement, but I also don't think its whole-heartedly true either. Its not the length of decline but them magnitude of that decline that will determine the overall success of buy and hold strategies. If you were foolish enough to purchase the Nasdaq back in 2000 your buy and hold strategy has you underwater by 60%. If you purchased the Dow tracking indexes in roughly 6 of the past 10 years, you're underwater. I think it shows that index funds are becoming a thing of the past as an investment vehicle and that timing can be very important in determining whether a buy and hold will work out.

UltraLong

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#8) On June 11, 2009 at 11:21 PM, TMFUltraLong (99.95) wrote:

#5) On June 11, 2009 at 11:06 PM, checklist34 (99.67) wrote:

good luck on attaining the top spot, it must be very close by now.  I am 100% sure you know this, but the levered ETFs your CAPs game portfolio holds are subjec to time decay which will somewhat harm your return over time.

Oh yeah, I'm well aware of the decay time on those triple and double leveraged ETFs. I don't have to worry about the inverse ones all that much, but I plan on exiting the bullish ones somewhere in the 12-24 month range. We have quite a rally to come, but not before a decisive pullback.

UltraLong

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#9) On June 11, 2009 at 11:29 PM, LongTermBull (93.52) wrote:

If you were foolish enough to purchase the Nasdaq back in 2000 your buy and hold strategy has you underwater by 60%. If you purchased the Dow tracking indexes in roughly 6 of the past 10 years, you're underwater. I think it shows that index funds are becoming a thing of the past as an investment vehicle and that timing can be very important in determining whether a buy and hold will work out.

The counter argument to this is that we are talking about an extremely short time frame here.  Not to mention we are picking the worst time frame possible.  What if you started your buy and hold strategy in 2003?  Or what if you started in March 2009? :)  I don't think it is fair to look at 8 years as a buy and hold strategy, I think most people think of buy and hold as until retirement which for most people is probably 30+ years.

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#10) On June 11, 2009 at 11:39 PM, StopLaughing (< 20) wrote:

Note: most 401Ks, and 403Bs (managed employment plans) have strong buy and hold biases in them. There are no provisions to short, there are no commodity funds, no ETFs, no options, and usually there are limited money market, bond, blend and stock mutual fund options. Worse there are penalties for "short" term trading. Short term trading can be defined as 5 or less years holding period.

As long as there significant flows into these type of funds "buy and hold" is not dead as they are designed to constrain trading.  The constraints are supposed to save the retiree from themselves. They are really designed to benefit the funds. They get your money and penalize you if they have to let go of it.

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#11) On June 11, 2009 at 11:39 PM, checklist34 (99.72) wrote:

long term bull said:  I still think for the majority buy and hold will work, and it is the type of investing you can do without having to live and breath the market.

And that my fine fellow is worth alot.  This bear market is my first real forray into the stock market with real money, actually its literally my first.  I placed my first order for a stock in December 2008.  So far the results have been far beyond my best-case hopes, and I am very grateful for the improved financial situation...

but its taken a huge toll on my quality of life in many ways.  I've read dozens or hundreds of 10Qs, listened to dozens or 100's of conference calls, I sit up at night, get too little sleep...

And frankly, I WILL NOT do this for much longer, I just won't.  And I need to regress to a less involved investment strategy ... until the next massive market crash. 

I will only work this hard at investing during severe crashes, and I am quite confident in a strategy thats low maintenance but pretty good for the times in between market crashes. 

There's more to life than money and investing, and if I had to do waht I've done for the last 4 months for the next 4 years ...  i just couldn't do it. 

 

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#12) On June 11, 2009 at 11:42 PM, checklist34 (99.72) wrote:

ultralong said

We have quite a rally to come, but not before a decisive pullback.

I am interested in your view on the timing, magnitude, and type of the pullback you predict.  I've predicted the same thing often in my and various other blogs here - a correction that then sort of helps the rally continue - but my timing has always been poor. 

Whats your views, however loose, on timing and magnitude?

:)

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#13) On June 11, 2009 at 11:47 PM, TMFUltraLong (99.95) wrote:

#10) On June 11, 2009 at 11:39 PM, StopLaughing (< 20) wrote:

Note: most 401Ks, and 403Bs (managed employment plans) have strong buy and hold biases in them

I'd actually beg to differ that 401k's are becoming considerably more open to allowing the individual account holder to shift funds around with ease. True, you're still tied down to a particular financial institution and your choices are going to be limited, but trading in and out of those funds is becoming more liquid than ever.

UltraLong

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#14) On June 11, 2009 at 11:50 PM, TMFUltraLong (99.95) wrote:

#12) On June 11, 2009 at 11:42 PM, checklist34 (99.67) wrote:

Whats your views, however loose, on timing and magnitude?

Well, my timing has already been off because I posted my 18 reasons why we'll pull back from current levels about 4.5% ago. I figure between now and roughly 5 weeks from now we are going to begin a descent toward 808 on the S&P. After a re-test of the 808 area I could see us hitting 1040 within 6-8 months. So this puts us around 2 months out on hitting 808, and roughly 8-10 months out on 1040.

UltraLong

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#15) On June 11, 2009 at 11:51 PM, LongTermBull (93.52) wrote:

checklist:

I feel the best thing to do to avoid that for investors like us who are able to put in the time is find a small number of companies that are undervalued and have bright futures (using whatever method you use).  Then just invest in these companies as long as you feel they are undervalued.  By doing this you do not have to watch the market everyday or lose sleep, lol.  No reason you have to own ever single undervalued company in existence.

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#16) On June 12, 2009 at 12:00 AM, d1david (29.28) wrote:

nice post, thanks

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#17) On June 12, 2009 at 12:03 AM, checklist34 (99.72) wrote:

LongTermBull, that is a simpler way, yes.  But for me I had to go from ground zero (I had never read a p/b, a balance sheet, or even heard of about 90% of the companies I ultimately took positions in), never heard of a call or a put, nothing. 

And I had a very specific goal for this market - buying really cheap stocks far under fair value.  And, in fact, I sold all of my businesses last fall in part because of the crashing markets after Lehman's fall.  I was on the bubble about selling the biz's or keeping them, but ultimately decided in September that with the world imploding and markets crashing the odds were decent that I'd wind up ahead buying into a market crash and riding the up tide -vs- running the biz's in a bad recession. 

The problem I ran into was I could not find any professional managers who had what I considered a reasoanble outlook.  The most aggressive value-bull fund I found i did put some money into, and they've done very well, beat the market, etc.  But their average pick was down about 55% from its high in mid-december.

Other funds were shorting stocks in november and december and january and february, and I just decided this was outright dangerous and refused to talk to them.  Why short a market tahts cut in half?  or stocks, like Casinos, which everybody I talked to then was very proud to be shorting, that are already down 90%?  The short money has been made, might as well go home. 

And most professionals were advocating stocks like amazon, wal mart, mcds and other stocks that weren't beaten down at all, which I just decided was not the best-odds play.

So i looked at the one fund I put some money with, added it up, got the down 55% figure, surveyed some stocks and realized there were literally 100's of companies down 75%, 80%, 90%, and just decided that at the end of the day all the professionals were too scared to capitalize on what was happening and that i'd have to do it myself. 

And thus began my 6 month trek of self-education on equities, valuations, sec filings, volatility, options, and all. 

lol.  Anyway so far so good, I'm much more than double my $$$ on self managed funds (and overall), I'm happy with that.  but i'm bruised and tired and i've drank too much coffee and I need some time away from all this. 

Which I will take, soon.  :)

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#18) On June 12, 2009 at 12:08 AM, checklist34 (99.72) wrote:

hey ultralong thanks for your $0.02 on the correction.  The correction you propose is definitely more decisive than what I have in mind.  I can see a trip back to 875 or maybe the 830ish point the market fought with a couple of months ago, but thats all.  Still too much money on the sidelines.  My target for a kind of highish point on the market is about 1050-1100 sometime this year. 

So I guess i'm a little more bullish than you.  hopefully my guess is closer, lol, even if i'm not very smart, which one of the bears told me the other day.  :P

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#19) On June 12, 2009 at 12:09 AM, checklist34 (99.72) wrote:

in fact I think i offered to bet GMX or somebearorother my favorite car that we don't go under S&P 800 again in this particular bear market.  I don't believe they accepted. 

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#20) On June 12, 2009 at 12:22 AM, Tastylunch (29.34) wrote:

Fantastic Post. SHould be the top post of the day.

I'm not sure buy and hold was ever what people thought ti was.

If we ever had a major invasion or pandemic on Americna soil would have buy and hold worked then? I doubt it.

people forget that there are fundamental assumptions built into thig slike buy and hold.

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#21) On June 12, 2009 at 12:38 AM, LongTermBull (93.52) wrote:

checklist:

What you did was exactly what I was implying.  But once you find those companies that you feel are worth your investments you no longer have to live, eat and breath the market.  Just keep an eye on your companies, listen to the conference calls (which you can even do from your computer after the fact) and keep adding money in if you can and feel they are still undervalued.

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#22) On June 12, 2009 at 12:44 AM, Seano67 (27.86) wrote:

Awesome post. I know that I have personally had to reevaluate the philosophy of LBTH, and reading such a well thought out and cogent post as yours makes me feel the need to reevaluate it all the more, and that's a great thing. Two thumbs up for this one.

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#23) On June 12, 2009 at 3:38 AM, checklist34 (99.72) wrote:

longtermbull - yeah, exaclty.  Once you are comfortable with what you own, and comfortable that it isn't fairly or over priced, you can sit for a while. 

I spend a fair amount of time going over my holdings and estimating - based on earnings, earnings potential, historical values, valuation of peers and the like - what fair value for them is.  I want to sell while there's still some upsdie for the next guy in ever case.  I think thats a nice way to avoid riding way back down...

thanks for all the comments.  I read your post from the other day, and it was a nice relief from the intense negativity that seems to dominate these boards.  So I rec'da ll your blogs until I just couldn't rec any more.  lol

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#24) On June 12, 2009 at 10:34 AM, TigerPack1 (98.50) wrote:

UltraLong,

Did you make #1 in the middle of yesterday's trading?

You had basically a tie with Everyday for points, but considerably better accuracy.

I don't see the red ribbon indicating you have reached #1 sometime during the game's existence?

-Tiger

 

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#25) On June 12, 2009 at 1:42 PM, RonChapmanJr (77.62) wrote:

LTBH investor here.  Why?  Because I have better stuff to do with my time than pay close attention to the market. 

LTBH will always be around because there will always be lots and lots of people that have jobs/children/business/etc. that require their time. 

ron

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#26) On June 12, 2009 at 3:30 PM, TMFUltraLong (99.95) wrote:

#25) On June 12, 2009 at 1:42 PM, RonChapmanJr (99.84) wrote:

LTBH will always be around because there will always be lots and lots of people that have jobs/children/business/etc. that require their time. 

Ron,

There will always be people out there like this and don't take offense to what I'm about to say as you're the exception, but this approach you described is just avoidance and ignorance.

Buy and hold investors NEED to stay abreast as to what's going on with the market in order to remain successful and determine if its worthwhile to continue their DRIP investments or maintain what they currently own. True, they don't need to follow day to day fluctuations, but checking in periodically with their investments is still important. Simply setting and forgetting a group of stocks is ignorance at its finest.

UltraLong

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#27) On June 15, 2009 at 12:13 AM, jeffspick (23.33) wrote:

Hi Ultralong,  Is it possible to make contact with you in real life?  I wish CAPS had a way to forward legit messages in CAPS.    I would like to exchange phone numbers because its much more efficient than email.    I am not selling anything or looking for partners.  I wanted to know more about what you actually invested in with your real money if any vs fool, and what your exit strategy is.  It is easy to be liberal with these picks if its not your real money behind them :).  I dont see any closed picks as of yet despite your spectacular performance.   Keep up the good work and best of luck. 

My email is blockbusterone at yahoo.com  

Thanks,
Jeff

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#28) On June 18, 2009 at 3:43 AM, votrehomme (< 20) wrote:

Fantastically well thought out and well written article. I compare this to Bogle's interview, which I thought was pure puffery, smoke and mirrors, and this is like a breath of fresh air. Thanks for sharing!

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#29) On June 20, 2009 at 2:18 PM, binve (< 20) wrote:

UltraLong, Fantastic Post! Thanks for all the thoughts and the time it took to write. I agree nearly 100% with everything you wrote, and I defintely agree with the overall theme. I can't believe I missed this post until today :). Thanks.

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#30) On June 24, 2009 at 12:06 AM, halomaster (< 20) wrote:

I disagree. The meaning of what it means to own stock has not changed. Owning shares of a company still means owning part of the underlying business. The day to day fluctuations of stock prices do not affect the performance of the underlying business.

I approach investing in stocks from a purely business standpoint. Which company do I want to own and at what price? Are the managers top notch? Is the balance sheet debt free? Is there consistent growth in their business? etc.

To value the business I go back to the best method around, the discounted cash flow method. If the stock price is at least 25% below the intrinsic value I buy shares. I then implement buy and hold until something fundamentally changes, a more attractive investment surfaces, or the shares get overvalued.

The people who say they got destroyed by buy and hold do not know how to value businesses or they let their emotions make decisions for them. If you can't stomach seeing your investment drop by 50% or more you shouldn't be in the stock market.

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#31) On June 26, 2009 at 11:21 AM, B0n3Z (< 20) wrote:

Ultralong,

 I appreciate this post- as it is one of the very best pro-technical arguments I've seen.  I know that you incorporate fundamentals in your analysis as well by reading your comments, and nobody can argue with your performance since march.  I myself have been a buy and hold investor with great success thus far using buffet's philosophy.  I have yet to really have much success using technical methods. 

  My question to you- do you have any suggestions of books we can go to for education in the realm of technical investing?  I have read Soros alchemy of finance, which is the only one I've found that seems to reflect reality and has produced a good track record- but it is very complicated and hard to replicate.  there is a lot of fluff out there by other authors.  any suggestions?

 thanks,

bones

 

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#32) On June 29, 2009 at 3:14 AM, TMFUltraLong (99.95) wrote:

I admit to not being much of a reader at all. Everything I know, other than basic charting and patterns I pretty much learned by doing. Edwards and McGee's "The Technical Analysis of Stock Trends" from c 1964 is my favorite book as I feel plenty of these new indicators today are far too complex to understand. Simple is usually what is correct and thats why I feel this book is invaluable.

UltraLong

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#33) On July 09, 2009 at 1:03 PM, Dividends4ever (< 20) wrote:

Buy and hold can still work if you investing in dividend paying companies and make your initial investments at the right price.

 

www.compdivplan.com 

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#34) On July 12, 2009 at 11:52 AM, Dividends4ever (< 20) wrote:

Buy and hold can still work if you investing in dividend paying companies and make your initial investments at the right price.

 

Just my opinion of course 

 

www.compdivplan.com

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#35) On March 12, 2010 at 3:26 AM, djshagggyd (74.31) wrote:

Great article, very insightful. Thanks!

I'm going to have to see if I can find a copy of "Technical Analysis of Stock Trends". It's really interesting to me that it's so old, yet you still find it so applicable. I like your "K.I.S.S." approach to research.

~djshagggyd

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#36) On September 05, 2014 at 8:09 PM, notyouagain (63.37) wrote:

"Favorite" book? How about "ONLY" book?

Everything you write SCREAMS total lack of understanding the foundations of long-term buy and hold investing.  

Comment # 7: "If you were foolish enough to purchase the Nasdaq back in 2000 your buy and hold strategy has you underwater by 60%." 

And "If you purchased the Dow tracking indexes in roughly 6 of the last 10 years, you're underwater."

As far as the part about index funds becoming a thing of the past as an investment vehicle, that is ignorance at its worst. You are dangerous. Most people who aren't really into this should be in an index fund, but need to be educated enough to realize that the biggest gains come from holding on THROUGH a crash, rather than getting scared and selling on the way down after you've lost half your uneducated little behind.

"The Nasdaq"? In 2000? "The Dow"?

You're arguing about what "put the final nail in the coffin" for buy and hold using specious reasoning like that?

You know jack about long-term investing. You did when you wrote this and you still don't.

Last year, you, "UltraWrong", recommended selling Hormel, because it was just off its 52-week high.

Well, Mr. "I'm not much of a reader" here are some facts about Hormel. I happen to be "very much" of a reader.

Hormel has boosted its dividend for 47 straight years. It has a 14% dividend growth rate, and in spite of hving grown its dividend 60% in the last 3 years, still has only a 35% payout ratio.

So here is this writer laying some claim on knowing something or at least having a clue...telling long-term investors they should dump Hormel....

And a year later writing an article praising a dog of a dividend stock like SJW, with its 70% payout ratio, low yield, and its having "grown its dividend 63% in ten years."

Hormel did that in the last 3 years and still carried a payout ratio of 35%...not 70%.

Can't see anything wrong with that, can you?

You should maybe be a "little more of a reader."

Red-thumbing bad companies and riding ETF's to rise to the top of CAPS was one thing.

You're being paid to write professionally now. It would behoove you to perhaps have read more than one investing book in your whole life.

Your readers deserve better.

Try "Warren Buffet And The Interpretation Of Financial Statements" by Mary Buffet and David Clark.

"The Ultimate Dividend Playbook" by Josh Peters.

I bet you've never even read "The Intelligent Investor" by Ben Graham. Shame, shame.

Quit thinking you've impressed everybody with your analytical brilliance by looking at a company's book value and "backing out the cash."

About interest coverage, gross margin, return on assets, return on equity, forward PE, net margin, payout ratio, consecutive years of dividend growth, dividend growth rates, durable competitive advantages, .....nothing. Nada. Not usually.

Seriously. There's way more to evaluating a long-term investment. You wowed a whole lot of people who also must "never have been much of a reader."

I never had reason to dislike you. I don't know you. But red-thumbing a bunch of ETF's and deteriorating companies to get to the top, then answering people who responded to your pitches and disagreed with you by mocking them because they had a lower rating as if you had earned yours by actual stockpicking was pure chicanery.

I may get kicked off here for this. I'll say goodbye to my friends before I post it.

 

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#37) On September 05, 2014 at 9:21 PM, notyouagain (63.37) wrote:

You see, and I never quite got to pointing it out....declaring buy and hold investing dead because of how the Nasdaq or the Dow index as a whole did since the ridiculously overbought condition of the market in 1999 - 2000 is either disingenuous or ignorant.

As for advising people to vacate their long term investment in Hormel,

Yahoo!Finance lists an actual closing price of $21.01 for Feb 28, 2003.

Right next to that is listed what Yahoo!Finance calls an "Adjusted Close" of $8.51 for the same date.

Do you have a glimmer of understanding about what that means?

I'm not going to go through all the math, but a person who bought at that Feb 28, 2003 closing price of $21.01 now owns 2.468860 shares for every share he bought then because of all the additional shares his reinvested dividends purchased so far, and now, at an annual dividend rate of $0.80, is enjoying a yield on cost of 9.41% from a company that has a payout ratio of only 35%.

With you as his financial advisor, how many times in those 10 or 11 years would you have been advising him to sell?

I don't think you even comprehend long term dividend investing. None of us believe in simply "setting it and forgetting it" either...we do our homework to find gems like Hormel, and hang onto them as long as they keep remaining a financial fortress dishing out more and more cash every year.

Hormel's interest coverage is 69.1!!!

WHERE is the poor fool that listens to you going to find a dividend yield of nearly 10% as secure as the one you're telling him to sell?

 

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#38) On September 05, 2014 at 9:23 PM, notyouagain (63.37) wrote:

LOL SJW?

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#39) On September 06, 2014 at 10:16 AM, Aleeb (29.51) wrote:

This is a pretty interesting comment on Tom's original article that you linked and it made me think... what did this guy do? Did he sell it at the bottom or did he wait, keep investing more while it was going down, at the bottom, and on the way back up... and if so what are his returns now?

 

On June 05, 2009, at 4:23 PM, Columbo1 wrote:

BUY AND HOLD? I saw my Mutual Fund IRA go from $172,000 down to $69,000M BETWEEN JANUARY 2000 AND NOVEMER 2009. THAT BUY AND HOLD SURE WORKED OUT FOR ME.

 

 

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#40) On September 06, 2014 at 12:21 PM, notyouagain (63.37) wrote:

He'd have one heck of a return if he didn't lose his head, Aleeb.

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#41) On September 06, 2014 at 3:26 PM, notyouagain (63.37) wrote:

Even the skimpy dividends from mutual funds, reinvested at 2008 and 2009 prices, would have seen his recovery from the bottom shoot past his pre-crash high and go on to be a real good return for him.

Me, I'll have nothing to do wth mutual funds. Mutual funds played a huge part in chasing share values up to absolutely idiotic levels in 1999-2000.

One example I think of pretty often is Coke (KO). At one point it was around 70X earnings...crazy. At a PE of 70, it offered a puny little dividend yield of 0.7%.

Anyone that invested in individual companies rather than funds would have had better sense than to buy it.  

KO closed Friday (9/05/14) at $41.84. Its earnings are $1.87.

If it sold at 70X its earnings of $1.87, its price would be $130.90, and its $1.22 annual dividend would give it a yield of 0.93%.

Long-term dividend investors enjoy a certain amount of immunity to market tops with idiotic prices.

I wouldn't touch KO or anything else for 70X earnings and a dividend yield of 0.93%.

This is why I have such an issue with the uneducated tripe put forth in this blog.

The writer's claims that the stomping the financially illiterate took by blindly buying into indexes and funds at the VERY WORST TIME is what "put the final nails in the coffin of buy and hold investing."

That's a very ignorant claim, and in my eyes "puts the final nails in the coffin" of his credibility as a writer of financial advice.

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#42) On September 06, 2014 at 6:06 PM, notyouagain (63.37) wrote:

http://caps.fool.com/player/trackultralong.aspx

Trackultralong is 3 years old now and has rating of 20.6.

I see you even managed to work some FAS and a few other ETF picks in there too, but, unfortunately, as a writer forced to try and do some stockpicking, I gather it must be difficult to maintain the high ETF-to-stockpicking ratio you need to show your "superior" investing skills?

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