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fransgeraedts (99.57)

The slow motion crash is over; start buying (2) The time for buy-and-hold-for-thirty-years begins now; a post in answer to a comment by Nuf2bedangerous



October 30, 2008 – Comments (1)

Dear Nuf2be

i agree wholeheartedly. This market is at the moment unpredictable. This market reflects an unhealthy state of affairs in the financial markets and in the economy.

But...over the long run stockmarkets are predictable. They rise.

I have always disliked and distrusted the simple "buy and hold" rethoric. It is of course true that by picking quality stocks and holding them forever you will in that very long run be able to profit handsomely from the general rise. But in the more realistic timeframes we mortals have to work with -say 30 years- the point of entry, the moment you buy stocks makes a huge difference. If you for example bought a basket of stocks of quality tech stocks in 2000 would still be looking at major losses. Japan in 89, the best banks of the world a year ago, the best commodity stocks 4 months get my drift.

If you diversify your stocks some of these problems can be avoided -true. But not in great bear markets like the ones around 1929, 1974, 2002 and 2008. Buying a diversified basket of quality stocks in the years leading upt o these great disruptions and then holding them would put you underwater for a decade or more.

So timing matters. It matters hugely. True buy and hold believers counter that by saying that it is not possible to time the market.That sounds reasonable and seems to be validated by the experience most of us have in trying to predict movements. I would be happy to concede that indeed on a day to day basis the markets are unpredictable, their movement random. But, again, in the long run, with regard to the big movements, timing is possible.

In a nutshell: in a buy-and-hold-for-thirty-years perspective (buying stocks for retirement, buying stocks for your children) this period of time is actually one of the safest in history to make an entry.

I am not saying that the market will not go lower from here. It could. It could significantly. What i am saying is that the largest part of the drop is behind us. We are down in the S&P from1600 to 800. Lets say it will drop another 200 points. The difference is is between a 50% drop and one a bit over 60%.

What i am saying is that if i buy the S&P around 800 and it is at 1200 in ten years i will have made 5% a year ..without the dividends.

Waht i am saying is that if the S&P drops to 600 and i buy again..bringing my cost down to 650...i will have made almost 10% a year..without dividends..if the S&P reaches 1200 in ten years.

I am not suggesting however to buy the S&P. I am suggesting that people shouldl buy the best companies near their lows now. With a part of their capital. And buy again if the market drops again. This should reap even higher profits.

You can time the market most easily after a great breakdown. That time is beginning.




1 Comments – Post Your Own

#1) On November 03, 2008 at 4:44 PM, BigFatBEAR (28.28) wrote:

I'm really a pretty new investor, but I agree. I'm a buy-and-holder who recognizes that entry point is extremely important for maximizing gains.

I think the main thing that buy-and-holders do that counteracts market timing is dollar-cost-averaging...    which is smart in a volatile market, and mostly hassle-free, but not profit-maximizing.

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