The,Demise,Buy,amp,Hold,Based, finance, share, loan The Demise of Buy & Hold
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Based on consistent results I think Buy & Hold should berenamed Buy, Hold & Bye-Bye. It sounded great for a while,especially for the huge majority of investors who don't have thetime or interest in really doing due diligence on investments. Investing, for some, might be just a hobby, but it can sure bean expensive one. Yet, if you're like many of us, you know thereare opportunities for putting your money to work and having itgrow. Nonetheless, investing, like any business (and it is abusiness) has its own unique challenges. Her are what I considerto be the top three. 1. Intelligently Deciding What to Buy When it comes to Mutual Funds, there are today over 13,000choices. You're going to check out each one, right? Yeah, right.And even for those you do check out, what are you going to lookat? Past performance? What else can you look at? But as it sayson the bottom of every prospectus, past performance is noguarantee of future results. And in these days of cockeyedcooked books, past performance is barely a guarantee of pastresults! So you need to decide not only what to buy, but youhave to be darn sure you know when to sell it when futureresults of an investment don't match your expectations. Sure, there are investment rating services that provide a falsesense of security to Buy & Holders. But the fact is that prettymuch every investment that rating services have touted over thelast few years has lost money. So much for depending on thatsort of expert advice. 2. Determining When to Buy? It shouldn't matter when you buy if you're never going tosell-but it does. If you buy just before the market falls, guesswhat: You will start with a loss that you have to recover beforeyour investment begins making money. So what? According tostatistics on mutual fund sales, most investors buy just in timeto grab a loss. Buy & Hold may turn out to be a profitable approach if youintend to hold forever. But we don't live forever, and mostpeople are going to want to sell their investments at some pointbefore forever hits. It's small comfort to know that if you holdyour investments for another 20 years, they will makemoney-especially if you're retired and want to take a cruisenext month. 3. Staying the Course. It takes a strong stomach to hang on to an investment when yousee it disappearing before your very eyes. Or even when it's upone day and down the next. (Like these days, for example.) Andonce you decide that having to wait for three decades beforeyour investment gets back to square one is not such a greatdeal, what happens to your Buy & Hold strategy then? It's outthe window and all you're holding is the bag. The much emptierbag. So what's an investor to do, especially an investor who's reallynot a professional? For one thing, find a reliable method ofgaining information. One that I like is a trend analysisapproach that objectifies market behavior. This type of approachis more kinetic in that it doesn't rely on past performance-itrelies on past and present performance to indicate a "trend"toward future performance. While that's not infallible in anysense of the word, it is a broader range of information thanmost guides. Using one of those as a foundation for your strategy, determinea buy point and, most importantly, a sell point for anyinvestment you make. Get comfortable with taking small lossesbefore they turn into big disasters. There is always risk in investing. However there are ways tominimize risk so you become an investor, not merely a gamblerwith high hopes for a Buy & Hold approach that many people havenow found to have failed them. Article Tags: Past Performance
The,Demise,Buy,amp,Hold,Based,