We all heard it. Mainstream media experts speak of it ‘buy and keep A strategy is dead and gone if it was ever a viable strategy. ‘Sorry folks, but I’m not buying or holding your position in buying and holding. Buy and hold ain’t dead, gone, or sick, but I’ll admit – it is misunderstood.
Walt Woerheide, professor of investments at American College and co-author of the textbook Fundamentals of Investments for Financial Planning by financial professionals, shared his views on buy-and-hold in an interview on BankRate.com. Here are some of his notable comments when asked if buy-and-hold was dead:
No, absolutely not, and it never will be. It comes back to the fact that anyone who believes they are outperforming the market is wrong as many times as they are right.
About 80 percent of the time, you had to be correct to outperform a buy-and-hold strategy.
The biggest danger in guessing the market is that the market will take a big jump.
Every time you get on and off you pay commissions.
However, buy-and-hold is not a buy-and-forget. We need to constantly monitor our holdings to ensure that the underlying fundamentals of the stocks we hold are not deteriorating. This concept was reinforced when I came across some articles I had written in August 2008.
The first article listed my 5 best performing stocks for 2008 through July 31st. The stocks were:
Wal-Mart (WMT) | Yield: 1.7%
Canadian National Railway Company (CNI) | Yield: 1.7%
Health Care Property Investors Inc. (HCP) | Yield: n / a
Johnson & Johnson (JNJ) | Yield: 2.3%
MC Donalds (MCD) | Yield: 2.3%
One interesting note is that I still own four of the five stocks (HCP sold after dividend cut) and they continue to offer excellent lifetime returns that range from 12.3% for JNJ to 15.0% for MCD (annualized ) pass. Buy and hold continues to work well for all of these stocks.
The second article focused on my 5 best performing stocks for 2008 through July 31st. The stocks were:
iStar Financial Inc. (SFI)
American Capital Strategies, Ltd. (ACAS)
SunTrust Banks, Inc. (STI)
First Industrial Realty, Inc. (FR)
General Electric (GE)
This group had one interesting thing in common – I don’t have any anymore. Every share was sold when the company announced a reduction in the dividend rate. This was a fundamental change that resulted in every stock no longer meeting my criteria for an income investment.
Buy-and-hold is a successful investment strategy if it is applied consistently over the long term. What is misunderstood by the critics is that pruning your portfolio of investments that no longer meet your goals is just as important as initially selecting (and holding) the stock.
Full disclosure: Lange WMT, CNI, JNJ, MCD,
On the subject of matching items
Tags: WMT, CNI, HCP, JNJ, MCD, SFI, ACAS, STI, FR, GE,