Buy and Hold

[DCRanger]

Bullitt, you make good points in your blog about buy/hold. I've been investing my pennies for over 25 years, trying to build a nest egg to retire with after leaving service in a couple more years. I've made plenty of bonehead decisions in that time. I took a beating in early 2000s and again during the recent crash, although I weathered the storm better this time due to DCA and better allocation. While I've DCAd almost religiously over the years, I've also jumped in and out of investments too often and at the wrong times. I've never used a broker or advisor. I learn from reading and watching others (non-media types) like all of you on this MB and I mean no disrespect to any of you. I applaud you for trying to help many of us navigate this messed up market. Don't get me wrong, I'd like to make as much $ as the next guy, but I honestly don't know of any system or technical data can reliably predict tops/bottoms. If that were the case, we'd all be filthy rich. So in the meantime, I'll focus on a proper asset allocation that meets my tolerance for risk and use a modified DCA approach, from the safety of a G-like fund.

 

[Steadygain]

Bullitt, you make good points in your blog about buy/hold. I've been investing my pennies for over 25 years, trying to build a nest egg to retire with after leaving service in a couple more years. I've made plenty of bonehead decisions in that time. I took a beating in early 2000s and again during the recent crash, although I weathered the storm better this time due to DCA and better allocation. While I've DCAd almost religiously over the years, I've also jumped in and out of investments too often and at the wrong times. I've never used a broker or advisor. I learn from reading and watching others (non-media types) like all of you on this MB and I mean no disrespect to any of you. I applaud you for trying to help many of us navigate this messed up market. Don't get me wrong, I'd like to make as much $ as the next guy, but I honestly don't know of any system or technical data can reliably predict tops/bottoms. If that were the case, we'd all be filthy rich. So in the meantime, I'll focus on a proper asset allocation that meets my tolerance for risk and use a modified DCA approach, from the safety of a G-like fund.

I'd have to honestly say: You sound like one of the very smartest members we have.

You express yourself very well and there is no one that could really argue with what you're sharing. The FACTS are -- almost any serious investment firm or entity would caution against 'Market Timing'

More often than not -- they go in too soon or go out too soon and on the whole 'Market Timing' has proved to be an inferior strategy.

DCAing is absolutely undeniable - in it's value -- very hard to beat

The other thing about Staying PUT -- however you decide to invest is there is No Way you can ever miss a good day (all the unexpected ones) and the overwhelming odds are - Being More fully invested will put you way ahead of everyone else -- especially over the next few years.

I truely admire your ability to think things through and come to such a solid decision -- especially on somethng as important as Retirement.

Those that Stayed Put -- were the ones that rose to the TOP and stayed there.

For most of us -- it's more the challenge -- kind of an addiction and we always have to stay on our toes looking for the right opportunity. Where you have 'no worries' the longer you simply make your decision and let it ride.

I admire you -- I really do.

Well I've got a few more charts to catch up on and then heading to a hotel near by.

 

[Birchtree]

I've previously posted these comments somewhere on my thread. "Just a few months ago, experts were saying it would take years for ordinary people to recover the losses they suffered from the horrific stock market decline at the end of 2008 and beginning of 2009. But a new study from Fidelity indicates that many ordinary investors are quite well - as long as they didn't panic and kept putting money into the market. How is this possible? Mostly because the huge fall in the stock market created a buying opportunity of a lifetime. Investors who continued to contribute to 401(K) accounts and TSP were able to buy stocks and mutual fund shares at very low prices. When the market rallied, the returns poured in. It all goes back to a basic rule of retirement investing - it must be viewed as a long-term venture and should not be tinkered with in reaction to short-term market disruptions. And don't knee-jerk react ( like Jason does) and make decisions you'll regret in the depths of crisis times."

 

[jimijr]

Birchy, we agree.

I maintained my allocation and rebalanced frequently all through the Time of Troubles. The initial fall-off-the-cliff was too abrupt to sidestep and I felt I had no choice but to stay put. (Remember those minus 500-point days?) My balance was decreasing as the shares devalued but I kept the same percentages by buying more shares. That way when they began again to climb, I gained at almost twice the pace at which I lost.

Now I have recovered almost all I lost, which ought to be true of most of us. I don't see how more than a hundred of us were beaten by ALL the funds in 2009. (See the tracker.)

 

[Bullitt]

I don't see how more than a hundred of us were beaten by ALL the funds in 2009. (See the tracker.)

If buy and hold is a long term thing, defined by 20+ years, then who cares about one year? If we're talking about one year, then how did buy and holders do in 2008?

Look, I'm not an advocate for market timing in a sense that you never should lose money in the market. There will always be drawdowns. I'm in between here- meaning, I want to catch the big trends which in theory should take minimal trading. So, yes, many folks find my style boring- almost as boring as buy and hold because my moves on the tracker don't provide enough 'action' and 'excitement' for them. This isn't a casino game it's real money we're playing with here. From what I've read, and from some experience, I've just found that overtrading is contagious and problematic for most investors. Now, we've got some savvy folks on this board who made 24 IFT's this year and I really wish some of those 'top timers' would post more because I'd love to hear their investing psych, but what can you do? Unfortunately, and I'm not afraid to admit, I got caught up in all the bullish nonsensical forecasts and bullish timing models in 2007, only to get a beat down in the process. I see the exact same thing happening here right now on this MB.

Buy and holders: Where were your posts convincing the masses who frequent this board to stay the course in the months of February-April? Besides Birch who has been talking the same game from the top in Nov 2007 until the bottom in March 2009, I don't recall too many people pumping the buy and hold theme when we were talking of a nationalization of the banking system.

My posts aren't intended to stoke a debate as to whether buy and hold is inferior or superior to trading, but more to see both sides of the story. The Mutual Fund industry and Wall Street Machine has ingrained in our minds that we need to buy and hold. Do you think Vanguard cares how investors do? Hell no they don't care. All they want is your fees, albeit small, to fill their coffers yearly when you invest in their index funds. Once you understand that no matter what side of the debate you decide to choose that- at the end of the day, its the broker or fund company who wins- may one finally be at peace with his or her decision.

 

[Birchtree]

Excellent points there Bullitt. Let me tell you a story. Back in 2000 I had a majorly dull and boring portfolio - there was absolutely no technology in there. So one day my Merrill broker (office manager at the time) calls and tells me to allow him to put me into some technology stocks so I could make money like everyone else. I knew the market was nothing but fluff at the time - so I told him no thankyou and reminded him that every dog sooner or later has his day. When the market broke I survived just fine and went on to add to my boring portfolio for the next several years. I was very, very careful with my buying going into the 2007 highs because the Fed was trying to destroy the housing market. When we dropped heavily into the summer of 2008 I started to open up the gates and bought many banks on their lows after selling most of my commodity stocks to raise cash. Into the fall I was feeling a $1M haircut but realized this also was temporary so I refused to sell any of my asset base - but instead dumped multi-hundreds of thousands of dollars down the rabbit hole buying everything I could. My Merrill broker called and suggested I sell everying at the bottom. I told him "that was the GD stupidest thing I ever heard". I can tell you I created a shock and awe in that office and the soda jerks couldn't stand me - how could I be so stupid - didn't I know the world was ending. So I began the process of moving my account to BAC and now BAC owns Merrill. Anyway I just rode the first several months off the March bottom with my asset base intact and started serious buying again at the end of June. And now I'm only $42K away from a $1M gain in 45 weeks. I bet the majority of my old soda jerk clients are still in cash or bonds. The morale of this story is to educate oneself and do it yourself - yes it takes time, lots of time. But I've spent many years and cycles and perhaps a few good folks might benefit from this old dogs experiences. I tell it like I see it.

 

[OBGibby]

.....Buy and holders: Where were your posts convincing the masses who frequent this board to stay the course in the months of February-April? Besides Birch who has been talking the same game from the top in Nov 2007 until the bottom in March 2009, I don't recall too many people pumping the buy and hold theme when we were talking of a nationalization of the banking system.....

I can only speak of myself - an often times lonely B&H TSPer on this Message Board. I don't feel the need to try to convert any other TSPer into DCAing every other week for the long haul. I've stated before that Buy & Hold is best for me - I freely admit I'm no market wizard, and have neither the time nor the inclination to commit to any routine market timing. For my personal level of risk tolerance, Buy & Hold makes sense.

I stayed the course during the months of Feb-Apr, and said as much. I was happy to buy cheap shares and wouldn't lose any sleep if the market went back down for the next few years. But my personal situation is just that - mine. My financial dynamics aren't the same as everybody elses, and neither are my expectations of what the TSP will provide me down the road.

For the market timers that are successful - great! My hat is off to them. I offer no snide comments or wish to denigrate their investing style. Funny thing is, I don't recall too many market timing TSPTalkers who sufferred dismal performance in 2009 laying bare their stats, or saying "Hey guys - I really missed the boat last year! I got out in March at the bottom and never got back in..."

Rather, I recall a lot of folks continued to beat the "massive correction is near!" drum as a way to validate their particular investing decision to time the market by sitting on the sidelines during a spectacular run. From my soapbox, the Buy & Hold crowd doesn't feel the need to preach to the masses at every opportunity.

To each their own - in the end it's their money. It's just smacks a tad arrogant when some equate Buy & Hold to "wealth destruction." The same moniker could very well be applied to various market timing approaches. For some it's successful, for others not so much. I'm just happy folks are saving money in the TSP...

 

[Boghie]

What is someone who tries to trade within three Goldilocks allocations?

One when the big trends demand capital preservation.
One when everything looks ok to kinda good.
And, one when the bulls are running :nuts:

Now, 2008 and 2009 were very different beasts. But, they were Once-In-A-Lifetime events. You could see a rather scary downturn by late 2007. Not a crash, just a sizable correction. Instead, we crashed - but, allocating to capital preservation became the equivalent of DCAs if you remembered that a crash is not permanent in America. Additionally, reading BirchTree's posts reestablished the power of DCAing to me. It became obvious that the crash was a DCA opportunity. Why not increase the pay period contributions and place it all in the stock funds. Yummy DCAs. And, who could miss the correction up.

The big down was visible, the big up was visible. You can move assets a bit in relation to those huge and visible transition and still be mostly a Buy & Holder at heart.

Now, its definitely time to go through trading withdrawls. Shaking. This is a more normal market. Shaking. Once in a lifetime should be history. I'm not smarter than the rest. Time to be boring.

 

[Birchtree]

That particular member has made his confession and is now performing his penitence. He is the new man of truth. Let's just say his record last year did suffer some wealth destruction but it was because of timing and not being patient. I've already forgotten where he ended 2009 on the tracker - I'd have to put new batteries in my flash light to see down the well that far. But here is to another year where the goal is to help each other avoid the treacherous pitfalls that come with investing. There is plenty of pent up demand from investors who sat on the sidelines. I'm keeping an eye on the VIX. "The surprise would be a major foray below 20. This would be very painful for VIX call buyers, and we know what they say about the market's propensity to inflict pain on the greatest number of players."

 

[grandma]

It is well & good for the `still employed' to consider their DCA's and increasing their share numbers w/each payday.

Then for those among us that are retired, no increasing the number of shares already in the pot, it comes down to not losing them; remembering there will be a monthly decrease thru the annuity; that, as Spaf would c/o about, the pull at that monthly drawing would be %ages from all funds, not just the G. (tho I could not understand what difference it would make.)
The number of shares available for playing with, would, in the end, I think, help determine which investing strategy is best.

It is certainly interesting & a benefical learning experience, though, to read the rationals for each of the strategies... I try to pass some of this info gleaned on to my Fed employed daughter.... Thanx to all!!

 

[Boghie]

That particular member has made his confession and is now performing his penitence. He is the new man of truth. Let's just say his record last year did suffer some wealth destruction but it was because of timing and not being patient. I've already forgotten where he ended 2009 on the tracker - I'd have to put new batteries in my flash light to see down the well that far.

Birch,

If you meant me, you can't find me here in 2009:

You gotta look here:

You are right concerning March 9th and later. Had I slowed my brilliant trading and assumed one of my normal allocations I probably would have been better off!!! And, all the 'sturm und drang' behind my 25 IFTs didn't amount to a hill of beans in 2009. You made two trades and were within a point of me.

This is a new year.
So far in 2010 you can find me here:

I'm driving the standard blue one:nuts:

But, at least I've made no trades!!! That is kinda important. I am suffering withdraws. My guess is that this year will not be a big gainer. Will go up then down. Maybe fluctuate in the summer. For me, that means maybe four IFTs this year. Hope...

 

[Birchtree]

Boghie,

Certainly not you. I was referring to someone that insinuated via chastisement that I was leading members down the primrose lane to failure because of my strategy of buy and hold supported with dollar cost averaging. He happens to be 26 years younger than I am and so perhaps that explains his impatience. I only offer my experiences. He has now professed to have vacated the gloom and doom scenario and is ready to assume the positive position of economic growth inherent in a raging bull market. We all learn our lessons in our own way and I feel confident he'll be recognized with success.

 

[CountryBoy]

I buy and hold 7 core stocks (re-invest the Divvies) for our ROTH's and have about 5 stocks that I buy and sell. So I use a mixture of both for our ROTH's.

On my TSP, I do try to move when the signs are there, though this past year, I felt like a deer in the headlights until the latter part of the year. Hopefully this year, I gotta a better feel.. maybe. :nuts:

 

[Bullitt]

Haha, some good stories and comments. Thanks for everyone's contribution to this thread. Birch, those brokers are probably out of a job now because they weren't buying bank stocks. Any chance you taped that conversation? Maybe we could upload it as an MP3 to the MB, I'd love to hear it.

Gibby, you have a strong and confident investment stance. As humans, most investors consider a proper portfolio the one that's invested with this week's hot hand. The fact that you were able to stay the course during the biggest yearly drop in 80 years is commendable.

Boghie: I've fathomed this one before. Is your style of investing buy and hold? We both roll the same way and I don't consider it buy and hold, but it's still kind of boring. It's the big trends we're after.

Grandma: Another point that always seems to be left out. If you can contribute to a 401K consistently and aren't going to need the $ for a significant time period, then it surely makes sense to invest opportunistically (ie: as the money immediately comes available.)

CB: I think that investing in solid dividend payers is a worthwhile strategy and I think we touched on the importance of dividends in a thread a few years ago together.

Personally, I decided to put any contributions into G fund about a year ago and I simply rebalance the portfolio whenever it gets a bit out of proportion. Re balancing is a form of market timing in that you're selling what is currently high to buy what is low, but it's all about risk management. It's what I think is best for me and is based off the writings of David Swenson and various other pension fund strategies.

I think that buy and hold gets a bad name because it's been a rough 10 years for investors, but it all depends on when you bought. In Birch's example, he will hold those bank stocks and pass them on to his next of kin, but he was able to buy them at firesale prices. Also, what if he bought Cisco at 150 and held on? He'd be buy and hold but not a smart buy and holder. We don't go and buy something (like a car) arbitrarily, but instead we try to get the best price; and its the same in the investment world. I think that's the one common denominator in all of this- you absolutely must buy in at a good price for your strategy to be effective.

 

[CountryBoy]

Yeah we did Bullitt,

And it appears to be coming back into vogue, during these tough times. Like you've said before and the good comments from this thread, we need to be diversified in our investments and our strategies depending on the investment vehicle.

More snow coming down here bud, stay warm.

CB

 

[JTH]

Boghie,

Certainly not you. I was referring to someone that insinuated via chastisement that I was leading members down the primrose lane to failure because of my strategy of buy and hold supported with dollar cost averaging. He happens to be 26 years younger than I am and so perhaps that explains his impatience. I only offer my experiences. He has now professed to have vacated the gloom and doom scenario and is ready to assume the positive position of economic growth inherent in a raging bull market. We all learn our lessons in our own way and I feel confident he'll be recognized with success.

Ha ha Birch, if I didn't know any better I'd swear you were talking about me.

Just for the record I deployed in Sep 2007 with a 90% I-Fund allocation. Yea I took a big hit during that time. I also took a big hit in Jan 09 when I was TDY. Over the last 3 years the S&P 500 is beating me by 5%. Prior to that I had a 12% average. But here's the thing, I took out a loan in October 2008 protecting half my account, so I haven't lost as much as others did.

When I started out here 3 years ago I thought unlimited IFTs were cat nip, but I was wrong. With 2-3 trades a year, you can meet/beat the markets, and better yet protect your assetts in Bear markets. Buy & Hold in a Bull market & step aside in a Bear market, that's my goal

 

[jimijr]

Bullitt, that's just what I do and have done for many years. I put my new money in the G-fund and rebalance to my set-percentages at intervals, maybe once a month. During '08 I let it go for quite a while as prices fell so quickly sometimes.

My risk level hovers at around 1/3 CSI and 2/3 G. So I buy and hold, sorta. I usually wind up in the middle of the pack; for '09 right around #100. I'll never be number 1 but neither will I be number 200.

 

[Boghie]

So we really aren't that different around here.

We need a tried and true swing trader to get involved - and, Birch won't swing for a couple of months yet :nuts:

Anyway, regardless of trading methodology, I have spent too much time below the 'G Fund' to really be cocky and sure of myself.

My signature line has meaning...

 

[Birchtree]

From TWSJ 01/09/10 by Sarah Lynch - Survey Says Households Stick with 401(k)s

"Despite the turmoil during the financial crisis, 401(k) plans are still performing well and investors didn't exhibit many signs of panic during the devere economic downturn, mutual fund industry leaders said Friday. (Some must have been lurking on my thread during those tough times - sorry I needed just a small selfserving pat on the back).

On the contrary, balances today in defined-contribution plans have recovered, fewer investors than expected withdrew funds during the crisis, and a majority of investors still have confidence in their 401(k) plans, industry research suggests.

Savers are sticking with a 401(k) plan. Media coverage on the behavior of 401(k) investors in the crisis was inaccurate. There has been no panic in defined-contribution investors. The market downturn that began in late 2007 took a heavy toll on retirement assets...That experience was unsettling and it has caused some in the press and policy communities to question the value of 401(k) and other defined-contribution plans. The millions of Americans who use these plans, however, don't seem to share those doubts.

The new ICI data also showed that in the first three quarters of 2009, 95% of participants in defined-contribution plans kept making contributions and only one in 10 investors changed their asset allocation. Research shows that six out of 10 Vanguard 401(k) plan participants through the third quarter of 2009 have account balances similar to or larger than those of two years ago, even though the stock market took a hard hit during this crisis."

Now if I can read between the lines correctly what this information is saying is: Friends do let friends buy and hold.

 

[Birchtree]

Bullitt,

What really torqued the young soda jerk broker off was when I said: Well WTF why don't I just bend over? I did refer to him as Ronald McDonald in a later conversation - from my point of view they can all just KMA. I'm much happier now with market performing margin that has no cap - you give me 1995 again and I'm going all the way.