Confessions of a buy-and-hold investor

[tsptalk]

Confessions of a buy-and-hold investor

"The bulk of my portfolio is in two retirement accounts, and neither stock-market gyrations nor major financial earthquakes prompt me to tweak my allocations. I simply hold a fairly routine mix of low-cost U.S. and international stock mutual funds, plus a bond fund, and I stick to it.

"Sure, the markets get volatile but I figure that, eventually, average historical returns will work in my favor. And, to my mind, stock-market trading, if you're not spending many hours a week working on it, is little more than a guessing game."

more ...

http://www.marketwatch.com/news/sto...-959B-4DA6-8631-5ECED0A11CC9}&dist=TNMostRead

 

[XL-entLady]

Fascinating article! I disagreed with some points and agreed with others.



"What is often problematic is the middle ground. People will set something up and then follow it intermittently and on a whim make changes," said John Nofsinger, associate professor of finance at Washington State University and author of "The Psychology of Investing." Those who follow the markets tangentially but don't take time for deeper analysis tend to buy high and sell low. If, like me, you're not going to spend time daily on your plan, then set it and forget it. "Contribute as much as you absolutely can, contribute to a well-diversified portfolio of stocks and bonds and then come back to it when you're getting ready to retire," Nofsinger said. "If you work hard to set it correctly, then forgetting about it is actually a good way to go. You remove your emotions and psychological biases from the short- and mid-term fluctuations." Note that, unless you have a rock-solid pension plan from your employer and significant other assets, you're going to need to invest. Interest rates on cash simply won't get most savers to a well-funded retirement." [Emphasis added.]



I enjoy this site for many reasons, but one of them is that we help each other with the "deeper analysis" stuff that the article rightly points out is so important.

I also wondered if Birch didn't ghost write some of the "stay in for the long haul" good points in the piece.:laugh:

Anyway, Tom, thanks for sharing this interesting article! And the article comments were worth a read, too.

And as an aside, I'm so glad folks are having a bit more time to post today! I was missing you all!:toung:

Lady

 

[Birchtree]

The ability to step back and use the market to achieve one's goals, rather than trying to follow and beat the market's every move, is key to a long-term success in investing.

 

[rokid]

Recently, Birch has been given some heat for his insistence that buy-and-hold is the best TSP investment strategy. Malyla stated that "I have not made one mistake other than listening to the Buy & Holders of the last 20 years."

However, in the last 20 years, a "buy-and-holder" (C Fund) would have gone from an initial investment of $65,000 in 1987 to a portfolio of $587,656 in 2007. And, that's assuming no additional investments during that entire 20 year period!

Of course, holding only the C Fund during the 2000-2002 bear took a lot of guts - kudos Birch. In addition, the same level of guts applied to the I Fund would have only yielded $255,663 (less than the F Fund). However, holding a diversified L2040-like portfolio during that period would have yielded $447,900. Not bad.:nuts:----Jim

 

[Birchtree]

The discipline of dollar cost averaging is the redeemer of most down periods - thankful that we have periods of cheaper pricing. It's not easy to throw good money after bad but it's a necessary evil - I simply close my eyes and hold my nose and then jump. The TSP program of contributing every two weeks is ideal to accumulate shares of the fund of your choice - it just takes courage and a realization that the world will not end just yet. One's asset base takes the portfolio into devaluation and then the reverse happens providing you kept your asset base intact. Capital appreciation is the golden rule.

 

[malyla]

Recently, Birch has been given some heat for his insistence that buy-and-hold is the best TSP investment strategy. Malyla stated that "I have not made one mistake other than listening to the Buy & Holders of the last 20 years."
:nuts:----Jim

My problem is being a buy & holder in stocks during a bear market. Your returns will be double if you performed capital preservation in the bear markets. And your return assumes that you took the high risk road from the beginning. Many new employees didn't have the resources or knowledge to max out their contributions and invest in high risk funds from the beginning.

To be fair, the Buy & Holders of the last 20 years are those that also said forget about looking at your TSP. I advocate a Buy & Hold that performs capital preservation in bear markets and capital accumulation in Bull markets. I think I have proved this to my satisfaction. Just need to understand if F or G is better for the depths of the bear market cycle. (I remember the static B&H'ers telling me that things will get better at around the summer 2001. It took another two year before the Bull was set loose. My account suffered due to my listening to those voices).

 

[rokid]

My problem is being a buy & holder in stocks during a bear market. I advocate a Buy & Hold that performs capital preservation in bear markets and capital accumulation in Bull markets.

Most people would call your approach "market timing". If you can do it successfully, you can make a lot of money. Unfortunately, studies show that most investors (including the pros) can't do it successfully over the long run. Often, they wind up with lower returns than they would by simply buying and holding a diversified portfolio. Plus, it's a lot more work!

In addition, as Birch points out, buying stocks during a bear market increases your returns - low cost acquisition for future sale at, hopefully, higher prices. That's why bear markets are good for young investors - a buying opportunity.

Of course, us older investors would like a continuous bull market.

Just another perspective. Good luck! ----Jim

 

[luv2read]

right now is a perfect time for those younger feds sitting in L funds to be putting money in C/S/I and LEAVING IT THERE.

 

[malyla]

Most people would call your approach "market timing". If you can do it successfully, you can make a lot of money. Unfortunately, studies show that most investors (including the pros) can't do it successfully over the long run. Often, they wind up with lower returns than they would by simply buying and holding a diversified portfolio. Plus, it's a lot more work!

In addition, as Birch points out, buying stocks during a bear market increases your returns - low cost acquisition for future sale at, hopefully, higher prices. That's why bear markets are good for young investors - a buying opportunity.

Of course, us older investors would like a continuous bull market.

Just another perspective. Good luck! ----Jim

Jim,

I'm getting the impression that 'market timing' is short term. The bear markets are usually 3-5 years in length. The spreadsheet I loaded in my account talk just compares the 'forget it B&H' with the 'business cycle B&H' (plus diversified B&Hs and LMBF). This back testing shows that the returns from the cycle B&H are twice those of the forget it B&H. It is a good illustration of what a bear market does to your portfolio over the long term.

The next step is to see if the business cycle theory holds up. It has in the past although I did see that the bear market of 1998-2003 did not turn truly bearish for stocks until 2000. But on the whole the cycles hold up. There is a very interesting article that goes with the business cycle theory that looks at economies in antiquity (also in my account talk).

No work is necessary on a daily/weekly/monthly bases unless you want to catch the bear rallies or seasonal rallies.

 

[rokid]

The spreadsheet I loaded in my account talk just compares the 'forget it B&H' with the 'business cycle B&H' (plus diversified B&Hs and LMBF). This back testing shows that the returns from the cycle B&H are twice those of the forget it B&H.

This is based on Martin A. Armstrong's 8.6 year theory, right. The guy who's in jail accused of securities fraud?

http://www.moneyweek.com/file/27194/the-strange-case-of-the-jailed-market-genius.html

-----Jim

 

[Frixxxx]

right now is a perfect time for those younger feds sitting in L funds to be putting money in C/S/I and LEAVING IT THERE.

Thanks for the vote of confidence, been I Fund since 2003 and new to the club...It is painful watch those 1-2% days, but then my next purchase is on the cheap. Here's to those days when my shares are 100+ in 20 years!

 

[malyla]

This is based on Martin A. Armstrong's 8.6 year theory, right. The guy who's in jail accused of securities fraud?

http://www.moneyweek.com/file/27194/the-strange-case-of-the-jailed-market-genius.html

-----Jim

Yes, it is the one and the same. Doesn't mean he didn't get it right. Try to disprove that cycle theory over the last 20 years. Only time will tell and even if it is self fulfilling prophecy, it is still something to keep in mind when determining your long term position trade.

Is anyone a true Buy and Holder (never touching their fund or contributions since they started tsp)? Even Birch has moved between funds. I think everyone know that B&H is a nonstarter otherwise why give us the ability to make a IFT in the first place?

And it is my understanding that he is in jail for contempt, not securities fraud!

 

[rokid]

Try to disprove that cycle theory over the last 20 years.

He could be right or it could be a simple case of data mining. Since others are not advocating his theory, I'm guessing data mining. However, you're correct, only time will tell.

Is anyone a true Buy and Holder (never touching their fund or contributions since they started tsp)?

I have been since 2003. Prior to that, I was comatose. I decided it was stupid to pour money into TSP and my wife's 401K and not understand what was going on. I went to Borders to get any investment book. My choice was between a book on technical analysis and one on passive investing. For some reason, I choose the latter.

However, dozens of books and hundreds of journal articles latter, I'm convinced that a passive, diversified asset allocation is the way to go. In addition, compiling the Long Term Tally has shown me that I can equal or exceed the average, active TSP investor over the long term. My goal is to match the S&P 500 return with lower volatility. So far, so good.

I've bought into the passive, diversified allocation "story", "passive" fits my personality, and I feel comfortable with my strategy.

You're right, he's in jail for contempt. But, the original charge was securities fraud.

Good luck to you.-----Jim

 

[malyla]

Good luck to you.-----Jim

And to you.

 

[Bullitt]

Guess it all depends on the definition of Buy and Hold. If you bought and held CSCO or ORCL or any other tech dog that doesn't pay a dividend, you're probably still hoping for a Doug Flutie-Boston College style miracle. If you buy and hold a dividend paying Index/Stock/Fund/ETF and compound the earnings....

In an environment characterized by increasingly shorter investment horizons, the concept of compounding sounds so yesteryear, but who can argue with the body of empirical market evidence?To coin a phrase often quoted, but seldom fully appreciated (or understood): It is time in the market, and not market timing that counts.

http://www.investmentpostcards.com/2008/07/25/stock-market-returns-–-the-wonder-of-compounding/

But as all the crooks add at the end of their prospectus' in small print, Past returns aren't indicative of future gains. Time will tell!

 

[malyla]

This is based on Martin A. Armstrong's 8.6 year theory,......?

http://www.moneyweek.com/file/27194/the-strange-case-of-the-jailed-market-genius.html

-----Jim

Do you think he has internet access? Would they give someone in jail for contempt of court access to the world? I wonder what he will come out of jail with -- another market theory? How long can they keep him there with no evidence on the bigger offenses? Interesting. If you were a conspiracy junkie, what would you think was going on? Even the reporters that broke the Plaine story were not in that long. Curious.

 

[rokid]

Malyla,

Per Wikipedia, he was criminally convicted and sentenced to 5 years. His contempt of court imprisonment was lifted on 27 April 2007. He'll be out 2 September 2011.

His daughter claims he was jailed because he wouldn't turn over his computer code to the CIA. ----Jim

http://en.wikipedia.org/wiki/Martin_A._Armstrong