Robert Laura is convinced that “buy and hold” doesn’t work, which is news to me. I do a lot of reading and make a point of seeking out different points of view, so I read Laura’s Forbes article. After all, how can you learn something new if you only listen to people who agree with you?
As proof that buy and hold doesn’t work, Mr. Laura observes that “going back to 1990 when the Dow traded around 2,750, you'll find is that the Dow reverts back to within 1% of it's [sic] opening value at least once.” That’s a shocking piece of news: stock markets go up and down. The last time I checked, stock markets had volatility before 1990 as well.
“No one can pick a perfect top or bottom but that doesn't mean you shouldn't take gains and cut losses on a regular basis.” That sounds smart, but what does it really mean? How do you know when is the right time to take gains or cut losses? All evidence says that when the typical investor tries to time the market, he or she makes less money than a buy-and-hold investor.
The rest of the article is an impassioned plea for people to become active investors because “Our financial world is rapidly changing and our global economy is becoming more and more difficult to navigate.” In reality, I think outperforming buy and hold with active investing has been getting progressively more difficult over the decades. Modern times call for more investors to abandon active investing and adopt buy and hold.
It’s easy to look back at past stock prices and imagine how much more money you would have if you bought and sold at the right times. You might even convince yourself that some of the market’s movements were predictable, but the truth is that most investors did not predict them.