On TV and other channels of financial communications, I keep hearing that the “Buy and Hold” strategy is dead or no longer works, but I beg to differ!

The chart above is my 401k balance over the past 8+ years, and as you can tell, my overall balance has almost doubled (97.6 %)!  Now granted my 401k investments are in mutual fund which is bit different from buying “blue chip” stocks, but I think most investors do buy and hold mutual funds instead of individual stocks, so hearing such messages adds to the confusion.

Note in the chart above, that the reason I have only 8+ years of data is because that is as far back as I can go with the 401k company that provides information about my 401k balance.  If the data went back to 2000, my return would even be higher.

Buy and Hold

Buy and Hold taken as a mindlessly buying and holding stocks without thinking, is not the best approach.  But with mutual funds, it’s different!  When you buy a mutual fund, there’s (in theory at least) a smart fund managers running the fund for you or an index that weeds out the poorer company performers.  So you are paying them to do the thinking/indexing for you.

Buy and Hold Deviations

At my 401k’s core investment philosophy is the “Buy and Hold” strategy!  But I have taken some liberties with my 401k account.  For instance, during the downturn of “The Great Recession“, my first deviation was that I bumped my 401k contributions to the maximum that was possible.  So I was able to buy some shares in the mutual funds in my account at a deep discount (good deal!).  This is a stealthy way of buying low (aka timing the market)!

A second deviation from the “Buy and Hold” strategy is that I like to play one of the mutual funds that’s in my account occasionally.  By play, I mean trying to buy low and sell high (again timing the market).  While this isn’t advisable for most, I know this one particular mutual fund very well!  In fact, I know it so well that I’m able fairly accurately guess what direction it takes the majority of the time.  This is the wild part of my 401k investment (still very conservative though) and just a very small part of my portfolio that I use to provide a bit of extra interest for myself so that my 401k is more fun for me.  This approach probably has raised the overall cumulative value of my entire portfolio by a mere 1 or 2% at the most over these past 8+ years.

Not Following the Herd

During the downturn in 2008, even some of the financial gurus lost faith and were telling people to move to cash.  Such a move is very anti-“Buy and Hold” strategy.  Perhaps this is why the same group of “financial gurus” say that the “Buy and Hold” strategy is dead?!

I’m not going to mention names, but there were a few highly influential financial gurus that were telling their audience to sell their stocks and other financial investments practically at the market bottom!  It was one of the few times in life where I was yelling at the TV (very, very rare),  directing my anger at one of the “gurus”, yelling that this was the worst time to move to cash!  While the TV guru didn’t heed my advice, I felt better!

Champion investor Warren Buffett believes that the “Buy and Hold” investment strategy still has legs!  Perhaps that’s why he is making money instead of providing financial advice…  How can the financial community go against the best evidence of a “Buy and Hold” strategy via Buffett when the world’s greatest investor says that it work?  Isn’t that kind of telling former boxing champ Mike Tyson that he can’t hit hard and that it’s impossible for him to knock someone out?

Do you think Buy and Hold is dead?  What’s your take?

 

-MR

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