By WC Porter
The buy-and-hold investing strategy is kind of like my dad’s 1981 Toyota pickup truck: dependable, reliable, old, and a little raggedy looking. It’s been around forever and everyone always takes it for granted.
But every time it breaks down, people tell him to dump it already. Enough with the 29-year old car already, they say.
Buy and hold investing just had a break down and everyone is rushing to claim it’s no longer a valid investing strategy. If you read the news about investing, you’d think buy-and-hold was outdated, antiquated, and broken.
I do believe it needs a fresh coat of paint and maybe a new bumper, but the engine under the hood is still as sound as ever.
What the Media Says
Go to Google, type in "buy and hold dead" and you’ll see what I’m talking about. Last year the stock market sucked and critics decided to run some analysis on how the S&P 500 did in the previous ten years. Here’s what that would look like:
Courtesy of Yahoo! Finance
Now, most of these experts consider 10 years a really long time, which is kind of disingenuous. But what this "analysis" did was support the idea that buying a stock and holding it for a long period of time (10 years) no longer worked. Look at the data! It’s over! Panic! Buy more papers and read our website!
To that I say: Paprikash!
Buy-and-hold still works, but if you’re having trouble believing and want to try something to beef up your buy-and-hold investing, here are four ways to invest when you have a long-term view on a stock.
Moving Average
I read about this one over at MSN Money. The author of this story uses a 12-month moving average to determine whether it’s time to buy into the stock or to sell out and put the money into something safe like bonds.
It’s a pretty interesting concept since it doesn’t involve a lot of buying and selling. Check out the S&P over that same period of time with the 12-month moving average line. The idea is to buy when the red line goes over the black line and sell when it goes under:
According to the chart, you should’ve sold off your S&P stock right at the end of 2000, and not gotten back in until mid-2003. Look at the swoon you saved yourself from! Then you would’ve ridden the bull market all the way up to the beginning of 2008. Oh and that crash in late 2008? You would’ve been safe and sound.
That’s ten years and only four moves (including one false alarm in 1999) — not bad at all.
Now, I’ll be perfectly frank: I think technical analysis like this is kind of junky. I would never just buy and sell when a chart told me it was time.
But if you have a long-term interest in a stock this gives you an interesting way of skipping over the bad times and being in there for the good times.
Upside: Easy to follow, few transactions to pay fees on.
Downside: Taxes are a pain unless you’re in a tax-protected account like a Roth, relying on a chart.
Value Averaging
I first heard about this strategy from Cash Money Life and I had to write …