Don’t Be Misled—Stick with Buy and Hold
Top 5 of the Week of December 3rd
Morgan Housel, a partner at Collaborative Fund, heads up our Top 5 this week with a look at the wild times in the market. Howard Lindzon, author of his self-titled blog and the book, The Wallstrip Edge, asks “What’s Your BEST Idea?” And Chairman & CIO of Ritholtz Wealth Management Barry Ritholtz warns us away from those who would steer us wrong in the market.
The Irrelevant Investor Michael Batnick discusses the problem with learning the wrong lessons. And Jack Forehand, from Validea, considers the uncertainty of market valuation…
If you missed last week’s feature on our Top 5 Bloggers of 2018 and their Close Contenders, read all about them here and here.
Expectations or Predictions
- Seen in hindsight, every historical decline looks like a missed opportunity, yet all the future ones look like a hazard
- There are also investments that don’t go mental, such as FDIC-insured savings accounts, with which you’ll only get a set level of returns
- You can get through the wild periods by simply expecting them to come or trying to predict when they come—the first will help you survive, while the second is more complex
- It’s how you handle the wild times that will determine your returns
Up Here for Thinking…
- Your best performing stock isn’t necessarily your best IDEA—given how quickly the market can change
- Banks, though, are forever churning out their latest ‘best ideas’ which include stocks that have drastically changed position since they were published as such
- Instead, think about your worst investment ideas, these are the ones that will have provided a learning curve and helped improve your investing—these are the ones to share with others too
So, what’s been your worst investment idea? Write your comments in the section below or sign up to share your story with Andrew Stotz in a podcast interview here
Don’t Be Mislead—Stick with Buy and Hold
- Index investing critics make tempting offers for their “product/newsletter/hedging strategy” which promises to ensure that you don’t suffer through down periods
- As enticing as this is, optimizing the upside while avoiding the downside of market volatility is much harder than reported
- Anyone who can’t deal with a 25% pullback on their portfolio value should rethink about owning stocks
What Not to Forget
- There is a reflex to buy and hold discussions to reflect on Japan’s spectacular stock bubble from 1971-1989 where the Nikkei gained 1,858%—returns which anyone is unlikely to see again in this lifetime
- Stock bubbles can teach investors many important lessons, but the argument that they nullify the buy and hold strategy should not be one
- Bubbles and their resultant bear markets are better mitigated by diversification—remove single country risk in the same way you would remove single stock risk
Meaningless Conviction
- Because we love an air of certainty, those who make claims with absolute conviction about the market and stock prices can stir up a lot of attention
- But this actually does investors a disservice, headline grabbing in this way overlooks two crucial points
- Firstly, that market valuation changes depending on the ratios you’re measuring it with
- And secondly, market valuation is a misguided way of attempting to forecast short-term events
Top 5 of the Week is a summarized collection of financial investment articles that we like and think you might like too. Having written thousands of pages of equity strategy and company research between us, we understand the allure of the ever-changing world of finance. Investing is an art form—and like everything, something you can work on and improve at. There are some excellent writers out there on the finance web, some offer a running commentary on today’s market, some are doing research, some have tips on how to Become a Better Investor, and some just lift the cloud of fog behind a lot of financial jargon. Each week we will keep you up to date with the top 5 articles worthy of your attention.
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