Tuesday, January 25, 2005

Market Not Ripe for Buy and Hold

Here is an interesting comment from the portfolio manager for the Concierge Investing service of Raymond James,

"With these considerations, we believe that the two main themes that we will follow throughout the year are 'Err on the Side of Caution' and 'Active Investing.' No longer will a buy and hold strategy suffice in a world where companies are as dynamic as the economy and world conditions. Nothing stays static and we have to be nimble enough to move toward opportunity. Technical analysis will be of paramount importance. We must avoid the 'chatter on the street' as it is becoming more evident that their role is not to make YOU rich, but to make themselves richer!”

This statement goes along with the consensus that this year will be another year for stock pickers and not the buy and hold crowd. While this site is not trying to teach day or swing trading, I am not also trying to teach the buy and hold method. If you are a value investor, you do not have to hold your positions forever. That practice has been recommended by a few, but definitely not by all value gurus.

Take my last article on AT&T for example. I recommended purchasing shares, for the risk adverse investor, once the stock price broke out of its current range at around $21.38 or for the risk takers at around $15.20. Let's then say that AT&T came down and touched $15.10. Then, the stock shot up with a few minor corrections along the way to around $32 per share in a three month time span. Would I write another article declaring that my readers are value (read: buy and hold) investors and wouldn't think of taking profits at this juncture?


I would probably tell you to that it is time to take profits and tell you where to take them at, which would most likely be at the break of an uptrend line. A 50%-100% gain in three months is nothing to scoff at and that trend is highly unsustainable.

The point is that you have to be ready to take profits when they are given and not get into the mind-set that you have to do something because it is what others told you you should be doing. If you have learned nothing else from the end of the internet bubble, you should have at least learned that most proclaimed "experts" are nothing of the sort. Learn all you can about investing and that also involves learning to listen to your own internal "investing guru".

P.S. I also liked the last sentence of the above published quote...for obvious reasons.

Best Regards,

The Soothsayer of Omaha


Anonymous Anonymous said...

Buy and Hold in my opinion can work if you are able to dollar cost average. I own shares (about 25 right now) in Exxon that have essentially cost me $38/share (split adjusted and dividend reinvested). Exxon is about $50 a share. I know someone whose held Coca Cola and reinvested his dividends and his cost is essentially $4/share.

If you are able to dollar cost average, you are able to slowly over time reduce the cost you paid for the stock, that gives you a cushion to ride out market flucuations. That's a buy and hold strategy that works for me.

Tom @ SW

1:03 PM  
Anonymous Anonymous said...


I am reminded of a saying that goes something like this "Everyone knows one". This statement is usually used for political purposes, but is basic statistics. You can't base your decisions off of one (or even a few) data point(s).

How would have dollar cost averaging worked out with Enron, JDS Uniphase, Level 3, Ford, etc.?

If it works for you though, keep on keeping on.

Best Regards,

The Soothsayer of Omaha

12:23 PM  
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3:47 AM  

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