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Buy-And-Hold? It Works...
If You Have 40 Years Or So
In business schools, the buy-and-hold
strategy is still viewed by the majority as the most viable
investing strategy for the financial markets.
It is hard to change old beliefs. I often wonder if those
who teach such strategies have their own money invested
according to their teachings.
"Buy-And-Hold" In The Last 10 Years
An investor buying the S&P 500 Index ten years ago, would have endured two bear
markets and several bull markets. Most importantly, he would be in the hole some
20%.
That's right. For all those ups and downs, you would have
lost some 20% of your portfolio while holding the 500 biggest
and best companies in the world.
Is this what you want?
Had you caught the major part of each bear market while
in bear funds, and the major part of each bull market while
in bull funds, you would be ahead over 500%.
This is what we did at Fibtimer and because we have been
online since 1996, we have the realtime trading statistics
to prove it.
"Buy-And-Hold" In The 90s
Most people invested using the buy-and-hold strategy
in the 1990s, and as we all know, they lost a bundle
when the dot-com bubble burst and we entered the 2000-2002
bear market with losses of 50% to 80%.
If stock prices are based on the fundamentals of the companies
they represent, how could such losses occur?
Investment professionals now admit that stock prices are based mostly on the
beliefs of the masses. Assets of a company may play a role in the stock price,
but the bulk of the price is influenced by popular opinion.
It's hard for many new market timers to accept the idea that prices are based
on beliefs of the masses and little more.
But in the acceptance of this truth lies the path to profits.
"Buy-And-Hold" In The 70s and 80s
Have you ever talked to people who traded stocks in the 1970s? Many will tell
you, "I learned my lesson a long time ago. I put my money in the markets and
lost it. Never again."
In the 1970s and 80s, just about all investors used a buy-and-hold strategy.
| "...knowing
that prices are based on the beliefs of the masses
is your trading edge." |
They searched for "undervalued" stocks, purchased shares,
held them, and waited for them to increase in value.
Sometimes it worked, but many times it didn't. And even when it did work, profits
weren't anything near what an active market timer or trader can make.
The buy-and-hold strategy misleads investors. The markets don't go in one direction
forever, whether the trend is bullish or bearish.
Only by trading the ups and downs of the market can you make significant profits.
If you are striving to become a profitable market timer (trader), it is vital
that you cast aside the buy-and-hold mindset of the long-term investor, and learn
to "think" like a market timer.
The "Trading Edge"
Without a crystal ball, you can't know the future direction of stock prices with
any amount of certainty, regardless of whether you use fundamental or technical
analysis.
However, once you recognize the market prices are the result of millions of
investors who "believe" they know the direction prices are going to take, you
have the "key" to beating the markets.
Knowing that prices are based on the beliefs of the masses is your "trading edge."
If you look at any long term chart of the financial markets, you will see that "most" of
the time, the markets are moving up or down in trends that last many months,
and sometimes years.
These "trends" reflect the "beliefs" of all those investors. And those "beliefs" are
controlled by the "emotions" of fear and greed.
While prices are rising, the majority of investors "believe" they will "continue" to
rise.
While prices are "falling" the majority of investors "believe" they will "continue" to
fall.
Because emotions are involved, you will see more investors buying near tops and
pushing prices higher than anyone expected they would go.
And of course, because emotions are involved, you will also see more investors
selling near bottoms, pushing prices lower than anyone expected they would go.
This has been going on since the beginning of free market trading.
Conclusion
FibTimer uses that "trading edge." We know that the "masses" will push the financial
markets in big up and down moves. Not all the time, but most of the time. That "trading
edge" is our key to profits.
FibTimer does not try to "predict" where the market is going. We trade "market
trends." Those
very same trends that are created by the masses of investors who are buying into
rallies and selling into declines.
We also know that trends will last longer than most expect and that is why we
stay "with" the trend all the way.
Over time, the "knowledge" that the masses will push the markets up and down
in huge trends, and trading those trends, results in huge profits.
Recent articles from the FibTimer market timing services;
Successful Market Timing With FibTimer
Job Search: Market Timer Needed
The Perfectionist Trader
Focus On The War, Not The Battle
Quick Profits vs. The Virtue Of Patience
Reaping Rewards Over Time
Emotions And Trading
Controlling Impulses Key To Market Timing Profitability
The Irrational Investor
Two Emotions That Can Influence Your Trading
A Market Timer's Worst Enemy
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© Copyright 1996-2010, Market Timing Strategies, Inc.,
All Rights Reserved.
FibTimer reports may not be redistributed without
permission.
Disclaimer: The financial markets are risky. Investing is
risky. Past performance does not guarantee future performance.
The foregoing has been prepared solely for informational
purposes and is not a solicitation, or an offer to buy or
sell any security. Opinions are based on historical research
and data believed reliable, but there is no guarantee that
future results will be profitable. |
