Here’s a nice piece of research from Richard Bernstein of Richard Bernstein Advisors. He offers the antithetical view of today’s high frequency trading mentality/environment and claims that buy and hold isn’t at all dead. Bernstein just says it’s misunderstood:
“Buy-and-hold strategies typically do perform well, but their success is predicated on buying and holding the correct assets. Having exposures to the correct market segments is called beta management, and investors tend to be very poor beta managers.
“Stocks for the long run” was the theme of the late 1990s and early-2000s, and investors were encouraged to buy-and-hold S&P 500 index funds. That seemed to make sense to them at the time because the US stock market had just finished one of its most successful performance decades in history. As a result, investors preferred US stocks. Unfortunately, US stocks subsequently underperformed.
Chart 2 shows why investors wanted to accentuate US stocks in their portfolios at the beginning of the 2000s. Chart 3 shows what actually happened in the subsequent ten years, and why investors perceive that there was a “lost decade in stocks” and that “buyand-hold is dead”. However, if one had bought and held emerging market stocks in 2000 rather than US stocks, one would be very happy today. If one had bought and held BRICs, one would be very happy today. Buy-and-hold has continued to be a viable investment strategy, so long as investors bought and held the correct stocks!
Ironically, many investors today seem to be following the same formula they followed last decade, and are again buying and holding the prior decade’s winners. In our opinion, these investors are positioning their portfolios for another “lost decade in equities”.”
Read the full piece here.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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