Buy And Hope To Hold

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Random Roger had an interesting take on the China market and whether it might make sense to ease back in with a conservative allocation. He concluded that “this all might flow into an idea I have expressed before that maybe “buy and hold” should be replaced with “buy and hope to hold.”

Buy and hope to hold? I must admit that I have never heard that term before, but it makes a lot of sense. Hat tip to Roger, if he created that one!

Even when applying trend tracking, I take a position in a fund/ETF that I believe has started an uptrend and my thought is that I like to buy and hope to hold, only subject to my sell stop rules. So the hope to hold is not wishful thinking but simply an extension of my exit strategy.

This is what happened when we entered (late in the trend) a few positions for aggressive clients in the China market via FXI last year.

Take a look at the 1-year chart of FXI:

Our entry point was late August and the idea was that FXI’s trend might continue; in other words we bought and were “hoping to hold.” Early November, the trend reversed and we were stopped out with a 30% gain. FXI slowly, but surely, deteriorated and hit a low of some $125 in late March of 2008 before rebounding.

Those investors who were simply “buying and holding” pretty much surrendered most gains of the last year or so. This is a very good example of not only of the proper use but also the importance of a trailing sell stop along with the mindset “buy and hope to hold.”

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