There’s a new name for a glorified version of buying and holding I had not heard before as featured in “Stop, look and listen:”
Whenever investors roiled by the market’s downturn declare that as an investment strategy “buy-and-hold is dead,” Leonard “Pat” Goodall, editor of the No-Load Portfolios newsletter, thinks about how mistaken they are.
But Goodall, whose publication is in the top 25% of newsletters tracked by Hulbert Financial Digest over the past 15 years, is not suggesting that buy-and-hold critics are wrong. Instead, he contends that a true buy-and-hold approach never really worked at all.
…
“More and more, there is something to be said for minimizing activity — for finding good things, keeping costs and taxes down, rather than trying to trade yourself back to profitability,” Goodall said.
“Minimizing activity is not buying something once and holding it forever,” he added. “The people saying that buy-and-hold is dead missed the idea that it was never really a good strategy to begin with.”
The superior strategy, according to Goodall, is to “buy and monitor,” where an investor is not only making an initial purchase, but regularly re-examining the decision, buying more by reinvesting dividends or dollar-cost averaging — but also prepared to sell to protect gains or because a fund has changed or lost its edge.
“Most people ought to have a foundation portfolio, a core of investments they believe in, and then trade around that,” Goodall said. “Asset allocation is still fundamental, and it may sound like you then buy and hold — and both asset-allocation and buy-and-hold haven’t worked well in this market. So it sounds old-fashioned, but it will work in time.” Read that highlighted section again. It opens up more questions than it provides answers. Sure, we all need to monitor and examine our holdings, but I don’t see any useful suggestion as to when and how to determine to protect gains or conclude that a fund has lost its edge. This is nothing more but putting a different lipstick on the same old buy-and-hold pig. Why do you have to have a foundation portfolio to trade around? I would like to see how that foundation held up last year or in any prior bear market. To my way of thinking, articles like this one mislead investors by offering the carrot that buy-and-hold over time will work fine without pointing to the pitfalls (translation: sharp portfolio draw downs) that accompany such a blind approach.
[Emphasis added]