One reader continues his offensive posting battle of buy and hold being a better choice as trend tracking. Yes, there have been numerous studies supporting his viewpoint, as there have been many studies making the case for trend tracking.
He further quotes an example of 3 mutual funds that have low fees and have doubled over the past 10 years. These funds are PTTDX, BERIX and PRPFX. It was not clear whether he actually had owned these funds for the entire period or if his assessment came with the benefit of hindsight—big difference.
I plotted these funds and compared them against the S&P; 500, and they indeed outperformed the index by a wide margin, although at a quick glance it appears that only PRPFX doubled in value:
Nevertheless, if you actually had held these funds, you did better than most investors, including the majority of mutual funds, and you outperformed the S&P; 500. Congratulations!
Of course, you had to endure some severe draw downs as the last 2 bear markets wreaked havoc. And that is my point. Most investors can’t stomach seeing their portfolios drop 50% in value just as they are getting towards the end of their working years.
I have emailed with and talked to thousands of readers and investors who were financially and emotionally devastated by what happened during these past 2 bear markets. They could care less about the worn out quote that in the long term the market will always come back—by then, they may no longer be around.
Avoiding bear markets to me is crucial, but is only an alternative. If you are comfortable with hanging on to your investments, then fine. This not a battle of right or wrong, it is a matter of preference, which I elaborated in “It’s All About Personal Choice.”
Disclosure: We have holdings in PRPFX but not the other funds discussed above.