Buy and Hold

[Spaf]

Investments by age, using buy and hold.

Don't know where I found this. But I thought it was worth sharing!

1.
AGE 26-45: AGGRESSIVE
Now is the time to be brave. Invest in higher risk stocks with greater growth potential.
100% in stocks
0% in bonds
0% in cash

2.
AGE 45-55: GROWTH
These are the peak earning years. Broadly diversify your stock portfolio.
90% in stocks
10% in bonds
0% in cash

3.
AGE 56-65: BALANCED
The house is paid off and the kids are out of college; focus on higher – dividend – yielding stocks.
60% in stocks
30% in bonds
10% in cash

4.
AGE 66-75 CONSERVATIVE
High – dividend – yielding equities such as utility stocks are the way to go during the early retirement years.
10% in stocks
70% in bonds
20% in cash

5.
AGE 76+ SHORT-TERM
With no wages and a supersafe portfolio, your return starts to suffer and your savings begin to dwindle – but you should be OK with what you have left.
0% in stocks
10% in bonds
90% in cash

[rokid]

John Bogle (Vanguard founder) suggests that you take your Social Security and defined benefit pension, e.g. FERS, into account when allocating your assets. For example:

SS: $20,000
FERS: $40,000

$60,000 X 14 =s a $840,000 bond allocation. If you had $1,000,000 in stocks your total allocation would be:

$840,000 + $1,000,000 = $1,840,000

stocks: $1,000,000/$1,840,000 = 54%
bonds: $840,000/$1,840,000 = 46%

Taking SS and defined pension benefits into account allows an older person to take a more aggressive stock allocation than might be readily apparent from various rules of thumb, e.g. a bond allocation equal to your age.:)

[rokid]

Some Investing Concepts for Your Consideration

1. Risk and return are related. Higher risk enables potentially higher returns. There are no low risk/high return investments. However, Fama/French have found that value stocks have higher returns and lower volatility (risk) than the market. Consequently, they claim that value stocks represent a different kind of risk. If so, the acceptance of higher risk to receive higher returns holds.

2. Asset classes define assets with distinct risk and return characteristics.

a. Equity: Large stocks, small stocks, value stocks, growth stocks, foreign stocks, and REITS

b. Fixed income: domestic corporate bonds, government bonds, long bonds, short bonds, T-bills, foreign bonds, and cash.

3. There are two basic investment approaches: active and passive. Active investors try to pick stocks and/or time the market. Passive investors focus on asset allocation, low cost, and obtaining what the market offers.

4. Researchers have developed the theory of efficient markets - the Efficient Market Hypothesis (EMH). Essentially, in an efficient market it is fruitless to try and time the markets. At any given moment the price of a security incorporates all that is known about that security. Furthermore, it doesn't make sense to talk about the market being over priced or under priced. The current price is the best estimate of the current true price. Most of the research supports some kind (weak, strong) of efficient market.

5. Active managers and investors believe that markets are not efficient and there are mispricings to be exploited, e.g. the market is under or over valued. Although active investors may concede that the S&P 500 or the total domestic stock market is efficient, they believe that global markets, especially emerging markets, and small stocks are not efficient and therefore, offer mispricing opportunities to be exploited. Ironically, the efficient market requires active investors to maintain its efficiency. Active investors use fundamental and/or technical analysis to attempt the discovery market inefficiencies.

6. The returns of active managers can be primarily (95%) explained by the Fama/French Three Factor (FF3F) model, i.e. beta, the size premium, and the value premium. Consequently, the alphas achieved by some, if not all, active managers can be explained by asset allocation, not stock picking expertise

[Birchtree]

I've discovered over the years that the majority of technical analysis is no better than a wind sock - but I still look at it. Though most of it is irrelevant bull hockey. I'll stick with my Ducati and ride the cycles I enjoy the thrills.

[rokid]

Here's a variation on the Callan Periodic Returns chart. I'm not sure I would adopt the Janus "diversified portfolio". However, I think the results are interesting.

The diversified portfolio is always "average". Fortunately, it is never "terrible".:cheesy:

https://ww3.janus.com/SiteObjects/published/FFFFFFFFA8347B540106A689CB6E5086/02945FCE582819260109BBCBE0E0820F/file/Periodic%20Table.pdf

[rokid]

The following quotes were posted by Taylor Larimore in the Vanguard Diehards forum. Taylor is one of the authors of the The Bogleheads Guide to Investing:

As a former market timer, I learned that it pays to listen to investment authorities:

"It's extremely rare to hear of anyone winning at it (market timing) over a period of years. Indeed, I've never heard of such a genius." Jack Brennan, Vanguard CEO

"I never have the faintest idea what the stock market is going to do in the next six months, or the next year, or the next two." Warren Buffet

"If I have noticed anything over these 60 years on Wall Street, is is that people do not succeed in forecasting that's going to happen to the stock market." Benjamin Graham

"Forget about timing the market, it doesn't work. You'll lose money. Invest for the long haul and then sit back and wait--the market always goes up in the long-run." Paul Farrell, CBS Marketwatch

"Market-timing is bunk." Pat Dorsey, Morningstar Director of Fund Analysis.

"There will always be someone predicting disaster and someone predicting great fortune. At one time or another, each will be closer to correct than the other. But it won't matter to you if you understand this and have invested responsibly. You have a long-term plan; stick with it." Peter Lynch

"The market timer's Hall of Fame is an empty room." Jane Bryant Quinn, Author, Columnist

"Market Timing is a poor substitute for a long-term investment plan." Jonathan Clements, Wall Street Journal

"Market timing is an ineffective strategy for mutual Fund Investors." CDA/Wiesenberger

"The only way to make money with a (market timing) newsletter is by selling one." Malcolm Forbes

"Nobody but nobody, has consistently guessed the direction of the bond or stock market over any meaningful length of time." John Markese, President, AAII Journal

"I've learned that market timing can ruin you." Elaine Garzarelli, former Wall Street forecaster.

"Among the 160 or so newsletters the HFD monitors, the market timing recommendations of only 10 have beaten the stock market over the last decade on a risk-adjusted basis." Mark Hulbert 1-18-01

"As you can probably sense, we're not keen on market-timing. It just doesn't work." Morningstar's Course 106

"Over a 12.5 year period, 224 of 237 market timing newsletters went out of business." indexfundsadvisors.com

"I'm a strong advocate of buying and holding." Charles Schwab

"Buy and hold is a very dull strategy. It lacks pizzazz and doesn't inspire much admiration at cocktail parties. It has only one little advantage: It works, very profitably and very consistently." Frank Armstrong, Author

"For most investors the odds favor a buy-and-hold strategy." Carol Gould, New York Times

"There is absolutely no evidence that anyone can time the market." Bill Bernstein, author and advisor.

"Some people in the popular press talk about 'getting into' a bull market and 'getting out of' a bear market, but it is all marketing hype." Rick Ferri, Author and advisor

"Only liars manage to always be 'out' during bad times and 'in' during good times." Bernard Baruch

"It must be apparent to intelligent investors who if anyone possessed the ability to do so (market-time) he would become a billionaire so quickly he would not find it necessary to sell his stock market guesses to the general public." David L. Babson, famed investor

"There is an overwhelming body of evidence to support the view that believing in the ability of market timers is the equivalent of believing astrologers can predict the future." Larry Swedroe, author and advisor

"Don't trade in and out of funds. Stay invested.-- Not only does buy-and-hold investing offer better returns, but it's also less work." Eric Tyson, author Mutual Funds for Dummies

"Investors should look with a jaundiced eye at any market timing system being peddled by its guru-creator" W. Scott Simon, author

"Don't waste money subscribing to investment letters or expensive services.--Besides their cost, there is the problem that they are liable to tempt you into buying, and scare you into selling." Andrew Tobias, author

"If you buy--and then hold--a total-stock-market index fund, it is mathematically certain that you will outperform the vast majority of all other investors in the long run." Jason Zweig, Money magazine

"The facts suggest that successful market timing is extroardinarily difficult to achieve." Burton Malkiel, author of Random Walk

"If we haven't said it enough, we'll say it again: Market timing is dangerous." Barron's Guide to Making Investment Decisions

"Timing the market is for losers. Time IN the market will get you to the winner's circle, and you'll sleep better at night." Michael Leboeuf, author of "The Millionaire in You"

"Stay the course. It is the most important single piece of investment wisdom I can give to you." Jack Bogle"

Best wishes.
Taylor

[Bullitt]

They always are quick to tell you what their YTD or Monthly performance against the S&P is, but they'll never truthfully tell you what their 5 year 'Market Timing' Stats are. More often than not the I hear is, "I used to Day Trade."

[Spaf]

Thanks rokid for the posting!

RE: http://www.tsptalk.com/mb/showpost.php?p=77125&postcount=6

How many of these rich guru's advised investors in 1999, early 2000 about the danger of the market bubble??

Will accept all PM's......:rolleyes:

I got a bridge for sale! Also, some tech stock!

[SkyPilot]

I've discovered over the years that the majority of technical analysis is no better than a wind sock - but I still look at it. Though most of it is irrelevant bull hockey. I'll stick with my Ducati and ride the cycles I enjoy the thrills.

I thought windsocks were pretty reliable :nuts:.

[Spaf]

I thought windsocks were pretty reliable :nuts:.

Dang, Sky! how did you know the name of my past financial advisor at F^%$*&@#??.......:laugh:

[Birchtree]

Ya, I don't bunny hop every time the weather changes. Get ready for the second half - be right and sit tight.

[Rogue]

So, are you "buy and hold" guys saying that this business of trying to move $$ between the TSP funds is crazy? Or is this about individual stock trading?

[Birchtree]

The easiest way to build long-term wealth is to extend one's time horizon, be a contrarian, and compound dividend yield. I have followed these principles while building my base and now that I've arrived I plan to pistol shoot my way to even greater gains taking opportunity of market volatility. So this buy and holder of many years is and has been preparing to enter the bull ring of the timer to collect my greedy share. I won't be a day to day trader but rather a position swing trader. My advice is to learn before you churn - because the potential in this type of market is enormous in both directions.

[youngMoney]

The easiest way to build long-term wealth is to extend one's time horizon, be a contrarian, and compound dividend yield. I have followed these principles while building my base and now that I've arrived I plan to pistol shoot my way to even greater gains taking opportunity of market volatility. So this buy and holder of many years is and has been preparing to enter the bull ring of the timer to collect my greedy share. I won't be a day to day trader but rather a position swing trader. My advice is to learn before you churn - because the potential in this type of market is enormous in both directions.


Learn before you churn! I like that.

YM

[rokid]

The more I learn, the more I think investing strategies are a matter of "belief". Either you believe you can beat the market or you don't.

I believe I can't. Most TSPTalkers believe they can.

However, for those who aren't sure (or are losing their confidence in this market), this 2004 Money article may prove interesting.

I particularly liked the assertion that many institutions, like individual investors, select money managers by "hire high" and "fire low" criteria.

http://money.cnn.com/2004/02/19/magazines/moneymag/investing_20yearportfolio_0403/index.htm

In addition, John Bogle suggests that foreign bonds should be part of a long-term portfolio. He argues that we can't be sure that the U.S. will be on top 20 years from now. Unfortunately, foreign bonds are yet another asset class - along with REITS, Small Value, Small Foreign, and Emerging Markets - not offered by TSP.

The TSP board is somewhat schizophrenic. They want us to passively invest according to the Efficient Market Hypothesis. However, they don't offer enough asset classes to make it really effective.:cool:-----Jim

Incidentally, my Quicken projected return for 2008 is -70%. So what do I know! :sick:

[rokid]

The link outlines the five essentials to investing: http://investingessentials.blogspot.com/2006/02/chapter-1-five-essentials-making-sense.html

The following is an excerpt. My comments are in italics.

"Here are the five investing essentials necessary to successfully use the portfolio investment method. Note that these essentials are necessary for any long term investing strategy, with one exception: The portfolio selection method requires the use of mutual funds because of their advantage in getting full diversification, which is almost impossible using individual stocks.


1. Decide on an asset allocation that fits your needs. Asset Allocation is simply the percentages of your money you plan to place (allocate) into stocks, bonds and cash. It determines most of your investing risk.

Your TSP stock allocation should include all three TSP equity funds, i.e. C, S, & I, and approach the world market capitalization - 50% domestic and 50% international.

2. Diversify your holdings. Diversify means placing some money in different kinds of mutual fund investments in order to spread your risk and take advantage of Markowitz's discovery.

Diversify among cash (G Fund), bonds (F Fund), and equities (C, S, & I) funds.


3. Keep costs as low as possible. Whatever you spend on buying and maintaining your investments comes directly out of the returns you receive.

Fortunately, TSP has the lowest cost funds available.


4. Rebalance your portfolio when necessary. Your portfolio is like a file folder - it contains all your various investments. Rebalancing is simply readjusting your allocation percentages back to where you originally set them. They will get out of line from time to time because of increases or decreases in your different kinds of investments.

Rebalance to maintain a constant level of risk. If you let your allocation drift, your risk profile will change. Investors that let their allocations drift as the C fund produced out sized returns got zapped in 2000.


5. Formalize your investment plan. Developing a plan and then writing it down is a way of demonstrating your commitment. It also serves as a compass to insure you stay on course.

Keeps you from panicking and changing your risk/return profile.


That's it. Note that these essentials aren't going to involve something you can't follow. There is no need for "Wall Street" language or complicated strategies. The essentials are all you really need to invest effectively and get higher-than-average returns.

[Bullitt]

Buy and Hold is Dead!
On an individual basis, the sad reality is most funds simply want to beat their target benchmark. To do that they frequently feel they must be fully invested 100% of the time. Then by throwing out a few obvious dogs and overweighting a few top performers, managers can beat their target.
Steve noted his "best of the best" diversification strategy beat the market by a few percent. Unfortunately, on an absolute Return basis, -35% is a horrible year no matter what the benchmark is. Note that the -38.5% decline in the S&P wiped out all gains for the last 12 years.
http://globaleconomicanalysis.blogspot.com/2009/07/another-nail-in-buy-and-holds-coffin.html

Long Live Buy and Hold!
Successful market timing requires three key ingredients: a reliable signal to tell you when to get in and out of stocks (or bonds, gold and other types of investments), the ability to interpret the signal correctly and the discipline to act on it. The popular image of market timing is that it calls for making drastic, all-or-nothing moves into and out of a particular market.
In reality, many timers adjust their investments in stages, and their recommendations don't always reflect such a black-and-white view of things. And while some timers may trade frequently, others use signals that rarely change from buy to sell or vice versa. In any case, timers say that being out of the stock market during its most uncertain periods results in a smoother ride for your portfolio compared with a buy-and-hold approach.
http://finance.yahoo.com/focus-retirement/article/107353/can-you-time-the-market.html?mod=fidelity-buildingwealth

[Bullitt]

Michael Covel fired this off at a reviewer of Trend Following (http://www.amazon.com/review/R8D5CC90Y502E/ref=cm_cr_pr_cmt?ie=UTF8&ASIN=013702018X&nodeID=#wasThisHelpful) at Amazon.com. Some sorry reviewer claimed to be a buy and fundamental Warren Buffet investor. Ha. Unless you're an insider, you're not trading on fundamentals.

One of the original Turtle Traders (http://www.turtletrader.com/turtle-trading.html), I'd love to see Covel cross horns with a boglehead.

I welcome any reader who wants to raise the flag of 'buy and hope', 'die and hold', etc., whatever phrase one wants to call the nonsensical strategy of 'buy and hold'. Bottom line, right at the time the baby boomers are retiring buy and hold has been exposed as perhaps the biggest Ponzi scheme ever. How much did millions pay in fees to the big mutual funds to receive no return over the last decade? Billions of wasted money. And yes, Warren Buffett deserves all of the accolades for building a successful multi-national firm, but stop pretending he got rich simply by buy and holding. That is simply flat out not true. If one is a buy and hold investor, or used to be one, they should read carefully a point of view (trend following) that has long escaped the mainstream. It is no time to keep drinking the Kool-aid. And while I appreciate you taking the time to offer a review, ignoring facts simply because you feel your hero was denigrated is transparent.

[Bullitt]

Another challenger to Bogle's buy and hold index funds scheme. I would really like to see this in real life.

My $100,000 challenge to John Bogle
https://www.scminvest.com/pdf/newsletters/3Q09.pdf

[alevin]

Don't think we're done yet, guys and gals.

http://dshort.com/charts/mega-bear-2000-comparisons.html?mega-bear-2000-extended

http://dshort.com/charts/bears/mega-bear-2000-extended.gif

[tsptalk]

Another challenger to Bogle's buy and hold index funds scheme. I would really like to see this in real life.

My $100,000 challenge to John Bogle
https://www.scminvest.com/pdf/newsletters/3Q09.pdf
Quote from article...
"If he has it his [Bogle's] way, a Federal Retirement Board will make your investment decisions for you. Doesn’t Mr. Bogle realize that shareholders in his index funds had their retirement plans decimated last year? Do you really want him guiding your investment decisions? Nothing personal, Mr. Bogle, but I think buy-and-hold has failed—it doesn’t work."

[James48843]

Another challenger to Bogle's buy and hold index funds scheme. I would really like to see this in real life.

My $100,000 challenge to John Bogle
https://www.scminvest.com/pdf/newsletters/3Q09.pdf


Great article. Needs to be forwarded over to Tracey Ray and Greg Long, and passed to the FTRIB. They seem ready to take on the free money challenge.

[Bullitt]

I thought I read somewhere that John Bogle actually has quite a percentage of his money tied up in active fund management strategies. I highly doubt he took more than the average hit to his 401K that Joe the Plumber did.

Index funds are great..... in a bull market. Yeah, yeah, I know, I'm buying shares at 'such great low prices' right now 'for the long haul'. Index funds work, I'm not doubting that one bit, but as long as you're all in at the bull and all out at the start of the bear you'll be just fine ignoring the small trends.

Buy and hold has failed many, many investors but again, many investors believe it's the new vogue to switch out of those 'high cost mutual funds' and into 'low cost Index Funds'. It's such a simple and tempting concept to buy and hold an index so that in theory you'll never deviate from the market averages. My biggest problem with buy and holders is that they tell investors to "buy whenever you have the money to invest because in the long run it will be alright". Yeah. The long run is what they preach, but the short run matters more.

How many savers piled their money into the L-2010 fund in 2007 when it sounded like a great idea in 3 years?

No matter what investment vehicle you choose you absolutely have to

1. Buy it at a good price
2. Sell while the going is still good.

[Birchtree]

BUY AND HOLD LIVES

http://safehaven.com/article-14901.htm

[Bullitt]

The "buy an index fund today no matter what the price and hold it" group will probably call this a flash in the pan.

Actively managed stock funds did a better job relative to index funds in last year's stock-market rally than they did in the previous year's market rout.7877

http://online.wsj.com/article/SB10001424052748703523504574604461064402716.html

[DCRanger]

Agree with Birch on this one. Bullitt - you're a wealth of knowledge and I'm sure much more sophisticated on investing than I ever will be, but I'm not convinced market timing the TSP is better than buy and hold. Let's see ... in 2008 the S&P index had about a -37% return and in 2009 it returned roughly 26.5%. What was your return in TSP during those years? Did you beat the index using market timing strategies? I'm not trying to throw spears, but you're claiming that buy and hold doesn't work and that timing is better. Can you reliably predict what will happen in the future? If so, then on March 9, 2009, you would have told everyone on this MB to buy, becasue the S&P was at it's lowest point in 10 years. And on Oct 12, 2007, you would have told everyone to seek refuge to the G, but you didn't and most of the timers didn't either. That's no fault of yours, it just goes to show that despite all the technicals, you can't predict the future of the markets.

[Nordic]

Agree with Birch on this one. Bullitt - you're a wealth of knowledge and I'm sure much more sophisticated on investing than I ever will be, but I'm not convinced market timing the TSP is better than buy and hold. Let's see ... in 2008 the S&P index had about a -37% return and in 2009 it returned roughly 26.5%. What was your return in TSP during those years? Did you beat the index using market timing strategies? I'm not trying to throw spears, but you're claiming that buy and hold doesn't work and that timing is better. Can you reliably predict what will happen in the future? If so, then on March 9, 2009, you would have told everyone on this MB to buy, becasue the S&P was at it's lowest point in 10 years. And on Oct 12, 2007, you would have told everyone to seek refuge to the G, but you didn't and most of the timers didn't either. That's no fault of yours, it just goes to show that despite all the technicals, you can't predict the future of the markets.


True that you can't precisely predict the future of the markets, but if you can at least minimize losses during downturns instead of suffering the full brunt of them, then I think it's a challenge worth taking on. Not to say that it's easy, but if you want to grow your wealth, then I think being involved and strategizing to the best of your ability is a good approach. They don't call them "lost decades" for nothing. JMHO

[Birchtree]

Buy and hold works for TSP providing you DCA on the way down into the losers - you absolutely must buy shares on their lows - and that takes courage and an ability to absorb some pain. Afterall no pain no gain - just like in exercise.

[Steadygain]

Buy and hold works for TSP providing you DCA on the way down into the losers - you absolutely must buy shares on their lows - and that takes courage and an ability to absorb some pain. Afterall no pain no gain - just like in exercise.

Birch,
I've got to admit you're one of the very best ever. You have a knack for putting it exactly the way I like to hear it.

But would you tell BridgewaterBetty -- this very same thing ??

I know there is NO Doubt you would -- cause you tell it like it is.

[JTH]

I can't believe we are even having this conversation. :mad:

Buy & Hold is called WEALTH DESTRUCTION. When the S&P 500 was down 67% everyone and their mother threw B&H off the boat. How quickly we forget. DCA down all you want to BT, it won't mean a thing if it's worth zero.

Buy and hold ONLY works with a good entry in a bull market because the upside potential is limitless, oh and you'd better hope that's the time you retire. However, the down-side potential is ZERO meaning you've lost it all you have nothing.

From my blog (http://www.tsptalk.com/mb/blog.php?b=282). "Buying the S&P 500, if you spent 1,000 dollars on 24 September 1996 and sold on 6 march 2009, you'd have 955 dollars in your pocket." That's 12.5 years later...
7900

[DCRanger]

Absolutely:)

Buy and hold works for TSP providing you DCA on the way down into the losers - you absolutely must buy shares on their lows - and that takes courage and an ability to absorb some pain. Afterall no pain no gain - just like in exercise.

[Birchtree]

JTH,

We all know it takes courage to hold the asset base when a decline is happening. My oceanic account gave me a $1M haircut by last November - but I held my ground and actually dumped another $800K into the market on the bottom - making over 400 individual purchases. Right now this account is less than $100K away from making a $1M gain off the March 9th lows - in 44 weeks. That works for me. I've taken over $70K in profit and reinvested that also - now it's tax time. Since June 26th I've made 671 individual purchases counting today. The more in the bigger the win. I've always used dividend reinvestment as a DCA during the tough times. Last November 90% of all stocks were below $10 and 80% of those were below $3 - so much potential for the brave and hoofhearted. Now I'm a margin player and seriously plan to make another $1M or two before 2010 closes. I know it's a sad story but that's all I have to say about buy and hold. You have to be prepared to use dollar cost averaging when it stinks to high levels. Last summer I bought 45 toxic waste stocks in banks and finance - sure glad I did that, too.

[alevin]

Agree with Birch on this one. Bullitt - you're a wealth of knowledge and I'm sure much more sophisticated on investing than I ever will be, but I'm not convinced market timing the TSP is better than buy and hold. Let's see ... in 2008 the S&P index had about a -37% return and in 2009 it returned roughly 26.5%. What was your return in TSP during those years? Did you beat the index using market timing strategies? I'm not trying to throw spears, but you're claiming that buy and hold doesn't work and that timing is better. Can you reliably predict what will happen in the future? If so, then on March 9, 2009, you would have told everyone on this MB to buy, becasue the S&P was at it's lowest point in 10 years. And on Oct 12, 2007, you would have told everyone to seek refuge to the G, but you didn't and most of the timers didn't either. That's no fault of yours, it just goes to show that despite all the technicals, you can't predict the future of the markets.

Hmmm, DC, not sure how long you've been observing, but I can tell you I ended up a few percent on the right side of 0 in 2008, by timing, and I also ended up a few % to the positive in 09, by being too conservative on my timing. Over 2 years time, I did not go in the hole and had nothing to recoup from 08. So this year is a clean slate for me, I can finally go in the hole, or I can actually keep gaining a bit. Just think if you lost 50% in 08, and gained 50% back on your residual 50% in 09, you'd still be 25% deficit from where you started at end of 07. or something like that anyway, you still wouldn't be back to your original level-that's just with the cash you started with, never mind the new inputs. I didn't lose on my DCAs either, since they were going into G until I decided to put those funds elsewhere. that way I know exactly the % gain or loss I have at any one time. My goal in this bear market is not to lose. gaining anything on top is icecream.

[Bullitt]

Let's see ... in 2008 the S&P index had about a -37% return and in 2009 it returned roughly 26.5%. What was your return in TSP during those years? Did you beat the index using market timing strategies? I'm not trying to throw spears, but you're claiming that buy and hold doesn't work and that timing is better. Can you reliably predict what will happen in the future? If so, then on March 9, 2009, you would have told everyone on this MB to buy, becasue the S&P was at it's lowest point in 10 years. And on Oct 12, 2007, you would have told everyone to seek refuge to the G, but you didn't and most of the timers didn't either. That's no fault of yours, it just goes to show that despite all the technicals, you can't predict the future of the markets.

Great way to make an entrance DC Ranger. I don't know when I've ever claimed to be a market timer, LOL, nor do I think anyone on this site would label me as one. I'm not going to say names, but it's pretty easy to figure out who you should be directing any market timing questions to by looking to see who leads the league in IFT's on the tracker.

I sure don't have the holy grail in my pocket but there are many systems out there that allegedly do. This MB is a wealth of knowledge and if you don't feel you know enough, there are more than enough threads to sift through at your leisure.

A quick executive summary for you.... The buy and hold debate is kicked around here quite frequently with some of us taking up both sides of the argument at times. Anyone who bought stocks 10 years ago and held on any longer than 2001 is underwater both before and after inflation.

To me, buy and hold is like someone saying, "My destiny is written, why bother" and then proceed to sit on the couch and play with their Wii all day. Misery loves company, and many a buy and holders who piled in during the late 1990's when stock markets saw record inflows would love to see you do the same thing.

It always seems that buy and holders are "buying low". It reminds me of a car salesman or a housing Realtor telling me that 'now is a good time to buy', 365 days a year.

JTH, nice post. You summed it up.

Re: DCA. If you're buying every other week, then how is that buying at a good price? I consider TSP contribution opportunity investing. You invest the money when you get it with no regard for what price you pay for them.

The secret to success in the markets means you absolutely must
1. Get in at a good price
2. Catch the big Uptrends
3. Miss the big downtrends
4. Ring the bell at a good price

[Bullitt]

The problem with investing psychology is that humans often project recent history into the distant future. Example: The market is up after a tumultuous bear crash so that could only mean one should never sell because at this rate, they'll be at new highs by Summer 2010.

Hey, anybody heard any bearish predictions for 2010 yet?

Here is a link to an old post of mine, Buy and Hold Thoughts (http://www.tsptalk.com/mb/blog.php?b=225). It's a collaboration of thoughts I've come up with after reading many books, academic papers, and blogs on everything from day trading to stocks for the long run.

[JTH]

From the great one.

Couple lost more than a 1/3 of their nest egg. They invested in the L2040. Their strategy was buy/hold and DCA.

Disciplined savers who still took a hit

This young couple thrived by investing in target-date funds in their retirement accounts. Then came the crash.


The Zee family Stacey, 35, And Nathan, 39 Arlington, Va.



Goals


Retire in about 20 years


Pay off their mortgage before retiring


Save money for college
Assets


$355,000 in retirement plans


$221,000 in home equity


$250,000 in other accounts


$50,000 in emergency savings

http://i2.cdn.turner.com/money/2009/02/18/retirement/makeover_savers.moneymag/zee_family.03.jpgStacey, 35, And Nathan, 39 Arlington, Va.



(Money Magazine) -- Nathan and Stacey Zee have always been good with money. Diligent savers since their early twenties, the young Arlington, Va. couple used to hold monthly budget meetings - just the two of them - to review their spending and investments.
These days, Nathan, 39, e-mails Stacey, 35, a summary of their investments once a month, and the two, who both work for the government, discuss their goals annually, around the date of their wedding anniversary.
One reason they're so disciplined is that they've kept their investing plan remarkably simple. They invest exclusively through low-cost target-date funds because the Zees view these all-in-one portfolios as the easiest way to maintain their asset-allocation strategy. It's no wonder the couple had managed, at one point, to amass nearly $500,000 in their nest egg.
Unfortunately, discipline and simplicity couldn't protect them from last year's crash, which wiped out more than a third of their investments.
The pair haven't lost faith in the market, though Nathan admits, "If I needed this money anytime soon, I would be really stressed out." Yet with their first child on the way, college savings to consider now and hopes of retiring in around 20 years, the Zees want to know if they need to re-examine their goals and strategies.
http://money.cnn.com/2009/02/18/retirement/makeover_savers.moneymag/index.htm?postversion=2009021904 (http://money.cnn.com/2009/02/18/retirement/makeover_savers.moneymag/index.htm?postversion=2009021904)

[JTH]

JTH,

We all know it takes courage to hold the asset base when a decline is happening. My oceanic account gave me a $1M haircut by last November - but I held my ground and actually dumped another $800K into the market on the bottom - making over 400 individual purchases. Right now this account is less than $100K away from making a $1M gain off the March 9th lows - in 44 weeks. That works for me. I've taken over $70K in profit and reinvested that also - now it's tax time. Since June 26th I've made 671 individual purchases counting today. The more in the bigger the win. I've always used dividend reinvestment as a DCA during the tough times. Last November 90% of all stocks were below $10 and 80% of those were below $3 - so much potential for the brave and hoofhearted. Now I'm a margin player and seriously plan to make another $1M or two before 2010 closes. I know it's a sad story but that's all I have to say about buy and hold. You have to be prepared to use dollar cost averaging when it stinks to high levels. Last summer I bought 45 toxic waste stocks in banks and finance - sure glad I did that, too.


BT, you know I love you but here's the thing. I've lost track of how many times you've led the latest newbie down your rabbit hole of wealth destruction.

With over 10,000 post you are immediatley seen as a seasoned vet, but that doesn't mean you act like one. With great power comes great responcibility and it's irresponcible of you to go off spouting about your DCA principles when they only apply well "outside" of TSP where you can pick the ticker symbol & the price. Those rules don't apply well here and you know it.

[Birchtree]

I would tell the Zees to stay the course - they didn't panic and sell or transfer at the bottom - they will do just fine. Keep the DCA going.

[JTH]

I would tell the Zees to stay the course - they didn't panic and sell or transfer at the bottom - they will do just fine. Keep the DCA going.

I'll give you that BT, you won't tell them to sell :rolleyes:

[Birchtree]

JTH,

My dollar cost averaging into my TSP account helped return me to my previous highs several months ago. An $8 C fund price was perfect - I only wished I'd have been able to get more of it back then on the lows. The lowest C fund price was $7.86 on March 9th. When you DCA every two weeks at these lower prices it doesn't take long to add the shares - and that is how money is made. Lots and lots of shares accumulated at low prices and now they are really working as we are into the $13 range. There have been many members that have done exactly the same thing and they are all fine and dandy. The secret is the DCA going after the lower prices. I've been maxed on my contributions for a long time. There is an advantage to being over fifty.

[DCRanger]

Bullitt, you make good points in your blog about buy/hold. I've been investing my pennies for over 25 years, trying to build a nest egg to retire with after leaving service in a couple more years. I've made plenty of bonehead decisions in that time. I took a beating in early 2000s and again during the recent crash, although I weathered the storm better this time due to DCA and better allocation. While I've DCAd almost religiously over the years, I've also jumped in and out of investments too often and at the wrong times. I've never used a broker or advisor. I learn from reading and watching others (non-media types) like all of you on this MB and I mean no disrespect to any of you. I applaud you for trying to help many of us navigate this messed up market. Don't get me wrong, I'd like to make as much $ as the next guy, but I honestly don't know of any system or technical data can reliably predict tops/bottoms. If that were the case, we'd all be filthy rich. So in the meantime, I'll focus on a proper asset allocation that meets my tolerance for risk and use a modified DCA approach, from the safety of a G-like fund.

[Steadygain]

Bullitt, you make good points in your blog about buy/hold. I've been investing my pennies for over 25 years, trying to build a nest egg to retire with after leaving service in a couple more years. I've made plenty of bonehead decisions in that time. I took a beating in early 2000s and again during the recent crash, although I weathered the storm better this time due to DCA and better allocation. While I've DCAd almost religiously over the years, I've also jumped in and out of investments too often and at the wrong times. I've never used a broker or advisor. I learn from reading and watching others (non-media types) like all of you on this MB and I mean no disrespect to any of you. I applaud you for trying to help many of us navigate this messed up market. Don't get me wrong, I'd like to make as much $ as the next guy, but I honestly don't know of any system or technical data can reliably predict tops/bottoms. If that were the case, we'd all be filthy rich. So in the meantime, I'll focus on a proper asset allocation that meets my tolerance for risk and use a modified DCA approach, from the safety of a G-like fund.

I'd have to honestly say: You sound like one of the very smartest members we have.

You express yourself very well and there is no one that could really argue with what you're sharing. The FACTS are -- almost any serious investment firm or entity would caution against 'Market Timing'

More often than not -- they go in too soon or go out too soon and on the whole 'Market Timing' has proved to be an inferior strategy.

DCAing is absolutely undeniable - in it's value -- very hard to beat

The other thing about Staying PUT -- however you decide to invest is there is No Way you can ever miss a good day (all the unexpected ones) and the overwhelming odds are - Being More fully invested will put you way ahead of everyone else -- especially over the next few years.

I truely admire your ability to think things through and come to such a solid decision -- especially on somethng as important as Retirement.

Those that Stayed Put -- were the ones that rose to the TOP and stayed there.

For most of us -- it's more the challenge -- kind of an addiction and we always have to stay on our toes looking for the right opportunity. Where you have 'no worries' the longer you simply make your decision and let it ride.

I admire you -- I really do.

Well I've got a few more charts to catch up on and then heading to a hotel near by.

[Birchtree]

I've previously posted these comments somewhere on my thread. "Just a few months ago, experts were saying it would take years for ordinary people to recover the losses they suffered from the horrific stock market decline at the end of 2008 and beginning of 2009. But a new study from Fidelity indicates that many ordinary investors are quite well - as long as they didn't panic and kept putting money into the market. How is this possible? Mostly because the huge fall in the stock market created a buying opportunity of a lifetime. Investors who continued to contribute to 401(K) accounts and TSP were able to buy stocks and mutual fund shares at very low prices. When the market rallied, the returns poured in. It all goes back to a basic rule of retirement investing - it must be viewed as a long-term venture and should not be tinkered with in reaction to short-term market disruptions. And don't knee-jerk react ( like Jason does) and make decisions you'll regret in the depths of crisis times."

[jimijr]

Birchy, we agree.

I maintained my allocation and rebalanced frequently all through the Time of Troubles. The initial fall-off-the-cliff was too abrupt to sidestep and I felt I had no choice but to stay put. (Remember those minus 500-point days?) My balance was decreasing as the shares devalued but I kept the same percentages by buying more shares. That way when they began again to climb, I gained at almost twice the pace at which I lost.

Now I have recovered almost all I lost, which ought to be true of most of us. I don't see how more than a hundred of us were beaten by ALL the funds in 2009. (See the tracker.)

[Bullitt]

I don't see how more than a hundred of us were beaten by ALL the funds in 2009. (See the tracker.)

If buy and hold is a long term thing, defined by 20+ years, then who cares about one year? If we're talking about one year, then how did buy and holders do in 2008?

Look, I'm not an advocate for market timing in a sense that you never should lose money in the market. There will always be drawdowns. I'm in between here- meaning, I want to catch the big trends which in theory should take minimal trading. So, yes, many folks find my style boring- almost as boring as buy and hold because my moves on the tracker don't provide enough 'action' and 'excitement' for them. This isn't a casino game it's real money we're playing with here. From what I've read, and from some experience, I've just found that overtrading is contagious and problematic for most investors. Now, we've got some savvy folks on this board who made 24 IFT's this year and I really wish some of those 'top timers' would post more because I'd love to hear their investing psych, but what can you do? Unfortunately, and I'm not afraid to admit, I got caught up in all the bullish nonsensical forecasts and bullish timing models in 2007, only to get a beat down in the process. I see the exact same thing happening here right now on this MB.

Buy and holders: Where were your posts convincing the masses who frequent this board to stay the course in the months of February-April? Besides Birch who has been talking the same game from the top in Nov 2007 until the bottom in March 2009, I don't recall too many people pumping the buy and hold theme when we were talking of a nationalization of the banking system.

My posts aren't intended to stoke a debate as to whether buy and hold is inferior or superior to trading, but more to see both sides of the story. The Mutual Fund industry and Wall Street Machine has ingrained in our minds that we need to buy and hold. Do you think Vanguard cares how investors do? Hell no they don't care. All they want is your fees, albeit small, to fill their coffers yearly when you invest in their index funds. Once you understand that no matter what side of the debate you decide to choose that- at the end of the day, its the broker or fund company who wins- may one finally be at peace with his or her decision.

[Birchtree]

Excellent points there Bullitt. Let me tell you a story. Back in 2000 I had a majorly dull and boring portfolio - there was absolutely no technology in there. So one day my Merrill broker (office manager at the time) calls and tells me to allow him to put me into some technology stocks so I could make money like everyone else. I knew the market was nothing but fluff at the time - so I told him no thankyou and reminded him that every dog sooner or later has his day. When the market broke I survived just fine and went on to add to my boring portfolio for the next several years. I was very, very careful with my buying going into the 2007 highs because the Fed was trying to destroy the housing market. When we dropped heavily into the summer of 2008 I started to open up the gates and bought many banks on their lows after selling most of my commodity stocks to raise cash. Into the fall I was feeling a $1M haircut but realized this also was temporary so I refused to sell any of my asset base - but instead dumped multi-hundreds of thousands of dollars down the rabbit hole buying everything I could. My Merrill broker called and suggested I sell everying at the bottom. I told him "that was the GD stupidest thing I ever heard". I can tell you I created a shock and awe in that office and the soda jerks couldn't stand me - how could I be so stupid - didn't I know the world was ending. So I began the process of moving my account to BAC and now BAC owns Merrill. Anyway I just rode the first several months off the March bottom with my asset base intact and started serious buying again at the end of June. And now I'm only $42K away from a $1M gain in 45 weeks. I bet the majority of my old soda jerk clients are still in cash or bonds. The morale of this story is to educate oneself and do it yourself - yes it takes time, lots of time. But I've spent many years and cycles and perhaps a few good folks might benefit from this old dogs experiences. I tell it like I see it.

[OBGibby]

.....Buy and holders: Where were your posts convincing the masses who frequent this board to stay the course in the months of February-April? Besides Birch who has been talking the same game from the top in Nov 2007 until the bottom in March 2009, I don't recall too many people pumping the buy and hold theme when we were talking of a nationalization of the banking system.....

I can only speak of myself - an often times lonely B&H TSPer on this Message Board. I don't feel the need to try to convert any other TSPer into DCAing every other week for the long haul. I've stated before that Buy & Hold is best for me - I freely admit I'm no market wizard, and have neither the time nor the inclination to commit to any routine market timing. For my personal level of risk tolerance, Buy & Hold makes sense.

I stayed the course during the months of Feb-Apr, and said as much. I was happy to buy cheap shares and wouldn't lose any sleep if the market went back down for the next few years. But my personal situation is just that - mine. My financial dynamics aren't the same as everybody elses, and neither are my expectations of what the TSP will provide me down the road.

For the market timers that are successful - great! My hat is off to them. I offer no snide comments or wish to denigrate their investing style. Funny thing is, I don't recall too many market timing TSPTalkers who sufferred dismal performance in 2009 laying bare their stats, or saying "Hey guys - I really missed the boat last year! I got out in March at the bottom and never got back in..."

Rather, I recall a lot of folks continued to beat the "massive correction is near!" drum as a way to validate their particular investing decision to time the market by sitting on the sidelines during a spectacular run. From my soapbox, the Buy & Hold crowd doesn't feel the need to preach to the masses at every opportunity.

To each their own - in the end it's their money. It's just smacks a tad arrogant when some equate Buy & Hold to "wealth destruction." The same moniker could very well be applied to various market timing approaches. For some it's successful, for others not so much. I'm just happy folks are saving money in the TSP...

[Boghie]

What is someone who tries to trade within three Goldilocks allocations?

One when the big trends demand capital preservation. :(
One when everything looks ok to kinda good. :cool:
And, one when the bulls are running :nuts:

Now, 2008 and 2009 were very different beasts. But, they were Once-In-A-Lifetime events. You could see a rather scary downturn by late 2007. Not a crash, just a sizable correction. Instead, we crashed - but, allocating to capital preservation became the equivalent of DCAs if you remembered that a crash is not permanent in America. Additionally, reading BirchTree's posts reestablished the power of DCAing to me. It became obvious that the crash was a DCA opportunity. Why not increase the pay period contributions and place it all in the stock funds. Yummy DCAs. And, who could miss the correction up.

The big down was visible, the big up was visible. You can move assets a bit in relation to those huge and visible transition and still be mostly a Buy & Holder at heart.

Now, its definitely time to go through trading withdrawls. Shaking. This is a more normal market. Shaking. Once in a lifetime should be history. I'm not smarter than the rest. Time to be boring.:p

[Birchtree]

That particular member has made his confession and is now performing his penitence. He is the new man of truth. Let's just say his record last year did suffer some wealth destruction but it was because of timing and not being patient. I've already forgotten where he ended 2009 on the tracker - I'd have to put new batteries in my flash light to see down the well that far. But here is to another year where the goal is to help each other avoid the treacherous pitfalls that come with investing. There is plenty of pent up demand from investors who sat on the sidelines. I'm keeping an eye on the VIX. "The surprise would be a major foray below 20. This would be very painful for VIX call buyers, and we know what they say about the market's propensity to inflict pain on the greatest number of players."

[grandma]

It is well & good for the `still employed' to consider their DCA's and increasing their share numbers w/each payday.

Then for those among us that are retired, no increasing the number of shares already in the pot, it comes down to not losing them; remembering there will be a monthly decrease thru the annuity; that, as Spaf would c/o about, the pull at that monthly drawing would be %ages from all funds, not just the G. (tho I could not understand what difference it would make.)
The number of shares available for playing with, would, in the end, I think, help determine which investing strategy is best.

It is certainly interesting & a benefical learning experience, though, to read the rationals for each of the strategies... I try to pass some of this info gleaned on to my Fed employed daughter.... Thanx to all!!:)

[Boghie]

That particular member has made his confession and is now performing his penitence. He is the new man of truth. Let's just say his record last year did suffer some wealth destruction but it was because of timing and not being patient. I've already forgotten where he ended 2009 on the tracker - I'd have to put new batteries in my flash light to see down the well that far.

Birch,

If you meant me, you can't find me here in 2009:

http://image.automobilemag.com/f/features/news/24741157+w440/0909_03_z+ferrari_vs+lamborghini.jpg

You gotta look here:

http://www.blogcdn.com/www.autoblog.com/media/2009/05/lambomurcisv_05.jpg

You are right concerning March 9th and later. Had I slowed my brilliant trading and assumed one of my normal allocations I probably would have been better off!!! And, all the 'sturm und drang' behind my 25 IFTs didn't amount to a hill of beans in 2009. You made two trades and were within a point of me.

This is a new year.
So far in 2010 you can find me here:

http://vwkombi.com/photos/beetle-bash-bug-jam-etc/Images/0.jpg

I'm driving the standard blue one:nuts:

But, at least I've made no trades!!! That is kinda important. I am suffering withdraws. My guess is that this year will not be a big gainer. Will go up then down. Maybe fluctuate in the summer. For me, that means maybe four IFTs this year. Hope...

[Birchtree]

Boghie,

Certainly not you. I was referring to someone that insinuated via chastisement that I was leading members down the primrose lane to failure because of my strategy of buy and hold supported with dollar cost averaging. He happens to be 26 years younger than I am and so perhaps that explains his impatience. I only offer my experiences. He has now professed to have vacated the gloom and doom scenario and is ready to assume the positive position of economic growth inherent in a raging bull market. We all learn our lessons in our own way and I feel confident he'll be recognized with success.

[CountryBoy]

I buy and hold 7 core stocks (re-invest the Divvies) for our ROTH's and have about 5 stocks that I buy and sell. So I use a mixture of both for our ROTH's.

On my TSP, I do try to move when the signs are there, though this past year, I felt like a deer in the headlights until the latter part of the year. :o Hopefully this year, I gotta a better feel.. maybe. :nuts:

[Bullitt]

Haha, some good stories and comments. Thanks for everyone's contribution to this thread. Birch, those brokers are probably out of a job now because they weren't buying bank stocks. Any chance you taped that conversation? Maybe we could upload it as an MP3 to the MB, I'd love to hear it.

Gibby, you have a strong and confident investment stance. As humans, most investors consider a proper portfolio the one that's invested with this week's hot hand. The fact that you were able to stay the course during the biggest yearly drop in 80 years is commendable.

Boghie: I've fathomed this one before. Is your style of investing buy and hold? We both roll the same way and I don't consider it buy and hold, but it's still kind of boring. It's the big trends we're after.

Grandma: Another point that always seems to be left out. If you can contribute to a 401K consistently and aren't going to need the $ for a significant time period, then it surely makes sense to invest opportunistically (ie: as the money immediately comes available.)

CB: I think that investing in solid dividend payers is a worthwhile strategy and I think we touched on the importance of dividends in a thread a few years ago together.

Personally, I decided to put any contributions into G fund about a year ago and I simply rebalance the portfolio whenever it gets a bit out of proportion. Re balancing is a form of market timing in that you're selling what is currently high to buy what is low, but it's all about risk management. It's what I think is best for me and is based off the writings of David Swenson and various other pension fund strategies.

I think that buy and hold gets a bad name because it's been a rough 10 years for investors, but it all depends on when you bought. In Birch's example, he will hold those bank stocks and pass them on to his next of kin, but he was able to buy them at firesale prices. Also, what if he bought Cisco at 150 and held on? He'd be buy and hold but not a smart buy and holder. We don't go and buy something (like a car) arbitrarily, but instead we try to get the best price; and its the same in the investment world. I think that's the one common denominator in all of this- you absolutely must buy in at a good price for your strategy to be effective.

[CountryBoy]

Yeah we did Bullitt,

And it appears to be coming back into vogue, during these tough times. Like you've said before and the good comments from this thread, we need to be diversified in our investments and our strategies depending on the investment vehicle.

More snow coming down here bud, stay warm. :D

CB

[JTH]

Boghie,

Certainly not you. I was referring to someone that insinuated via chastisement that I was leading members down the primrose lane to failure because of my strategy of buy and hold supported with dollar cost averaging. He happens to be 26 years younger than I am and so perhaps that explains his impatience. I only offer my experiences. He has now professed to have vacated the gloom and doom scenario and is ready to assume the positive position of economic growth inherent in a raging bull market. We all learn our lessons in our own way and I feel confident he'll be recognized with success.


Ha ha Birch, if I didn't know any better I'd swear you were talking about me. :rolleyes:

Just for the record I deployed in Sep 2007 with a 90% I-Fund allocation. Yea I took a big hit during that time. I also took a big hit in Jan 09 when I was TDY. Over the last 3 years the S&P 500 is beating me by 5%. Prior to that I had a 12% average. But here's the thing, I took out a loan in October 2008 protecting half my account, so I haven't lost as much as others did.

When I started out here 3 years ago I thought unlimited IFTs were cat nip, but I was wrong. With 2-3 trades a year, you can meet/beat the markets, and better yet protect your assetts in Bear markets. Buy & Hold in a Bull market & step aside in a Bear market, that's my goal

[jimijr]

Bullitt, that's just what I do and have done for many years. I put my new money in the G-fund and rebalance to my set-percentages at intervals, maybe once a month. During '08 I let it go for quite a while as prices fell so quickly sometimes.

My risk level hovers at around 1/3 CSI and 2/3 G. So I buy and hold, sorta. I usually wind up in the middle of the pack; for '09 right around #100. I'll never be number 1 but neither will I be number 200.

[Boghie]

So we really aren't that different around here.

We need a tried and true swing trader to get involved - and, Birch won't swing for a couple of months yet :nuts:

Anyway, regardless of trading methodology, I have spent too much time below the 'G Fund' to really be cocky and sure of myself.

My signature line has meaning...

[Birchtree]

From TWSJ 01/09/10 by Sarah Lynch - Survey Says Households Stick with 401(k)s

"Despite the turmoil during the financial crisis, 401(k) plans are still performing well and investors didn't exhibit many signs of panic during the devere economic downturn, mutual fund industry leaders said Friday. (Some must have been lurking on my thread during those tough times - sorry I needed just a small selfserving pat on the back).

On the contrary, balances today in defined-contribution plans have recovered, fewer investors than expected withdrew funds during the crisis, and a majority of investors still have confidence in their 401(k) plans, industry research suggests.

Savers are sticking with a 401(k) plan. Media coverage on the behavior of 401(k) investors in the crisis was inaccurate. There has been no panic in defined-contribution investors. The market downturn that began in late 2007 took a heavy toll on retirement assets...That experience was unsettling and it has caused some in the press and policy communities to question the value of 401(k) and other defined-contribution plans. The millions of Americans who use these plans, however, don't seem to share those doubts.

The new ICI data also showed that in the first three quarters of 2009, 95% of participants in defined-contribution plans kept making contributions and only one in 10 investors changed their asset allocation. Research shows that six out of 10 Vanguard 401(k) plan participants through the third quarter of 2009 have account balances similar to or larger than those of two years ago, even though the stock market took a hard hit during this crisis."

Now if I can read between the lines correctly what this information is saying is: Friends do let friends buy and hold.

[Birchtree]

Bullitt,

What really torqued the young soda jerk broker off was when I said: Well WTF why don't I just bend over? I did refer to him as Ronald McDonald in a later conversation - from my point of view they can all just KMA. I'm much happier now with market performing margin that has no cap - you give me 1995 again and I'm going all the way.

[alevin]

http://www.businessinsider.com/barclays-the-chance-of-a-new-crisis-in-2010-is-growing-2010-1


the likelihood for an “ugly” economic outcome is 40% according to Barclays. Unlike the consensus (http://pragcap.com/fund-managers-are-very-optimistic-about-2010), who is overwhelmingly bullish about 2010, Barclays sees just a 10% probability of a “good” outcome:
http://static.businessinsider.com/~~/f?id=4b4da7290000000000e9cb80
As the crisis remains unresolved the potential for policy mistakes grows with every day. Barclays now sees four primary risks to their 2010 outlook:

The Fed gets it wrong and spooks the market with rate increases.
The US Treasury gets it wrong on fiscal tightening and results in yield spike.
Consumers get cold feet and become permanent savers.
Foreigners lose confidence in the US and a dollar crisis ensues.
So. Given the 50/50 scenario, I may be persuaded sometime this month/quarter, to move up to half my G into something else this year, but I'm still waiting on TD DeMark indicators to tell me when.

[Bullitt]

A friend of mine sent me this post from some member of the Berkshire Hathaway class B shares message board at yahoo, and I had to share it with the MB. My friend was smart; he used the strength of the split to unload his shares to the true believers. Who cares about 100 years down the road? Anyway, this post is just a little something to think about.

Well, all us poor little shareholders were partying on the good news that BRK/B was split 50:1 and would become part of the S&P indices. What we didn't know was that sly ole Warren slipped poison into the punch. Three days after this thing got pummeled the news is revealed that the BRK credit rating was cut. Obviously, the rats jumped ship before the news spread. Now we hopeless shareholders are left sickened by it all. The icing on the fecal cake is Buffett revealing in an interview on Charlie Rose of all places, that he paid too much for BNI and that it would be a good holding 100 years from now. Thanks a bunch. Our loyalty is sure being rewarded.

[JTH]

When I think of Buy & hold I think of one question. Are these the types of returns you'd like to have after investing your money for 10 years?

8605

[Bullitt]

The problem with that chart, JTH, is that it doesn't account for additional contributions. I hear you though. I hear you.

[Birchtree]

And a buy and hold strategy is the only sure fire money maker in a long term bull.

[JTH]

The problem with that chart, JTH, is that it doesn't account for additional contributions. I hear you though. I hear you.

And a buy and hold strategy is the only sure fire money maker in a long term bull.

Ok I'll throw out a different perspective. :)

From 2000-2009 if you bought 1 share at the beginning of each month's EOB day closing prices, your average price would be $1191.726

The closing price for 2009 was $1115.10, so that's 6.87% over 10 years with a .68% yearly average.

From the movie: The Doors (1991)
Pamela (http://www.imdb.com/name/nm0000212/): You killed my duck!
Jim Morrison (http://www.imdb.com/name/nm0000174/): I killed your duck? [stomps on the duck]
Jim Morrison (http://www.imdb.com/name/nm0000174/): And I'm still killing your "bleeping" duck. There! Murder! Death! Duck! Dead! Death "bleeping" dead! There, the duck is dead!

[Birchtree]

JTH

You miss the point on the number of shares accumulated at the bottom of the corrections and bear markets. The share price might be the same but the amount will be larger because of more accumulated shares from dollar cost averaging.

I wonder how long you'll hold your S fund position.

[JTH]

JTH

You miss the point on the number of shares accumulated at the bottom of the corrections and bear markets. The share price might be the same but the amount will be larger because of more accumulated shares from dollar cost averaging.

I wonder how long you'll hold your S fund position.

Sorry friend but once again you're DCA theory doesn't add up.

Let's say you buy 10,000 worth of shares on the first trading day of every month from 2000-2009 based on End of Day prices.

Thats an investment of 1,200,000 (1.2 million) over 120 months for a total of 1038.288 S&P 500 shares.

At the end of 2009 your investment is now worth 1,157,897.54

That's a 3.5% 10-year gain with a .29% yearly average.

I didn't even subtract TSP's expenses from your 3.5% earnings.

"And I'm still killing your duck"

[Birchtree]

I'm a humble servant and all I can do is speak from experience. And dollar cost averaging has always been my redeemer when in buy and hold mode. You have tp practice DCAing at the most difficult times - like throwing good money away and watch it float to the bottom of the well. That's where you'll find me doing my best work at investing. I adore the sweet smell of superlative manure but I certainly don't mind stepping in a pile of bear scat once in awhile. I expect we'll take out some over head resistance next week - holding tight.

[JTH]

Sorry friend but once again you're DCA theory doesn't add up.

Let's say you buy 10,000 worth of shares on the first trading day of every month from 2000-2009 based on End of Day prices.

Thats an investment of 1,200,000 (1.2 million) over 120 months for a total of 1038.288 S&P 500 shares.

At the end of 2009 your investment is now worth 1,157,897.54

That's a 3.5% 10-year gain with a .29% yearly average.

I didn't even subtract TSP's expenses from your 3.5% earnings.

"And I'm still killing your duck"

Nevertheless, here's the data.

8610

[Birchtree]

JTH.

In this particular instance you are correct. However, using this approach during a prolonged bull market fewer shares were purchased at much higher prices using a constant buying power. If one were to increase the buying power during those periods of bear activity the end result would look much different. Providing an investor with flexibility is the beauty of DCA. What ever fires your big Mack is fine with me. How long will you hold your S fund position now that you are making money?

[JTH]

JTH.

In this particular instance you are correct. However, using this approach during a prolonged bull market fewer shares were purchased at much higher prices using a constant buying power. If one were to increase the buying power during those periods of bear activity the end result would look much different. Providing an investor with flexibility is the beauty of DCA. What ever fires your big Mack is fine with me. How long will you hold your S fund position now that you are making money?

DCA by nature is buy & hold and most folks don't change their contributions based on market conditions. If you're going to change your DCAs based on market conditions, then I wouldn't call that buy & hold, I'd call it timing the market. So are you telling me you're a market timer is disguise?

[Boghie]

DCA by nature is buy & hold and most folks don't change their contributions based on market conditions. If you're going to change your DCAs based on market conditions, then I wouldn't call that buy & hold, I'd call it timing the market. So are you telling me you're a market timer is disguise?

JTH...

I am not an honest 'Buy and Holder' - but, am normally relatively close...

Changing – increasing contributions or changing the allocation ratios of contributions - of current contributions does not negate a 'Buy and Hold' strategy. Increasing ones contributions during a crash can be thought of as being the essence of a Buy and Holder. You are increasing the value of DCAs. Reducing your DCA at an unsustainable market top when you have other bills to pay also does preclude being a Buy and Holder. And, changing contribution ratios means very little.

I would actually position that adjusting allocations in your holdings between a small number of allocation ratios - not exceeding a limiting swing (say 10% - 20%) - is not inconsistent with Buy and Hold. You are not really timing the market if you change current asset allocations a few points. You might not be a true invest and forget, but you are also not a trader.

Buy and Hold does not mean you cannot adjust, it means that you do not believe that a person can consistently pick a top and a bottom, and thus are unwilling to make massive allocation swings to current holdings. To me, swing trading huge ratios between safety and growth is the indicator of a Market Timing approach.

[Bullitt]

Very true that people cannot pick a top and bottom. For example, I know many of the "top timers" got back in last week- at the same area they went to cash a month ago- missing the gains off the 'bottom of the correction'.

The whole point of timing the market is to be out during the big drawdowns without regard to trading or tax costs.

The whole point to buy and hold is to use weakness or regular contributions to build a position over many years.

I kept 20% in stocks because I'm not smart enough to call a top and have yet to find someone that can. Keeping 20% in is good enough to catch a wave if one forms from here and I'm still debating whether to go 100% cash position or not. I like the idea of keeping some in the game.

[JTH]

Great points everyone. I've been hearing only about 3% of folks are able to consistently beat the bull markets and half of that is by luck. However, with some simple long-term timing, you can easily beat the markets in the long run.

I've already said a straight buy & hold during 2000-2009 would yield you a 3.5% 10-year gain, if you IFT'd 10,000 on the first day of each month.

As an example, a 50/200 EMA crossover would yield a a 34.02% 10-year gain with a 3.4% yearly average. That slaughters buy & hold, and protects you during the Bear markets.

Now let's take it 1 step further using the same EMA crossover, only this time, I'll exit the markets completely during sell signals, save up the money (on the sidelines), then throw it all in on the buy signals and at the beginning of each month. I'll use the same 10,000 a month strategy I used before.

That would give you a 53% 10-year gain with a 5.3% yearly average. That's a total investment of 1.2 mil with an ending balance of 1,847,180.62 million over 10 years and I didn't even count the earnings you made while you sat in the G-Fund for 4.5 years.


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