Author Topic: Is buy and hold unrealistic?  (Read 18135 times)

God or Mammon?

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Is buy and hold unrealistic?
« on: July 30, 2014, 03:06:52 AM »
http://www.marketwatch.com/story/buy-and-hold-is-impossible-2014-07-25

It seems easy now after a 5yr bull market and most recently the longest streak ever without a 10% correction, but will even mustachians really do nothing (or buy more stocks) if their portfolio drops 60% again?  And keep in mind there have been periods where dividends get cut (a lot) and neither the payment levels nor price values get back to previous levels for 15-20 years, not adjusted for inflation.  In an environment where inflation is increasing that could mean a drop in purchasing power by 1/2 to 2/3.

Thoughts?

surfhb

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Re: Is buy and hold unrealistic?
« Reply #1 on: July 30, 2014, 03:52:57 AM »
Sure it's realistic because many people never sell a single share during those times.    I'll try to find it but there's a long thread in the boglehead forum that took place during this time.   It's interesting to read peoples posts as the market took a dump.   

I swear on my grandmothers grave I will never sell a share....ever :)

Khan

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Re: Is buy and hold unrealistic?
« Reply #2 on: July 30, 2014, 04:08:17 AM »
Buy and research, and maybe rebalance.

RetireAbroadAt35

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Re: Is buy and hold unrealistic?
« Reply #3 on: July 30, 2014, 04:42:12 AM »
If there were a 60% drop in the market I'd go out and dance in the street while buying as much stock as I could afford (assuming the market drop didn't cause my company to go bankrupt and lay me off).

Grog

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Re: Is buy and hold unrealistic?
« Reply #4 on: July 30, 2014, 05:14:04 AM »
I really don't understand the difficulty in buy-holding index fund (not stocks, that can be wiped out. Index fund is more difficult)
Share do not represent your money. They are not a checking account. Sometimes in the past you made a choice: buy some shares of the  500 most successful companies in the USA (S&P 500 example).

The instantaneous value has absolutely no meaning. You lose money only when you sell at loss. If you don't sell, the shares are not money: they are pieces  of businesses that try to emerge from a bear market .

During a crash, I'm honestly horrified at the thought of selling at loss, not on keeping share of companies which instantaneous value is falling. The idea of selling at loss, independent from the causes, I personally find it quite upsetting.

The same is true for your home: nobody really looks continously at the price of their home or let them appreciate every 10 seconds. And if something happens in your neighbouroud, some kind of heavy construction works that will be going on for 3-5 years, halving your home value in the mean time, you will probably not sell and go away but just tough it out and wait for those years to pass. That's because you don't mistake home for money, you don't do the equation home = checking account.

But I have this impression that this thing to always have the instantaneous price of your portfolio mislead many people in thinking that losses or gains are real (which are not, until you sell) and your shares are some sort of checking account.

Louisville

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Re: Is buy and hold unrealistic?
« Reply #5 on: July 30, 2014, 05:50:51 AM »
Excellent post, GROG. This is a bit off topic, but do you speak english as a second language?  I found your phrasing interesting while your meaning came across perfectly.

dude

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Re: Is buy and hold unrealistic?
« Reply #6 on: July 30, 2014, 05:53:30 AM »
A 60% drop would cause the opposite reaction in me -- I'd buy up all I could with every spare dollar I had.  I didn't do this in 2008/2009; rather, I tepidly increased my equity purchases -- should have gone bigger.

God or Mammon?

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Re: Is buy and hold unrealistic?
« Reply #7 on: July 30, 2014, 06:00:57 AM »
Did people sell in 2008 and early 2009 because they thought it was a good time to sell?  In many cases they were forced to.

Job loss, unexpected emergencies, retirement portfolio going down to a level that may not be able to provide them with enough income (for those that were retired).  Dividends didn't stay constant - in fact they were slashed quite dramatically - dividends across the S&P 500 index dropped 25% from peak to trough.  If you rely on dividends to live, at what point do you say "I better sell now before the price/dividend drop prevents me from continuing my lifestyle"?  A 10% drop?  20%?

And the answer wasn't "well let me go out and find a part-time job to rebuild my 'stache'" - there were no jobs available when the unemployment rate skyrocketed and mass layoffs were occurring.

I think people radically overestimate their ability to not react to a stock market drop.  The peak to trough drop for the S&P 500 was 57% and took about 18 months - people were buying all the way down and those with 'dry powder' most likely spent it all by S&P at 1000 (down from 1570), with another 34% to go. 

Even Warren Buffett, in his famous NY Times editorial 'Buy American.  I am.' wrote his piece on October 16, 2008 with the S&P at 946.43.  The market proceeded to fall another 30% before finding bottom.

During the Great Depression, the market overall dropped 50% from the peak a little after 12 months.  If you bought down 50% from the high, you proceeded to watch your investments lose another 72% before the market finally bottomed - I don't think anyone has the ability to withstand those losses and simply say 'oh look, I can dollar cost average even cheaper now down 72% from where I bought down 50% from the highs".

It's just food for thought.  I think the article makes a lot of sense, and having seen 2.5 full cycles from trough to peak now (since the early 90s) I can confidently say that only a very tiny % of the population can really do absolutely nothing during brutal bear markets if they have a significant amount of their net worth in equities.  And realistically that tiny % is most likely comprised of those who are so rich that even if their entire equity portfolio went to 0 it wouldn't really matter due to their diversification and level of wealth.

EricL

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Re: Is buy and hold unrealistic?
« Reply #8 on: July 30, 2014, 08:01:31 AM »
Buy and hold is one of those strategies that seems too simple to work.  Along with index funds and MMM early retirement it can be hard to swallow.  Articles like this are nothing new but the gist of that writer's argument is the average person simply doesn't have the guts to ride out a crappy market. This same fear keeps them from investing more when the prices are all at discouned. This las one makes more sense as its counterintuitive to throw good money after bad.  That's true to a degree. 

But the strategy is based on some eminently observable facts: 
1. The market always eventually goes up.
2. The market always eventually goes down.
3. The general trend is up.
4. The market goes down permanently only when all the ICBMs launch

If you do have the intestinal fortitude you can make a killing.  Mine was lacking in '08 so I didn't go on a buying spree.  But I did stay in and the 'stache recovered nicely.  The only people I can think of who can't use the strategy are old tradional retirees with modest savings and no income except SS.  If they've got health costs already devouring their savings and SS and the market poops out they're hosed.

God or Mammon?

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Re: Is buy and hold unrealistic?
« Reply #9 on: July 30, 2014, 08:08:27 AM »

4. The market goes down permanently only when all the ICBMs launch

Or when the totalitarian state takes over.  Ask the investors in the stock markets of China and Russia how their early 20th century investments fared.

A lot US stock market performance history is based on survivor-ship and world dominance bias - neither is 100% certain going forward

Luck12

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Re: Is buy and hold unrealistic?
« Reply #10 on: July 30, 2014, 08:21:26 AM »
A lot US stock market performance history is based on survivor-ship and world dominance bias - neither is 100% certain going forward

That's why you assume X -(2.5 or so %) for future returns where X = past returns.  And it's why you should diversify with int'l and emerging market indices.   

LennStar

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Re: Is buy and hold unrealistic?
« Reply #11 on: July 30, 2014, 08:22:45 AM »
MMM stock advice is aimed at those who hold basically forever - because at the early retirement point you consume less then your stocks go up. In the long run your stash just grows.
It may be that you use up double the average in 2 or 3 years in a 10 year period when the stock prices are low, but then you likely use a lot less in other years.
It also recognises, but not set it as necessary, that you earn a bit of money after retirement. Because that is was happens mostly. If you are free to do what you want, you very often make something that other will pay for . even if it is only 1/10 of your expenses.

That does not mean that you cant be unlucky and 1 month after your retirement the stocks drop 50%. There are several methods (and blog articles) to soften that. After all, you will never have a 100% security. Never, in nothing. (btw: Thats why all that security theater at "terrorism" is such a BS. If you want to blow yourself up, you always find a place with lots of people.)
So dont be afraid that there is a 2% possibility that you have to earn for a few years more later on.


Since the old Warren was mentioned before, I will let him say a fwe words to you:
If you don't intend to hold a stock for at least 10 years, you shouldn't buy it at all.

= the up and down of the stock market has nothing to do with the value of a company (the money it makes and gives you as dividend).

Grog

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Re: Is buy and hold unrealistic?
« Reply #12 on: July 30, 2014, 08:28:28 AM »
If someone is living off exclusively of dividends and wasn't prepared for a 50% crash, well of course he is going to have to sell. But he is a moron, too. So there is that.

If someone is 100% invested in their own totalitarian state, well they are moron too. Diversification is the only free lunch, right? I personally have an equal weight global portfolio and one of my criteria is the democratic stability of the country.

Other than that, I recognize that my point of view is biased and living in Europe is probably easier for a buy-and-hold investor since in case of a layoff you still get a fairly good unemployment aid + health care,up to a couple of year, so the hellish trinity combination of crash+job loss+health issue isn't nearly as dramatical as in the US, and you probably never have to sell stocks to survive.

Excellent post, GROG. This is a bit off topic, but do you speak english as a second language?  I found your phrasing interesting while your meaning came across perfectly.

Thanks :) you guessed fairly well english is my third language, after italian and german. With all the time I'm spending on this and other site, it's probably becoming my second though :D

EricL

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Re: Is buy and hold unrealistic?
« Reply #13 on: July 30, 2014, 10:13:47 AM »

4. The market goes down permanently only when all the ICBMs launch

Or when the totalitarian state takes over.  Ask the investors in the stock markets of China and Russia how their early 20th century investments fared.

A lot US stock market performance history is based on survivor-ship and world dominance bias - neither is 100% certain going forward

#4 was a gloss about things going really pear shaped.  I could have used Armageddon, the Zombie Apocalypse, the return of Cthulhu, alien invasion, Skynet going on line, a meteor strike, etc.

I may have you wrong but "a totalitarian state takes over" seems like a pet fear.  If you mean a foreign totalitarian state we go back to ICBMs launching.  If you mean the US government that's more valid.  But at the same time it's easier to anticipate.  Lets look at your examples.  Czarist Russia and Imperial China were already totalitarian.  They just sucked at it and crumbled in the early 20th century version of ICBMs launching.  Imperial China was in perminent crisis from a crappy economy, technological inferiority, and government ineptitude/corruption.  The only investors making money were in imperialist western powers circling China like vultures.  Russia was in much the same boat but might have been OK except for the early 20th century version of ICBMs launching: WW I.  In both cases the writing was on the wall well beforehand.

God or Mammon?

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Re: Is buy and hold unrealistic?
« Reply #14 on: July 30, 2014, 10:29:30 AM »

4. The market goes down permanently only when all the ICBMs launch

Or when the totalitarian state takes over.  Ask the investors in the stock markets of China and Russia how their early 20th century investments fared.

A lot US stock market performance history is based on survivor-ship and world dominance bias - neither is 100% certain going forward

#4 was a gloss about things going really pear shaped.  I could have used Armageddon, the Zombie Apocalypse, the return of Cthulhu, alien invasion, Skynet going on line, a meteor strike, etc.

I may have you wrong but "a totalitarian state takes over" seems like a pet fear.  If you mean a foreign totalitarian state we go back to ICBMs launching.  If you mean the US government that's more valid.  But at the same time it's easier to anticipate.  Lets look at your examples.  Czarist Russia and Imperial China were already totalitarian.  They just sucked at it and crumbled in the early 20th century version of ICBMs launching.  Imperial China was in perminent crisis from a crappy economy, technological inferiority, and government ineptitude/corruption.  The only investors making money were in imperialist western powers circling China like vultures.  Russia was in much the same boat but might have been OK except for the early 20th century version of ICBMs launching: WW I.  In both cases the writing was on the wall well beforehand.

is the general direction of the US right now that far off from the examples above?

frugaliknowit

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Re: Is buy and hold unrealistic?
« Reply #15 on: July 30, 2014, 10:40:15 AM »
Buy and hold might not be realistic for the masses.  Everyone has a different risk tolerance.

Personally, I have a very high risk tolerance.  I am a former foreign exchange trader who was in the market in the crash of 1987, the dot com bust, and the great depression of 2008.  I never sold into any of these.  In the latest, I kept dollar cost averaging in.  Yes, even I had a pit in my stomach at times.

If someone has a lower risk tolerance, they should be allocating more to bonds (yuk!!!).

Emergency funds help increase risk tolerance and confidence.  If you've got 6 months or a year's cushion, you can handle market risk more prudently. 

EricL

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Re: Is buy and hold unrealistic?
« Reply #16 on: July 30, 2014, 11:00:36 AM »

4. The market goes down permanently only when all the ICBMs launch

Or when the totalitarian state takes over.  Ask the investors in the stock markets of China and Russia how their early 20th century investments fared.

A lot US stock market performance history is based on survivor-ship and world dominance bias - neither is 100% certain going forward

#4 was a gloss about things going really pear shaped.  I could have used Armageddon, the Zombie Apocalypse, the return of Cthulhu, alien invasion, Skynet going on line, a meteor strike, etc.

I may have you wrong but "a totalitarian state takes over" seems like a pet fear.  If you mean a foreign totalitarian state we go back to ICBMs launching.  If you mean the US government that's more valid.  But at the same time it's easier to anticipate.  Lets look at your examples.  Czarist Russia and Imperial China were already totalitarian.  They just sucked at it and crumbled in the early 20th century version of ICBMs launching.  Imperial China was in perminent crisis from a crappy economy, technological inferiority, and government ineptitude/corruption.  The only investors making money were in imperialist western powers circling China like vultures.  Russia was in much the same boat but might have been OK except for the early 20th century version of ICBMs launching: WW I.  In both cases the writing was on the wall well beforehand.

is the general direction of the US right now that far off from the examples above?

No.  I think US democracy is doing well overall and will continue to do so.  But if I'm wrong about that it's only because I don't believe in what I consider nutty conspiracy theories.  If those sources are correct future historians will validate you for having your ear to the ground.  But historically totalitarian power grabs are sealing a frog in a boiling pot of water, not putting them in room temperature water and slowly raising the heat until their cooked. 

LennStar

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Re: Is buy and hold unrealistic?
« Reply #17 on: July 30, 2014, 11:30:14 AM »
Quote from: EricL
But historically totalitarian power grabs are sealing a frog in a boiling pot of water, not putting them in room temperature water and slowly raising the heat until their cooked.
So to speak, the USA did both after 9/11. Land of the free... where your every step is watched. Where people are labeled terrorists because they care for nature or are hunted because they told the citizens that their own spies dont respect their own (and others) constitution.

People should not be afraid of their governments. Governments should be afraid of their people.

But that is going way OT I thing?

matchewed

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Re: Is buy and hold unrealistic?
« Reply #18 on: July 30, 2014, 11:39:45 AM »
My thoughts are that yes inflation has concerns, especially for those that live off of investments, but that doesn't mean buy and hold is unrealistic. For some people it will be, for others it won't. Blanket scare-tacticy statements are boring and inaccurate. They don't have any nuance to go off of. It is just as easy for me to say everything will work out. In the end make the plan that weighs the risks and benefits that you know and see. Plan for what you can and move on. Screaming about what-ifs won't actually help as the what-ifs proposed get quite silly.

I would propose that a Mustachian will in fact keep buying if a 60% drop hits. For a few damn good reasons. A) we understand that it will probably recover and in a short time frame too, B) we have less expenses than average meaning we can make do with less, C) if you're still in the accumulation phase the pullback on dividends is meaningless, D) we're more financially savvy, as in have emergency funds and skillz...etc.

I could go on and on. This whole question just smacks of fear mongering rather than any active discussion about what to do if the event were to actually happen.

God or Mammon?

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Re: Is buy and hold unrealistic?
« Reply #19 on: July 30, 2014, 11:44:44 AM »
My thoughts are that yes inflation has concerns, especially for those that live off of investments, but that doesn't mean buy and hold is unrealistic. For some people it will be, for others it won't. Blanket scare-tacticy statements are boring and inaccurate. They don't have any nuance to go off of. It is just as easy for me to say everything will work out. In the end make the plan that weighs the risks and benefits that you know and see. Plan for what you can and move on. Screaming about what-ifs won't actually help as the what-ifs proposed get quite silly.

I would propose that a Mustachian will in fact keep buying if a 60% drop hits. For a few damn good reasons. A) we understand that it will probably recover and in a short time frame too, B) we have less expenses than average meaning we can make do with less, C) if you're still in the accumulation phase the pullback on dividends is meaningless, D) we're more financially savvy, as in have emergency funds and skillz...etc.

I could go on and on. This whole question just smacks of fear mongering rather than any active discussion about what to do if the event were to actually happen.

Most people buying stocks today overestimate their ability to hold on in the next bear market, let alone buy more.

If they can recognize that about themselves now, they can make choices that would put them in a better situation when the next downturn eventually does come (whenever that may be) i.e. pay down even low interest rate debt, be more conservative in their investment return assumptions (which would lengthen time to ER), etc.  So I would disagree that it isn't just 'fearmongering' - there is actually a fair bit of value in understand human psychology and being realistic about one's ability to do the right thing (or perhaps avoid doing the wrong thing today?) when the time comes.

matchewed

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Re: Is buy and hold unrealistic?
« Reply #20 on: July 30, 2014, 12:39:36 PM »
My thoughts are that yes inflation has concerns, especially for those that live off of investments, but that doesn't mean buy and hold is unrealistic. For some people it will be, for others it won't. Blanket scare-tacticy statements are boring and inaccurate. They don't have any nuance to go off of. It is just as easy for me to say everything will work out. In the end make the plan that weighs the risks and benefits that you know and see. Plan for what you can and move on. Screaming about what-ifs won't actually help as the what-ifs proposed get quite silly.

I would propose that a Mustachian will in fact keep buying if a 60% drop hits. For a few damn good reasons. A) we understand that it will probably recover and in a short time frame too, B) we have less expenses than average meaning we can make do with less, C) if you're still in the accumulation phase the pullback on dividends is meaningless, D) we're more financially savvy, as in have emergency funds and skillz...etc.

I could go on and on. This whole question just smacks of fear mongering rather than any active discussion about what to do if the event were to actually happen.

Most people buying stocks today overestimate their ability to hold on in the next bear market, let alone buy more.

If they can recognize that about themselves now, they can make choices that would put them in a better situation when the next downturn eventually does come (whenever that may be) i.e. pay down even low interest rate debt, be more conservative in their investment return assumptions (which would lengthen time to ER), etc.  So I would disagree that it isn't just 'fearmongering' - there is actually a fair bit of value in understand human psychology and being realistic about one's ability to do the right thing (or perhaps avoid doing the wrong thing today?) when the time comes.

Most people? Or Mustachians? Which is it?

Optimism gun here. First turning around and asking if buy and hold is unrealistic is the first warning flag of fearmongering. A better way to phrase it would be what are the challenges to buy and hold strategies. But no, you start off with a question that lends credence to the idea that buy and hold is impossible, when in fact it's not.

There is value in understanding psychology but you have yet to say anything about the psychology. You've in fact attributed people's ability to weather out crashes as them being rich and said in fact that no one can weather drops. It is complainypants fearmongering at the least. So far you've said nothing about mitigation and everything about how impossible it is.

ThermionicScott

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Re: Is buy and hold unrealistic?
« Reply #21 on: July 30, 2014, 03:49:12 PM »
Most people? Or Mustachians? Which is it?

Optimism gun here. First turning around and asking if buy and hold is unrealistic is the first warning flag of fearmongering. A better way to phrase it would be what are the challenges to buy and hold strategies. But no, you start off with a question that lends credence to the idea that buy and hold is impossible, when in fact it's not.

There is value in understanding psychology but you have yet to say anything about the psychology. You've in fact attributed people's ability to weather out crashes as them being rich and said in fact that no one can weather drops. It is complainypants fearmongering at the least. So far you've said nothing about mitigation and everything about how impossible it is.

+1.  Buy & hold takes a kind of outlook that is unusual, but not impossible to develop.  Look at Mustachianism itself.

The OP also brought up the specter of inflation, with some totally arbitrary figures -- stocks represent the best chance of hanging onto your wealth during inflation, so I'd challenge the OP to tell us what he'd move his money into should inflation rear its head again.  Gold?  ;^)

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ender

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Re: Is buy and hold unrealistic?
« Reply #22 on: July 30, 2014, 04:23:57 PM »
Of course buy and hold isn't realistic... if your timeframe is the next few years.


EricL

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Re: Is buy and hold unrealistic?
« Reply #23 on: July 30, 2014, 04:51:28 PM »
Quote from: EricL
But historically totalitarian power grabs are sealing a frog in a boiling pot of water, not putting them in room temperature water and slowly raising the heat until their cooked.
So to speak, the USA did both after 9/11. Land of the free... where your every step is watched. Where people are labeled terrorists because they care for nature or are hunted because they told the citizens that their own spies dont respect their own (and others) constitution.

People should not be afraid of their governments. Governments should be afraid of their people.

But that is going way OT I thing?
Yes, we're wandering far afield.  But before we return remember President Lincoln suspended civil liberties during the Civil War, COINTELPRO violated spied on Americans, and we mass imprisoned  Japanese citizens in WW II.  Those policies stopped.  Governments should fear the people.  But in the US the government is the people.

Most people that go through a bear market it's a unique and singular experience.  After all it'stheir money and not a textbook or a WSJ article.  Bear markets are especially bad for people running up on traditional retirement.  But even then they may be like frugaliknowit and have lived through enough not to completely freak out.

Chunk

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Re: Is buy and hold unrealistic?
« Reply #24 on: July 31, 2014, 10:17:05 AM »
It must be unrealistic. A columnist on the internet says so.

God or Mammon?

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Re: Is buy and hold unrealistic?
« Reply #25 on: July 31, 2014, 10:38:02 AM »
It must be unrealistic. A columnist on the internet says so.

actually the journalist is just reporting on the research done by financial engineers at MIT and portfolio managers, but I'm sure MMM forum participants would know better from their extensive analysis

Chunk

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Re: Is buy and hold unrealistic?
« Reply #26 on: July 31, 2014, 10:47:57 AM »
I must be wrong about what I can do - someone at MIT says so. This thread is interesting but it's obvious that buy and hold is not impossible. People have already done it. People in this thread have done it. If you don't have the stomach to add to your position in a bear market, just say so. Trying to convince people that's impossible for everyone is just silly.

EricL

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Re: Is buy and hold unrealistic?
« Reply #27 on: July 31, 2014, 10:53:59 AM »
It must be unrealistic. A columnist on the internet says so.

actually the journalist is just reporting on the research done by financial engineers at MIT and portfolio managers, but I'm sure MMM forum participants would know better from their extensive analysis

While I respect MIT, not all scientific studies are all that.  In the future scientists will laugh at our science just like we did at the 19th century's.  Worse, journalists often take a scientific study and warp the hell out of it.  At best they just misinterpret it, sensationalize a minor point, or dumb it down so much for their reading audience they strip all the nuances from it.  At worst they'll do all of the same plus use it to fit their ideological world view or their employers'.

FIreDrill

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Re: Is buy and hold unrealistic?
« Reply #28 on: July 31, 2014, 10:56:29 AM »
I was kicking myself in the butt for not having any income in 2008 - 2009 to invest when the market fell out (I was in high school).  I am honestly looking forward to the next large dip, should add a nice boost to my FI plans in the long term ;)

matchewed

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Re: Is buy and hold unrealistic?
« Reply #29 on: July 31, 2014, 11:03:28 AM »
It must be unrealistic. A columnist on the internet says so.

actually the journalist is just reporting on the research done by financial engineers at MIT and portfolio managers, but I'm sure MMM forum participants would know better from their extensive analysis

No he isn't. There is not a single report of research in any of that. Just interviews of someone's opinion on buy and hold in light of human psychology. It's a shitshow article designed to drum up a predetermined point without any sort of objectiveness to any of it other than a plea to authority through a whopping two people to talk to.

I can accept the point that our instinctual psychological actions are hard to get over. But the first step is knowing how to recognize it, not capitulating to it at the mere mention of it in an article.

simonsez

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Re: Is buy and hold unrealistic?
« Reply #30 on: July 31, 2014, 11:31:39 AM »
I was kicking myself in the butt for not having any income in 2008 - 2009 to invest when the market fell out (I was in high school).  I am honestly looking forward to the next large dip, should add a nice boost to my FI plans in the long term ;)
Great idea, could you do me a favor and PM me whenever the next dip happens and you know market is really at the nadir?  TIA, ;)

Like Grog says, taxable accounts shouldn't be checking accounts and should have minimal bearing on living during a bear market.  Perhaps many do overestimate their ability to save long-term and enter in taxable accounts "too early".  That's not a problem with a strategy, that's a problem (and a first world one with many lessons to be learned with it) with the investor.

FIreDrill

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Re: Is buy and hold unrealistic?
« Reply #31 on: July 31, 2014, 11:47:49 AM »
I was kicking myself in the butt for not having any income in 2008 - 2009 to invest when the market fell out (I was in high school).  I am honestly looking forward to the next large dip, should add a nice boost to my FI plans in the long term ;)
Great idea, could you do me a favor and PM me whenever the next dip happens and you know market is really at the nadir?  TIA, ;)

I wasn't talking about trying to "time" the market.  Simply having income to invest on a monthly basis would have given anyone a great discount on stocks during that several year period.  I'll be investing no matter where the market is at, but it's nice to know that during a dip you are usually getting stocks at a decent discount, depending on your definition of a decent discount, lol.

dude

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Re: Is buy and hold unrealistic?
« Reply #32 on: July 31, 2014, 12:25:13 PM »
I was kicking myself in the butt for not having any income in 2008 - 2009 to invest when the market fell out (I was in high school).  I am honestly looking forward to the next large dip, should add a nice boost to my FI plans in the long term ;)
Great idea, could you do me a favor and PM me whenever the next dip happens and you know market is really at the nadir?  TIA, ;)

Like Grog says, taxable accounts shouldn't be checking accounts and should have minimal bearing on living during a bear market.  Perhaps many do overestimate their ability to save long-term and enter in taxable accounts "too early".  That's not a problem with a strategy, that's a problem (and a first world one with many lessons to be learned with it) with the investor.

Really though, why obsess over where the ultimate bottom is?  If you have a sense, from the usual indicators, that the market is cheap, who cares if you bought when it was down 20% only to watch it go down to 30%?  If you were confident at -20% that it would recover, why would that confidence be shaken at -30%?  Anyone who bought in 2009 whether it was when the markets were at -5, -10, -20 or -30% has been rewarded pretty nicely since then.

FIreDrill

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Re: Is buy and hold unrealistic?
« Reply #33 on: July 31, 2014, 12:31:24 PM »
I was kicking myself in the butt for not having any income in 2008 - 2009 to invest when the market fell out (I was in high school).  I am honestly looking forward to the next large dip, should add a nice boost to my FI plans in the long term ;)
Great idea, could you do me a favor and PM me whenever the next dip happens and you know market is really at the nadir?  TIA, ;)

Like Grog says, taxable accounts shouldn't be checking accounts and should have minimal bearing on living during a bear market.  Perhaps many do overestimate their ability to save long-term and enter in taxable accounts "too early".  That's not a problem with a strategy, that's a problem (and a first world one with many lessons to be learned with it) with the investor.

Really though, why obsess over where the ultimate bottom is?  If you have a sense, from the usual indicators, that the market is cheap, who cares if you bought when it was down 20% only to watch it go down to 30%?  If you were confident at -20% that it would recover, why would that confidence be shaken at -30%?  Anyone who bought in 2009 whether it was when the markets were at -5, -10, -20 or -30% has been rewarded pretty nicely since then.

Exactly...  :)

slugline

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Re: Is buy and hold unrealistic?
« Reply #34 on: July 31, 2014, 12:51:23 PM »
I say that if you know, deep in your heart, that you can't buy-and-hold, stay the hell away from the stock markets.

Personally, I didn't let the 2008 crisis rattle me or my asset allocation. I was even laid off on 9/11 and did not sell a cent of my retirement holdings through the 2001 dot-bomb times.

This is also why "conventional" wisdom has a retirees and close-to-retirees shift more into less risky holdings, to help guard against panic selling of equities.

milesdividendmd

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Re: Is buy and hold unrealistic?
« Reply #35 on: July 31, 2014, 02:17:12 PM »
I actually agree with much of what the OP is arguing here.

We are all proned to overconfidence.

Losing is much more painful than winning is enjoyable.

Our own inaccurate way of thinking greatly overemphasises the role of our rational minds (System 2 for Kahneman fans) and undersestimates the power of our own rapid unconscious thought (system 1)

I am both a fanatic believer in the logic and evidence of the buy and hold passive investing strategy, and constantly fighting against my own tendencies to try to time the market.

This human tendency is nicely catured by prospect theory, which I recently wrote about in my post entitled "Born to (not) lose."


Travis

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Re: Is buy and hold unrealistic?
« Reply #36 on: July 31, 2014, 02:42:57 PM »
I was kicking myself in the butt for not having any income in 2008 - 2009 to invest when the market fell out (I was in high school).  I am honestly looking forward to the next large dip, should add a nice boost to my FI plans in the long term ;)
Great idea, could you do me a favor and PM me whenever the next dip happens and you know market is really at the nadir?  TIA, ;)

Like Grog says, taxable accounts shouldn't be checking accounts and should have minimal bearing on living during a bear market.  Perhaps many do overestimate their ability to save long-term and enter in taxable accounts "too early".  That's not a problem with a strategy, that's a problem (and a first world one with many lessons to be learned with it) with the investor.

Really though, why obsess over where the ultimate bottom is?  If you have a sense, from the usual indicators, that the market is cheap, who cares if you bought when it was down 20% only to watch it go down to 30%?  If you were confident at -20% that it would recover, why would that confidence be shaken at -30%?  Anyone who bought in 2009 whether it was when the markets were at -5, -10, -20 or -30% has been rewarded pretty nicely since then.

I have no problem buying when the market has a really shitty week (maybe tomorrow?), but I might worry that I'm not being patient enough to wait for the market to hit bottom before buying (DCA vs timing)

soccerluvof4

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Re: Is buy and hold unrealistic?
« Reply #37 on: July 31, 2014, 02:44:44 PM »
There are always new scenarios and there will always be risks but that's the game. But odds are you will always come out fine if you stay with your plan, adjust etc.. Depending on your circumstance and testicle fortitude you decide to play or not!. Personally, this is one Mustachian that would find/sell what ever $$ i could  to put as much money in as fast as I could with an extreme drop. But then again with the drop of 300+ pts today I added to my index funds. Personally, and call it what you want. I would be shocked to see another drop of that magnitude anytime soon simply because there are so many people on the sidelines holding on to cash waiting and waiting. But I would love a 20% correction right about now.

God or Mammon?

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Re: Is buy and hold unrealistic?
« Reply #38 on: July 31, 2014, 02:53:08 PM »
There are always new scenarios and there will always be risks but that's the game. But odds are you will always come out fine if you stay with your plan, adjust etc.. Depending on your circumstance and testicle fortitude you decide to play or not!. Personally, this is one Mustachian that would find/sell what ever $$ i could  to put as much money in as fast as I could with an extreme drop. But then again with the drop of 300+ pts today I added to my index funds. Personally, and call it what you want. I would be shocked to see another drop of that magnitude anytime soon simply because there are so many people on the sidelines holding on to cash waiting and waiting. But I would love a 20% correction right about now.

there is always a ton of cash on the sidelines - for every buyer there is a seller

don't disagree with buying on dips

Christof

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Re: Is buy and hold unrealistic?
« Reply #39 on: July 31, 2014, 03:04:37 PM »
And the answer wasn't "well let me go out and find a part-time job to rebuild my 'stache'" - there were no jobs available when the unemployment rate skyrocketed and mass layoffs were occurring.

It helps to keep in mind that even during the recession most people had a job. There were also companies looking for employees at that time, quite a few actually. Many paid less, though, which kills someone living paycheck to paycheck.

However here the situation is different. Suppose a family of three used to live off $25K a year from dividends in relative luxury in a paid off house. Dividend payments drop rather drastically to $8K. You can still reduce your cost of living from 25K to 18K by not travelling, not heating/cooling your home, eat basic food only, and the like. That leaves a gap of 10K, or $420 per month and adult. Even in a recession it wasn't difficult to make that amount of money working part time in some unpopular job like cleaning public restrooms.

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Re: Is buy and hold unrealistic?
« Reply #40 on: August 01, 2014, 07:23:38 AM »
And the answer wasn't "well let me go out and find a part-time job to rebuild my 'stache'" - there were no jobs available when the unemployment rate skyrocketed and mass layoffs were occurring.

It helps to keep in mind that even during the recession most people had a job. There were also companies looking for employees at that time, quite a few actually. Many paid less, though, which kills someone living paycheck to paycheck.

However here the situation is different. Suppose a family of three used to live off $25K a year from dividends in relative luxury in a paid off house. Dividend payments drop rather drastically to $8K. You can still reduce your cost of living from 25K to 18K by not travelling, not heating/cooling your home, eat basic food only, and the like. That leaves a gap of 10K, or $420 per month and adult. Even in a recession it wasn't difficult to make that amount of money working part time in some unpopular job like cleaning public restrooms.

not really

in 2009 and 2010 U-6 (underemployment rate) was almost 20%

there were 20 applications for every one opening for unskilled jobs like Wal Mart greeter and Fast Food clerk

not sure how it was in Germany (which seems to have a much more managed economy) but it was not pretty in the US

matchewed

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Re: Is buy and hold unrealistic?
« Reply #41 on: August 01, 2014, 07:43:19 AM »
And the answer wasn't "well let me go out and find a part-time job to rebuild my 'stache'" - there were no jobs available when the unemployment rate skyrocketed and mass layoffs were occurring.

It helps to keep in mind that even during the recession most people had a job. There were also companies looking for employees at that time, quite a few actually. Many paid less, though, which kills someone living paycheck to paycheck.

However here the situation is different. Suppose a family of three used to live off $25K a year from dividends in relative luxury in a paid off house. Dividend payments drop rather drastically to $8K. You can still reduce your cost of living from 25K to 18K by not travelling, not heating/cooling your home, eat basic food only, and the like. That leaves a gap of 10K, or $420 per month and adult. Even in a recession it wasn't difficult to make that amount of money working part time in some unpopular job like cleaning public restrooms.

not really

in 2009 and 2010 U-6 (underemployment rate) was almost 20%

there were 20 applications for every one opening for unskilled jobs like Wal Mart greeter and Fast Food clerk

not sure how it was in Germany (which seems to have a much more managed economy) but it was not pretty in the US

Probably better to use the unemployment rate (U-3) to describe whether people had jobs or not rather than the underemployment rate (U-6) as U-6 includes people having jobs.

And as for almost 20%... not so much. The peak of U-6 was 17.2% in April of 2010. But again a bad metric to describe whether people don't have jobs as it describes people who have jobs.

Neustache

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Re: Is buy and hold unrealistic?
« Reply #42 on: August 01, 2014, 07:54:55 AM »
Huh...my families' small business managed to miss out on the 20 to 1 ratio of applicants to jobs.  We always needed good workers, and had to scrounge to get them, AND we start off paying $12 an hour in the midwest. 

mpg350

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Re: Is buy and hold unrealistic?
« Reply #43 on: August 01, 2014, 09:49:55 AM »
It really comes down on what your holding and your age.

If your holding stocks I would not just buy and hold stocks….look at some of the past big stocks in the .com bubble some never came back or
Went bankrupt.    But if your holding a mutual fund or Index fund yeah I would hold onto that.
If you look at past results most high growth stocks in a bear market will drop like 60% or more...and many of the leaders wont' recover for many many years if ever.   

I personally monitor the 200 day moving average that is one of the best indicators on the health and direction of the market. 

If you bought some stocks 3-4 years ago you should have some great gains and might want to look into locking some gains in. 

I personally look forward to the next market correction that is when people if doing buying can make some real wealth.
« Last Edit: August 01, 2014, 09:53:12 AM by mpg350 »

ender

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Re: Is buy and hold unrealistic?
« Reply #44 on: August 01, 2014, 06:45:34 PM »
I personally look forward to the next market correction that is when people if doing buying can make some real wealth.

People have been saying this for months now and the market has gone up a fair bit, it's going to have to drop a large percentage for most of the gloom-and-doom people to be right in that "good thing I waited!" perspective.

Dodge

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Re: Is buy and hold unrealistic?
« Reply #45 on: August 01, 2014, 07:21:40 PM »
I personally look forward to the next market correction that is when people if doing buying can make some real wealth.

People have been saying this for months now and the market has gone up a fair bit, it's going to have to drop a large percentage for most of the gloom-and-doom people to be right in that "good thing I waited!" perspective.

The is the most baffling part of people planning on "buying the dip".  Do they not see that even with today's dip, it's right about where it was a month and a half ago?



Even a 20% correction from the peak, would bring us to about where we were just a year ago.



The opportunity cost of this is just huge.  Even if it does dip, and you hit it perfectly, the missed dividend payments put you much further behind than if you had simply gone in a year ago.  Interestingly enough, the amount in lost dividends over the last year, is just about equal to the amount the stock market dropped yesterday :-P

BlueMR2

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Re: Is buy and hold unrealistic?
« Reply #46 on: August 02, 2014, 08:21:23 AM »
http://www.marketwatch.com/story/buy-and-hold-is-impossible-2014-07-25

It seems easy now after a 5yr bull market and most recently the longest streak ever without a 10% correction, but will even mustachians really do nothing (or buy more stocks) if their portfolio drops 60% again?  And keep in mind there have been periods where dividends get cut (a lot) and neither the payment levels nor price values get back to previous levels for 15-20 years, not adjusted for inflation.  In an environment where inflation is increasing that could mean a drop in purchasing power by 1/2 to 2/3.

Why would I pull the money out?  I don't know how much value it will lose until it actually loses it.  At that point it's foolish to pull out.  It was sad watching my investments through the last big crash, but I ended up gaining because I did not pull out, AND I continued investing.  So, if you're financially responsible, both drops and gains are winners (unless the whole system collapses of course, but then nobody wins).

If you're in the hair on fire debt situation, you're hosed.  However, you are either way.  Gains will never get you out of debt since inflation/COL tends to follow.  Losses, well, that's obvious.  Bull/Bear market impacts individuals much less than you'd think...

waltworks

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Re: Is buy and hold unrealistic?
« Reply #47 on: August 02, 2014, 10:20:30 AM »
The numbers say that, actually, buy and hold is by far the *most* realistic way to make money in stocks.

-W

YoungInvestor

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Re: Is buy and hold unrealistic?
« Reply #48 on: August 02, 2014, 02:55:23 PM »
For most people it is, but there are definitely many circumstances where it is simply impossible (Losing your job and having to sell some of your equity to live). There are ways to prevent this (CD ladder, as an example), but they are fairly costly as far as lost opportunity goes.

But yeah, as long as you don't lose your job, you should simply buy as much as possible if the market is down.

Grog

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Re: Is buy and hold unrealistic?
« Reply #49 on: August 02, 2014, 03:51:09 PM »

Losing is much more painful than winning is enjoyable.



but there is no losing during a crash. Your stock purchase depreciate and their value is adjusted, but you have not lost money. Until you sell.