Debunking Buy and Hold strategy

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anticrastinator
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Debunking Buy and Hold strategy

Post by anticrastinator » Thu Feb 01, 2018 7:38 pm

Interesting article on zerohedge.com. Opinions?
https://www.zerohedge.com/news/2018-02- ... ime-market

livesoft
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Re: Debunking Buy and Hold strategy

Post by livesoft » Thu Feb 01, 2018 7:45 pm

It is not advocating Market Timing. It seems to be advocating a Buy, Hold, and Rebalance strategy.
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scdevon
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Re: Debunking Buy and Hold strategy

Post by scdevon » Thu Feb 01, 2018 7:48 pm

Nobody can time the worst 10 days just like nobody can time the best 10 days of the market. If cash or other safe money makes someone sleep better at night, cash can be skimmed off or averaged out of a core position that remains 100% invested at all times.

livesoft
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Re: Debunking Buy and Hold strategy

Post by livesoft » Thu Feb 01, 2018 7:55 pm

scdevon wrote:
Thu Feb 01, 2018 7:48 pm
Nobody can time the worst 10 days ...
Everybody who owns bond fund shares automatically successfully times the worst 10, 20, 30 days with those bond funds shares which miss all those worst days in the equity markets. That's a lot of investors.

And welcome to the bogleheads.org forum.
Last edited by livesoft on Thu Feb 01, 2018 7:56 pm, edited 1 time in total.
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jminv
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Re: Debunking Buy and Hold strategy

Post by jminv » Thu Feb 01, 2018 7:56 pm

I noticed this statement in the article and easily thought of someone who does that:
"Why are there are no great investors of our time that “buy and hold” investments?"
Well, Warren Buffett does. There's one very successful outlier. He also has cash to use during bottoms which I realize, but in general that statement discredited his thesis.

I will say that I timed the last recession well. I got out high and got back in low but that doesn't really mean anything and can lead to dangerous beliefs in ones timing ability that are very unlikely to be true. I also thought there'd be a recession at the end of 2015 but I stayed invested because I'd moved on from trying to time the market. When I got out in the last recession I also got my parents out. They never went back in and continued to stay in a very conservative investment position missing out on large gains. They would have been better off not getting out at all. Timing is impossible because it's impossible to know when the top has been reached and impossible to know when you've hit the bottom. This can lead you to miss out on large gains. Because some people, in hindsight, are believed to have correctly 'timed the market' or noticed something no one else did they are pointed at as proof of market timing. These people should of course exist because just because of chance. However, at any one time many people are calling a top but are incorrect. Yes the worst 10 days are bigger than the best 10 days as the author states but it's impossible to know when those will occur. For the average investor, trying to time the market is an incredibly bad idea. Much better to change your risk profile as you age and adjust your portfolio accordingly.

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willthrill81
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Re: Debunking Buy and Hold strategy

Post by willthrill81 » Thu Feb 01, 2018 8:06 pm

scdevon wrote:
Thu Feb 01, 2018 7:48 pm
Nobody can time the worst 10 days just like nobody can time the best 10 days of the market. If cash or other safe money makes someone sleep better at night, cash can be skimmed off or averaged out of a core position that remains 100% invested at all times.
Interestingly, nearly all of the best and worst days of the stock market are when it is trading under the 200 day moving average.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

decapod10
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Re: Debunking Buy and Hold strategy

Post by decapod10 » Thu Feb 01, 2018 8:07 pm

It's a little bit hard to follow. I keep getting distracted by the random bold letters and different colored fonts, lol. But basically it appears his point is this:

1. Avoiding the big down days is more important than capturing the good days.

2. Bear markets have something to do with the S&P 500 breaking the 12 month moving average

3. He recommend some kind of "switching" strategy, where you switch to cash when the S&P500 breaks the 12 month moving average. I'm not sure if he means the whole thing, or just new monies.

4. He also mentions something about moving your winning positions back down to the original allocations, selling "losers", and moving them to cash in the high risk periods.

Anyone tease out precisely what his switching strategy was?

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aegis965
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Re: Debunking Buy and Hold strategy

Post by aegis965 » Thu Feb 01, 2018 8:10 pm

On the same topic, here is a recent article on trend-following, which, I think, the Zerohedge article is advocating in a roundabout way?
An interesting quote from the article:
Wesley Gray wrote:Flip it and make trend following the benchmark and consider buy and hold. Works sometimes, doesn't work other times, but you eat massive tail risk with buy and hold, therefore isn't worth the risk/effort.
In other words, if trend following is your base allocation, would you as an investor allocate to a different strategy that underperformed at a 70%+ rate over 3-5 year rolling time frames and 90-100% of rolling 10-15 year time frames, and had materially more downside risk? Not only would I not make that allocation, I'd love to bet someone with proceeds going to charity that trend following would outperform.
I may be biased.

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