Life is unfair: No one can read the TurtleTrader site for long before the statement, “Trading is a zero-sum game” starts to sound familiar. It’s a fact that some people win in the market and some people lose, and as our readers know, we like facts. The market is unfair just as life is unfair. Not everyone is equal nor is everyone going to get their fair share. To approach trading as a battle for survival makes it easier to accept another fact which is that those people who work the hardest at trading will win. Now that is fair.

Buy and Hold: The Lazy Approach

Enter a reporter for a major financial web site. This reporter contacted TurtleTrader seeking an opinion about the downsides of buy and hold approaches given the dramatic NASDAQ declines during the bubble. Obviously, if you bought and held the NASDAQ for the last few years, you lost money. We told our new friend that investors and traders must have a strategy. If the last few years of watching the NASDAQ tank taught investors anything, it is that buy and hold is not the greatest of strategies. We even went so far to opine that buy and hold is not a strategy at all, but rather an excuse to be lazy with your thinking and your money in the market. You can always say “I buy and hold.” Sounds nice and comforting, maybe even slightly sophisticated.

The appeal of buy and hold is not its effectiveness. It is its simplicity and its absolution of responsibility. If the market goes up, you participated. If it goes down, you waited patiently. In neither case did you have to make a decision, take a loss, or demonstrate any particular skill. The approach asks nothing of the investor except the absence of action, and it rewards that passivity adequately during sustained bull markets. It reveals its poverty as a strategy during the periods that genuinely test a portfolio: extended declines, sector collapses, bubble deflations. The NASDAQ from 2000 to 2002 was one of the most instructive real-world tests of buy and hold in modern market history, and the lesson was ignored by the vast majority of those who lived through it.

What Do I Do If Life’s Unfair?

The reporter wanted to know what investors must do now. She wanted to know what we are advising investors to do who bought technology stocks, got slaughtered and are now burdened with mega losses. She asked us for specific advice for the investor who has been killed and now doesn’t know what to do (gamblers anonymous). She wanted forecasts about what would happen next year.

You Accept Reality and Move On

We replied there are no forecasts for next year. No one can forecast the future. You can only react to the present. Furthermore, people need to have a strategy that has an exit point before they ever enter the market. Know when you are going to exit before you enter. Become smart. Lose your Las Vegas quick riches mind set. Stop day trading. We pointed out that there are clear strategies you can use to exit markets at proper times that enhance profitability. We added that buy and hold approaches must be rejected as irrational, except, of course, for people expecting to live forever.

These are not comfortable answers. They require the investor to accept that they made a mistake, that the approach they trusted was inadequate, and that the path forward involves learning something new rather than waiting for the old approach to be vindicated. That is a harder psychological journey than a reporter asking for a forecast and receiving a number. But the harder answer is the honest one. Forecasts for next year are not available because next year has not happened. Exit strategies before entry are available because they can be defined in advance based on risk management principles that do not depend on predicting the future. The distinction matters enormously. For the rules that encode these principles, see the TurtleTrader rules.

Reality Is Hard to Accept

Our new friend, who contacted us for an opinion, went ballistic. She proceeded to begin a wide ranging debate that is a common response and offers interesting clues as to why people lose in the market.

At this point we politely ended the interview.

Why pass this story along? Because for those who truly want to win at trading, it is always nice to be reminded that in the zero-sum game people like this reporter exist in droves. She presents a case study of all of the emotional and psychological roadblocks losing investors possess. We wish her the best, but she is destined to keep losing.

The reporter’s reaction is not unusual. It is the standard response of someone who came looking for validation and received truth instead. She wanted a forecast that would reassure her clients. She received the observation that forecasts are not available. She wanted comfort. She received the observation that buy and hold is not a strategy. She wanted guidance on recovering from a loss she did not know how to take. She received the observation that the loss should have been taken earlier based on a predefined exit, and that the absence of such an exit was the real problem. Every one of those truths was unwelcome because every one of them required her to accept responsibility rather than wait for the market to solve the problem. The emotional and psychological roadblocks that losing investors possess are not exotic. They are the universal human responses to loss, uncertainty, and the demand for accountability. Trend following’s entire structure is designed to remove those roadblocks from the trading decision by replacing them with rules. For more on the psychology behind why investors make these mistakes consistently, see investor psychology and the broader trend following framework.

Frequently Asked Questions

Why is buy and hold described as an excuse to be lazy?

Because it requires no decision-making, no defined exit, and no accountability. The investor who buys and holds does not have to assess whether the market conditions still justify the position, does not have to cut a loss when the trade goes wrong, and does not have to take responsibility for a bad outcome because waiting is always available as a justification. It feels like a strategy because it has a name. It is not a strategy because it has no exit condition except infinity.

Why are there no forecasts for next year?

Because next year has not happened and no one can forecast the future. Trend following does not ask that question. It asks what is happening now and responds accordingly. Demanding a forecast before accepting advice about risk management is demanding the impossible while ignoring the possible. The possible is an exit strategy defined before entry, based on price movement rather than prediction.

What should investors who lost money in the NASDAQ bubble have done differently?

They should have had a strategy with a defined exit point before they entered. A predefined stop loss would have exited the position at a manageable loss long before the NASDAQ fell 78% from peak to trough. The lesson is not specific to the NASDAQ bubble. It applies to every position in every market. Know when you are going to exit before you enter.

Why do investors react badly when told there are no forecasts?

Because forecasts provide the illusion of control and certainty in an uncertain environment. Accepting that the future cannot be forecast requires accepting uncertainty, which is psychologically uncomfortable. It also requires taking responsibility for decisions rather than delegating them to an analyst’s prediction. The emotional backlash against honest uncertainty is one of the most reliable patterns in investor psychology.

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