Not all stocks are Lazarus rising from the dead. Among the older generation of powerhouse stocks, some of them have risen to live again (General Electric and Intel) while others have died (Zenith, Pan Am). Hold for the long term, as an answer to every investment question, is mass delusion today.
The Buy and hold approach must be rejected as outdated and irrational, except for people who intend to live forever. There are clear effective strategies that you can use to exit markets at proper times that enhance profitability.
Q. But I believe in Warren Buffett and the use of buy and hold strategies. What is wrong with that?
A. Here’s an example of what’s wrong with buy and hold: Remember the Nasdaq market crash of 1973-74? The Nasdaq reached its high peak in December 1972. It then went straight down by nearly 60% hitting rock bottom in September 1974. We did not see the Nasdaq break permanently free of the 73-74 bear market until April 1980. What good did buy and hold do you from December 1972 through March 1980? No good at all. You made no money as a buy and holder. You would have made more money during this period in a 3% savings account than mindlessly following a buy and hold strategy.
| Loss of capital (%) |
Gain to recover (%) |
| 5 |
5.3 |
| 10 |
11.1 |
| 15 |
17.6 |
| 20 |
25.0 |
| 25 |
33.3 |
| 30 |
42.9 |
| 35 |
53.8 |
| 40 |
66.7 |
| 45 |
81.8 |
| 50 |
100.0 |
| 55 |
122.0 |
| 60 |
150.0 |
