Okay, this is one topic where we don’t mince our words. In the last decade or so, the financial world has changed, possibly irreversibly at least for the next decade or more. Back in the 70’s, 80’s and 90’s, “Buy and Hold” worked very well. Investors and fund managers like Jack Bogle and Peter Lynch picked stocks well, built solid portfolios and generated attractive returns for their investors. The world immediately attributed their stellar success to “Buy and Hold” strategies or long-term investing. Little credit is given to facts like stability in the macroeconomic environment when developed countries had Debt to GDP ratios in the 10 to 30%, no trillion dollar wars, responsible regulations like the Glass Stegall Act, and exotic securitization of mortgage securities or student loans were virtually non-existent. All of that has changed now. Debt to GDP ratios of most developed nations are approaching 100% or have exceeded it already. Wall Street is still cranking out credit default swaps and other toxic crap without any oversight. This kind of a shift has produced a permanent impact on the markets. If you need any proof, just study the next two graphs, showing nominal (before inflation) and real (after inflation) returns of the 3 major US indices between 2000 and 2012. These numbers are unbelievable – even if you discount the Nasdaq for its wild dot-com flirtations, the S&P 500 has a negative real return of -32% in the last 12 years.
BUY AND HOLD IS ONLY A BUY AND HOPE STRATEGY.
Both images are courtesy of Doug Short of AdvisorPerspectives.com – Click images to enlarge.
At optiontiger.com, we believe this situation is not likely to change anytime soon. The ideal timeframe for everyday investors is to look at no more than a 3 to 6 month horizon. Understand the current sentiment, pick your stocks, indices or ETFs through detailed analysis (takes 10 minutes for each security), pick your outlook (bullish, bearish or neutral), and tailor your strategy for that outlook. This is the only way to be profitable in the markets today. If you want to become a master at that, check out our courseware – this is exactly what we do !