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September 3, 1998

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Subject: Re: SELL, HOLD, BUY
Author: FerrisFooler

The messages debating the buy & hold / market timing methods have been interesting. My comments are:

(1) Vic3's mutual funds have probably dropped along with the stocks he recently bought. Maybe the funds haven't dropped as much as his stocks, but he probably would have experienced a portfolio loss either way. And if he bought truly good companies, he'll probably do better holding onto these stocks than he would if he still had his mutual funds.

  "Trying to time the market and recognize when to sell is mighty risky. It's a crapshoot..."

(2) Trying to time the market and recognize when to sell is mighty risky. It's a crapshoot trying to guess what the market will do in the near future. Those who thought that the market was too high back in '95 or'96 and sold their stocks missed out on a lot of gains after that. It's always nice to sell at a large profit, but who can predict how long it will take for the market to get back to a level where one should buy again? People are jumping in now and buying like crazy after the drops of late, thinking that there's lots of bargains out there, but they have no idea if they timed it right, or if the market will drop even lower in the near future.

(3) Those who are upset at seeing their kids' college fund drop 30% of whatever lately should rightfully be upset if the money will be needed relatively soon. However, if it is going to be needed soon, some of that money should already have been put into safer investments. My opinion is that any money I have in stocks should not be needed any time soon, so that any large market drops will be shrugged off with the knowledge that the losses will be more than recouped over the long run.

  "It's so easy to use hindsight and wonder why we didn't see a large drop coming."

(4) Relating to (2) above, there's a lot more certainty of a nice gain in holding a good company's stock over the long term than in trying to time the market. Yes, some people might do better by timing the market, but I would rather spend much less time studying my investments and the market -- while still achieving a return on my investments which will reward me handsomely down the road -- than to spend hours each week on my investments and the market, gambling that my timing decisions are the right ones.

It's so easy to use hindsight and wonder why we didn't see a large drop coming. It's easy to get angry because we bought stocks two months ago and have seen them drop 20-30% in value. It's easy to bash the buy & hold premise because of this anger. It's also easy to say that we can do better by timing the market because we "saw it coming" and sold back in July. But for my money, the easiest thing is to buy stocks in great companies, review my holdings periodically, and watch my holdings rise over the long haul. Yes, the Foolish method of buying and holding might not pay off in the short run; yes, a small percentage of folks might do better in the long run by buying and selling based on their predictions of market ups and downs; but the Foolish way will beat MOST (I think almost all) market timers over the long run, with much less effort.


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