Post of the Day
October 19, 1998
Dell Computer Folder
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Subject: Re: to the other readers...
To quote you, "Oh sweet mother of God, do we have to go through this same exact debate every single time"? Every time someone says that they are long-term buy and hold (LTB&H), you tell us about how LTB&H doesn't work.
I know you are trying to reach that neophyte stockholder who blindly buys a stock, doesn't pay attention to it, and hopes for an annual 15-20% return twenty years from now, but perhaps you should emphasize the knowledge aspect of buying and selling stocks, that is, before you buy, you study the market to find a stock that you believe will give you above average returns and then answer all questions you have about that stock before you buy it. Determine the fundamentals behind your purchase, and devise an "exit plan" (to quote MuadDib). That way, when something does go wrong with the stock, or it performs badly, you'll have a standard to determine whether you should sell the stock.
Like you say, not all stocks go up. For the stock examples you cite, there were events that made the LTB&H stockholder stop and think about whether he or she should still hold the stock (Polaroid - shrinking market share, Boston Chicken - bad accounting practices, Johns-Mansville - class-action tort lawsuit, Bethlehem Steel - shrinking steel market, Netscape - Microsoft gains in browser wars). Some events are more obvious than others, but I'm sure everyone noticed after a while that the stocks weren't doing so well. When you get out depends on your exit plan.
Running around and yelling that the stock market doesn't always go up isn't going to convince anyone. Sure, not all stocks go up, some go out of business, and some are real duds, but how about the person who has been LTB&H with a blue chip like Disney, Coke, or GE over the last 20 years? Or more recently, Microsoft, Dell, or Cisco? And why is the Dow now so much bigger than it was in years past? I'd have to say that the long-term trend of the market is up. The long-term trend of your portfolio should also be up, provided you've studied your stocks before you buy and have an exit plan.
Your favorite argument seems to be that only the recent bull years have been good to LTB&H stocks. You like to say that from years x to y it wasn't a good time for LTB&H. Well, what about the couple of years before year x? Those must have been good years. And the couple years after year y? Those too. You're painting a picture of this hugely bear market that lasts decades and decades and prevents anyone from ever making money by LTB&H. I'd say that's only true if you bought blindly and didn't do your homework. Only holding bad stocks over a long period of time would prevent you from making money like that.
Having said that, I also wanted to emphasize that everyone's trading strategy and exit plan should be unique. We are all in different circumstances. Chris, from your posts, I know that you have the time to watch the market and make momentum trades, and that you need income from your stocks. I work, do not have to rely on my stocks for income, have few free hours after work, and am six hours behind EST. In fact, by the time I wake up in the morning, it's already 12:30 in New York, so I couldn't watch the market unless I don't want to sleep. However, I know why I bought my stocks, I have an exit plan, and I'll be long gone if any of my stocks are on their way to becoming the next Polaroid.
I guess all I'm asking is that you stop giving us the same old "LTB&H doesn't work" story every time someone says they are LTB&H. For some of us, LTB&H is all we can aspire to given our time constraints, and we watch our stocks closer than you think. I believe the message that should be emphasized is that you should know your stock before you buy it and make sure you have an exit plan.
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