Buy-and-hold investors have taken an absolute beating this last decade.
Not just the ones who fell on the landmines like Citigroup (NYSE:C), General Electric (NYSE:GE), and AIG (NYSE:AIG), either.
No, blue chips Coca-Cola (NYSE:KO), Dow Chemical (NYSE:DOW), and Disney (NYSE:DIS) are all down significantly over the last 10 years.
With many calling this the death of buy-and-hold investing as we know it, we've had a lively discussion going with thoughts from Fool co-founder Tom Gardner, Vanguard founder John Bogle, and even Internet entrepreneur turned Dallas Mavericks owner Mark Cuban.
To add to the debate, we asked some of our newsletter advisors and analysts what they think: Is buy and hold dead?
Alex Scherer, CFA, Motley Fool Stock Advisor associate advisor: Buy and hold was never really alive to begin with, other than as an almost Platonic ideal. In that regard, it is as relevant as ever, if better expressed as buy to hold rather than buy and hold (speaking to intention rather than practice).
But in our current reality, we live in a world where risk assets don't have multi-decade tailwinds of 1) secular decrease in interest rates, 2) a growing equity culture (growth in pension and 401k investment in equities), and 3) cheap credit leading to low cost of capital for growth. In this world, fewer and fewer companies will be able to produce the results over a decade or more that would justify a buy and hold approach. Of course, in Stock Advisor, those few companies are the ones we are trying to identify and take advantage of. It's a tough slog, though, because true sustainable competitive advantage and opportunities for growth that produces returns above cost of capital will likely prove to be much more selective and unique than many assumed over the past two-plus decades.
Ron Gross, Million Dollar Portfolio advisor:
At MDP, we have often called ourselves long-term investors or buy-to-hold investors. We do this to differentiate our strategy from those who actively trade stocks. At MDP, we analyze companies from the bottom up, place an intrinsic value estimate on them, and then buy and hold them until the valuation is realized, or we change the valuation estimate. This can take a week, a month, or several years. Our experience is that stocks will typically take more than a year to appreciate to our value estimate. Thus, we'll often hold stocks for quite some time. An added benefit of this is that we'll generate long-term capital gains, which are much more favorable than their short-term cousins.
But, let's be clear. If a company reaches our estimate of value in only a month's time, we will happily sell that stock and reallocate that capital to better opportunities. We will pay our short-term capital gains tax with a smile on our faces and look for the next great investment.
Andy Cross, Motley Fool Stock Advisor associate advisor: I never really thought buy and hold (or buy and forget) was ever alive. At least not in a good way. I'm not sure if we coined it here or not, but we wrote in Stock Advisor that it's buy to hold.
The idea is that we typically want to buy companies with the intention of holding them for long periods of time, even forever, some might say. As long as the businesses can generate good returns on their capital and the stocks aren't outrageously priced, we'll keep them around.
Valuations do matter, though, so you can't just bury your head in the sand. And I do not think that type of investing or thinking is dead. Trying to time the ups and downs of momentum stocks when most other investors are doing that, especially professionals, is not only difficult but, in my mind, just not all that healthy.
Find companies like Costco (NASDAQ:COST) or Ritchie Brothers that can deliver on their employed capital and are run by mangers who put shareholders first. If you can buy those stocks at reasonable valuations, hold them, nibble on more if the stock price dips, and be mindful of the hysteria of the markets, then you get to watch your cash compound for years. It's a pretty good tax-efficient deal in my mind.
Philip Durell, Motley Fool Inside Value advisor: The answer is, of course, yes and no! But it has always been that way. Buying and holding a truly superior company and automatically re-investing the dividends is the easiest armchair investment, and we should all strive to have a few of those companies in our portfolio -- but by definition, there can only be a score or so of truly great, predictable companies -- there just aren't that many Coca-Colas (NYSE:KO) around.
Even Coke sometimes gets intensely over-priced, as it did in the late 90s, so you could say that it was an easy sell back then (and it was). Another alternative to selling such a "core" stock outright is to sell a third, half, or two-thirds of your holding (not necessarily in one sale, as it often pays to sell in thirds as well as buy in thirds). The reason for this is twofold -- 1) we don't know if the stock price will get even more over-valued, and 2) it requires a great deal of discipline to buy back in at lower prices if you no longer own or follow a company. Another way to play this is to sell outright and look for a similarly great company that is more undervalued.
Robert Brokamp, Motley Fool Rule Your Retirement advisor: Buy and hold is dead because no one really does it. It's like asking "Is Bigfoot dead?"; it doesn't matter because it doesn't really exist.
How many people really hold an individual stock for decades? Not many, I'd guess. Plus, it may not be so smart. Buying and holding asset classes makes more sense -- in fact, it's what I recommend for most investors in my Rule Your Retirement service -- but even if you hold an index fund for decades, the stocks within the index fund are changing all the time.
With actively managed funds, there's the issue of periods of underperformance and management changes, which chase people away. How many people still own Fidelity Magellan from the days of Peter Lynch?
Then there's rebalancing, getting more conservative as you get older, tax-loss harvesting, and selling investments to generate retirement income.
The bottom line is, very few people hold forever. It's really "buy and sell eventually," with that "eventually" being very key and, hopefully, decided beforehand according to sound, objective, systematic principles. Or astrology.
