This article is part of our Rising Star Portfolios series.

When it comes to buy-and-hold investing, probably the all-time champ was Shelby Davis. Over his 47-year investing career, he bought more than 1,500 equity positions. According to his biographer, he didn't like selling them, either, preferring what he called the "eternal hold." It worked, too, turning $50,000 at the start into more than $900 million by the time he died.

Warren Buffett, too, is famous as a buy-and-hold investor, saying that "our favorite holding period is forever."

But buy-and-hold is not the only way to make money in the market. Peter Lynch, for instance, purchased -- and sold -- thousands of positions during his tenure at Fidelity. And he did very well, as we all know.

Given the strong bias toward buy-and-hold here at The Motley Fool, I was recently asked on my Messed-Up Expectations portfolio discussion board: "How long do you envision the various positions will be held? Will they all be long term as many TMF services discuss and advocate?"

Here is how I answered that:

From the way I've thought about this strategy, the answer to the second question is "no," and the answer to the first is, "It depends."

A messed-up expectation can arise for various reasons. The market is underappreciating some asset or catalyst that the company has or can achieve or the market focuses too much on a change in the company's environment. As the asset becomes more visible, the catalyst occurs, or the company responds well to that environmental change, outsized returns can be expected. (That's a description of MUE, in a nutshell.)

Messed-up examples
Picture Sears Holdings (Nasdaq: SHLD) shortly after billionaire Eddie Lampert gained control. The company was formed when Lampert brought Kmart out of bankruptcy, bought Sears, and then started generating lots of cash from both retailers. Add in some land deals capitalizing on market mania regarding real estate values and the stock price soared. But it wasn't a long-term hold, however, as subsequent company performance has shown.

Netflix (Nasdaq: NFLX) was badly misunderstood as little as two or three years ago. Investors and analysts underappreciated the convenience factor of receiving discs in the mail, managing the queue, and the recommendation engine. They also worried a lot about competition and missed out on the power Netflix would begin to exert as its subscriber base increased. But the result was a 10-bagger since mid-2007 as the company successfully fought off competition and grew its subscriber base. Today, the expectations might be too high, but then again, maybe not. We'll just have to see.

Apple (Nasdaq: AAPL) at $88 in early 2009 is another example. It was a hugely profitable company growing sales of expensive products in the midst of a brutal recession. The shares were priced as if the company would never grow any more. Big misunderstanding.

When to get out
As the MUEs resolve, though -- that is, as the market begins to appreciate what the company is actually doing and is capable of over time -- the MUE disappears and can actually go the other way. An overly enthusiastic MUE means it's time to leave. Netflix at $200? Apple at $340? Certainly dot-coms in 2000 and early 2001 or Sears in 2006 or 2007 after the big run-up.

So the MUE picks really aren't being thought of as buy-and-hold for years and years. Rather, I'm trying to take advantage of inefficiency between Benjamin Graham's voting machine in the short term and his weighing machine in the long term, created by investor psychology.

How long any correction takes, I can't predict. It happened pretty quickly with Netflix and Apple. It took nearly 25 years for Coca-Cola (NYSE: KO), between 1975 when the stock kept going nowhere while earnings doubled and the end of its subsequent bull run around 1998.

Regarding Western Digital (NYSE: WDC): Tablets are all the rage today, and everyone knows they'll replace PCs which contain, incidentally, hard drives. Well, when "everyone knows" something, I find that it often pays to doubt the conventional wisdom, and that's what I'm trying to do with the MUE port.

There's also been some oversupply of the PC hard drive pipeline, hurting margins, so that's another reason to dislike Western. With the last quarter's call, management said it is going to try to correct that inventory bulge and be smarter in the future. Add in the growing need for inexpensive mass storage (and that the PC probably won't disappear within the next few years), and I think the market is giving us a great opportunity to get into this stock.

The final word
So, MUE positions are not necessarily long-term holds along the lines of buy-and-hold. Rather, they'll be held long enough to capture most (I hope) of the move from "misunderstood on the downside" to "well understood" or even "misunderstood on the upside." But I don't know how long that will take for each position.

In summary, for the Messed-Up Expectations portfolio, how long to hold a position can be answered by "hold long enough."

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