Leave Buy and Hold to the Billionaires

Written by on August 10, 2007 in Investing with 3 Comments

A couple of nights ago I was shooting the breeze with a guy on the 19th hole and he mentioned to me that he owned Intel (INTC).  The memories from 2000 are finally starting to fade, so I don’t twitch as much when people mention technology stocks. He said that he had purchased Intel at $36.  I knew that it was selling around $24, but had no idea that it hadn’t seen $36 since January 2001.  Has buy and hold worked for anyone other than Warren Buffett? I abandoned it after almost being wiped out during the internet implosion. 

On the August 9th show, the CNBC Fast Money traders discussed strategies on how to manage in such volatile markets (video here).  Eric Bolling doesn’t like selling in down markets, but prefers to put hedges in place.  Jeff Macke suggests selling until you can sleep.  No one said not to worry because the market averages 10% annually over time.  Matter of fact, the next time you hear that spiel put your hand on your wallet and run. 

If this correction is like the one in February/March we still have another shoe to drop.  During that downturn, all three of the major indices tested their 200 DMAs.  The DOW is being stubborn this time around.  That’s concerning since the NASDAQ and the S&P 500 won’t be treading water while the DOW catches up.

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One of the most expensive lessons that I have ever learned is that it is much better to sell a stock and buy it back higher than to suffer through a draw down.   Sounds odd, but it works.  Just think about your last 10% loss that became worse, while praying to break-even.  I will leave the concept of opportunity cost for another discussion.

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  • http://wealthbuildinglessons.com Wealth Building Lessons

    buy and hold works when you buy value stocks.

    not speculative momentum stocks. Buying tech stocks with PE ratios in the 1000s constitutes speculation.

    If you’re speculating you need to sell at the first sign of weakness.

    If you had bought Berkshire hathaway instead of INTC in january 2001, buy and hold would have worked for you too!

  • http://www.thetimeandmoneygroup.com miked

    I don’t recall INTC’s PE in 2001, but I don’t think that it was in the 1000s. I am certain that most people who bought the largest IC company in the world didn’t think that they were speculating.

    Many/most people become long term investors when their stock falls 20%. The point of the article is to sell instead of holding and praying to break even.

  • http://www.cashadvance123.co.uk/ Johnson

    Picking up the ‘value stocks’ and keeping it for certain period will always help during downturn.

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