Investing Paradox 2016: Why Buy And Hold Is Still A Good Strategy

Let’s get things straight: “buy and hold” was, and still is, the best investment strategy. That definitely is counter-intuitive to most of us, certainly in 2016, as, since the summer of 2014, markets have behaved in a very nasty way. Also, stock indexes remained near all-time highs, refused to break down, but that is not reflecting a true collapse of many stocks.

The prerequisite for a successful “buy and hold” strategy, however, is a very decent selection of assets and companies. Now that is where it goes wrong for most investors. During ‘normal’ times, stocks go up over time, and retrace slightly with stock market corrections (with the exception of 2008-alike events). In the last few years, however, central bank policies have disrupted normal behavior of markets, leading to substantially higher volatility, and much more difficult market conditions. We explained that in our May 2016 webinar, and it is a key theme of Investing Haven.

In other words, this ‘new world’ (in 2016 and later) puts a lot of pressure on investors, as it necessitates a very high level of effort and insight. The amount of homework to investors has certainly increased, and, without it, success is based on luck.

New Normal

Let’s quickly review the behavior of markets since the summer of 2014:

Admittedly, this is not a market for undisciplined investors. Market movements have become extremely sharp between 2013/4 and 2016.

Buy And Hold

Still, in these market conditions, buy and hold makes definitely sense, with the prerequisite a decent selection of assets and stocks (an absolute pre-requisite). It is easy to calculate the value of a basket of assets in 2013 and compare it with today’s value. This is what happened since then: