This is mostly aimed at those of you who have retired or about to, but I’d like to hear stories about long-term investing in general as well.
Definitely a board full of day traders, or indigent 99%ers.
For me it’s been a mixed bag. I bought a ton right after the crash that are all up except for Wells Fargo. My Caterpillar stock is up over 200%, Exxon is up about 25%, CVS about the same. But the real advantage for those is their dividend yield while their stocks were low.
On the other side of the coin, we own a ton of stock in my wife’s company that we bout through an employ purchase plan at a 15% discount. The company sucks and its stock sucks worse, so we’re now about even. The dividend they pay is reasonable, which used to get reinvested but I switched it to drop cash right into our checking account as fun money. We’ll dump it all pretty soon.
But since the markets have recovered, I’ve given up on buy and hold, and instead take a 10% rule. If anything goes up 10% I sell and enjoy the profit. More often than not the stock will fall 10% two days later.
I’ve also found that almost everything is bouncing with the markets. One day they all go up 3%, the next day they all go down 5%. There is a general sense that it doesn’t matter what you pick, if the markets crash the next day your stock goes with it.
My two cents.
As a general rule, yes. But I would probably recommend supplementing a buy and hold strategy with stop loss orders. Say if the stock drops 10% or more.
It also helps if you have a strategy of regularly buying stocks you like so you can dollar cost average over time.
The problem is the alternative is to try and time the market which tends to be very difficult for people who aren’t in the market professionally. Let’s face it. Most of us aren’t creating valuation models for companies we plan on investing in, nor are we calling up the CEO to get a sense of the long term plans for the company. So you really don’t know what the price “should” be, when you should buy it or when you should sell it.
And at the end of the day, all the analysis in the world can’t tell you when the CEO of Netflix (NFLX) is going to make a catastrophic business decision that will destory 75% of the value of the stock over several months.
Ain’t that the fucking truth. I invested in Activision (the makers of the Call of Duty video game series) a while ago. This year, they released Call of Duty: Modern Warfare 3, the most successful game in the series yet. It sold something like 3 million copies on its first day of availability (a game industry record) and the stock dropped 7%.
That makes no sense.
Stop loss orders do more harm than good. Stocks are usually volatile. If you can’t stomach a 10% drop in value for no other reason than that the market was down that day, you shouldn’t be in stocks.
The daily price swings are “noise”, not signal. If you want to buy individual stocks, buy ones with good long term fundamentals at a reasonable price. Then don’t worry about the STOCK PRICE. Only worry about the fundamentals: are sales and earnings increasing? Do they have low or no debt? Is their current ratio good?
Picking individual stocks, however, is hard. There is always that unforeseen random factor. If this factor affects the FUNDAMENTALS, maybe it’s time to sell. If it primarily affects the stock price without substantially affecting the fundamentals, then you hold.
Many people (myself included) believe that you can’t consistently beat the market. Then you should put your money in a Vanguard (i.e., low cost) S&P 500 Index Fund and let it ride. I’ve done that for many years and have weathered the 2001 and 2008 recessions better than many who own individual stocks.
J.
No, but an insider tip can!
Does anyone really think that the people making big money in this game are playing it fairly?
I’m on the verge of retirement. I had some 401K funds in a buy and hold throughout post 9/11, the recovery, the crash of 2008, etc. Just last week my broker ran the numbers. I’ve had a 1.7% return over the last five years, and a tad higher than that overall since 9/11.
Since it’s a positive return, I guess you can say buy and hold “worked,” but it isn’t anything I got rich from.
Back in the '80s I started putting $100 into a precious metals (mostly gold) mutual fund, every month. I have redeemed part of it several times. It has made back all the money I lost with my other investments.
I would note that this is a poor time to ask about the success of stock buying strategies as this is the worst run for the stock market in about 80 years.
Any strategy short of 100% treasury bills (and I suppose precious metals) will be performing poorly at this point.
Ask again in about 3 years
I don’t agree with this approach, because you’re capping your profits on the upside but you’ve not capped your potential losses on the downside. Thus the volatility of the market works against you.
That said, if you insist on doing this anyway, you should sell covered calls with a strike price that is 10% above your purchase price. If the stock goes up 10% your stock will get called, but that’s the point at which you want to unload the stock anyway, and you profit from the call. If the stock doesn’t go up 10% the call expires worthless, and you’ve made some free money.
Essentially your current strategy is the equivalent of giving the market a call on your stock, but you’re not getting any money for it. May as well sell the call and pocket the money yourself.
I’m playing the market to the upside and the downside. Essentially, I wait for a serge in either direction and buy. Then buy more if it falls another 10%, and again if it continues to fall. When it goes up 10% I sell and go the other direction. If you look at the market over the past 2 years it bounces, up and down and up and down. Any movement in one direction is short lived. (I’m also using double EFTs)
I’ve been doing this very happily with oil for the past year. Today it finally plunged for me netting a tidy profit.
But all that aside, the point is that if you get some profit, take it. If the market falls, buy more at a discount. The idea of letting your portfolio gain 300% over 10 years and then see it all evaporate the next day doesn’t seem too appealing.
Bulls make money, bears make money, pigs get slaughtered.
No, anyone that has been buying during the past few years is way, way up. The Dow gained over 77% from it’s low in 2009 to its high a few months ago. People that have been using fixed dollar investing will see solid returns.
There are a lot of companies doing very, very well right now. Apple, as one example, if up over 300% since the crash. Cat is up 135% in the same period. Amazon up 331%. Basic stuff like Tupperware and Bristol Myers are both up over 40% Walmart up 7% and Verizon up 77%.
I’ve got my strategy, and I love it, but it’s not for everyone. I’d simply suggest that the idea of buying a chunk then waiting 10 years is silly. If the stock falls while fundamentals are sound buy more. If the stock surges take some off the table and use the profits to put into something else.
The point is to make real money, not potential money.
I’m having a hard time understanding what you’re describing here. (E.g. if the stock goes up 10% do you buy or sell?)
But that’s not always the case. As you say, you began buying after the market tanked, and it bounced around since then. If you had done this before the market tanked you wouldn’t be nearly as successful. Of course, the smart thing to do is wait until the market finished tanking and then buy. But it’s hard to predict this.
Regardless, I would reiterate that if you intend on selling when the price goes up 10% you are essentially giving the market a free covered call, and you have only to gain by selling it instead.
I disagree with this. The only way this works is if you know that - at least for your favored stocks - the volatility is confined to a narrow range (10%, in your case). If it’s more volatile than that, it doesn’t work.
Consider a stock that goes up 22% in each of five of the twelve months of the year, and goes down 15% in each of the other 7 months. If you hold on for the year, you gain 5% (22 x 5 - 7 x 15). If you sell every time it goes up 10%, you lose your pants, because you absorb frequent 15% losses and only have a few 10% gains to offset them.
Aka doubling down. Again, this works if the market in fact bounces back. Happens to have been the case the past few years. Doesn’t always work that way, especially with individual stocks.
Did just fine with buy and hold, with some swapping of funds throughout, from the 80s up until late 2008. That’s when I got out of the stock market, before it really tanked. The reasons were twofold:
- We retired in 2009 and didn’t want to take a sustained risk with our money.
- The stress of watching the roller coaster was too much.
I may get back in, but not until Europe has settled down and next year’s election is done. I know I’m not making money on my balance, but I’m not losing any, either.
Unless your portfolio is > $5 million, you should probably not be buying individual stocks in any serious quantities.
Low cost index investing, rebalancing over time, is the way to go. Outperforms even professionally managed funds on average. Do you think you’re better at picking stocks than they are?
I admit I didn’t spell it out as clearly as I would have liked. When investing, a person needs to answer two questions: how much are you willing to lose, and what is your expected gain.
The first obviously relates to how much of your portfolio is in stocks vs bonds. At the start of a person’s career they can afford to be 100% in stocks, but as they move towards retirement they need to start shifting towards being 100% in bonds/cash.
I think it’s the second part people forget about. They buy a stock, and then hold it while it goes up and up and up. Then suddenly it goes down and they freak out and wonder where their money went.
So let’s say someone buys 100 shares of Apple at $50 (back in 2005) and two years later it’s up to $100 per share, a 100% increase. I believe that when that person started making money they should have sold some. Selling 50 shares would return there initial investment, and what’s left is free money. That $5000 in cash can now be switched to something safer, and the remaining $5000 in stock can be left to gain or lose. If the stock keeps going up you still make money, just at a slower rate. But if the stock falls you now have nothing to lose.
Keep in mind we’re talking about long term investing, and I kind of screwed up and talked about very short term. But when considering investing over a 40 year period, an individual will continue adding new money every pay check. So along the way an individual will have to pick a stock/etf. Should that stock go down, the individual as the opportunity to buy more at a discount (assuming the company is fundamentally sound). If the stock goes up, the individual has the opportunity to take some profits, and use that for new investments.
At some point in the buy and hold strategy, a person needs to take some profits, they obviously can’t just wait until age 65 and hope to cash it all in. If their goal was to make 10% per year, I don’t see why a person wouldn’t take some profits on a stock that is up 100%.
I disagree. You’re right that it’s hard to predict, but if you believe there will be a bottom, there is nothing wrong with entering at any point, assuming you understand the potential for loss. So instead of sinking your entire nestegg, put in 20%. If the market goes down, put in another 20%, and so on. When the market rebounds all that dollar cost averaging adds up in your favour. Likewise, you can’t pick the top, so there is nothing wrong with taking some off the table as the stock goes up.
And since it’s entirely possible the market will continue to go down forever, only put money into the market that you’re willing to lose. The rest has to be diversified.
I’m still not sure what bothers you about that. I’ve made my 10%, I’m happy, I’ll go on to the next investment, again aiming for 10%.
This is actually the kind of example I meant to use. You buy a stock and it goes up 22%. Your goal was 10% so you should sell and move on to something else. Selling it at any point between 6% and 22% and then holding the cash is better than waiting a year to see you only got 5%.
That pattern plays out monthly, yearly, and over the span of decades. And people will hold on while the stock flies up and down. Think of all the people that say they lost everything when the market crashed in 2008. The market was seeing record highs, that people could have made some profit off of, and then started moving cash into safer investments.
In the end, it’s a matter of your personal philosophy. Some people see a stock that goes up as a winner that will keep going up. They usually also see a stock that’s down as a loser that needs to be dumped.
Others see a stock that’s down as an opportunity to get in at a lower price. And when it falls that’s even better because now it’s even cheaper. And when a stock goes up, that means you’ve made money, and it’s time to move on.
Nobody’s bothered, it’s merely very strange. It’s as if you’d said “Well, I don’t use the doors to my house, I always go in through the window.” It’s just…why aren’t you writing a covered call? If your plan is to sell as soon as you trip the 10% threshold, there is literally no downside to writing a call.
Outperforming the “professionals” isn’t as hard as it may seem. Recall that fund managers in the 1990’s were collecting millions in bonuses for strategies little different from “Buy a stock with ‘.COM’ in the name that went up yesterday.”
Since Buffet’s investments are very long term and are published (admittedly a few quarters after he buys) copying his buys isn’t too bad. I followed him into Gillette, although by the time P&G bought it up, I’d switched to … P&G. :smack:
Anyway, how well “buy and hold” works depends on what you Buy and Hold. I wish I knew a good website to plot stock prices with dividends reinvested because I think it would show that Philip Morris (aka Altria; aka MO) has done phenomenally well for decades.
Two things:
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I don’t always sell it all after 10%, but I do think it’s a good idea so start selling once the stock has gone up.
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I do write some covered calls but I’m personally not a huge fan of options. I get free trades on stocks but not options, so I’m better off making lots of smaller trades. Like I said, buy several times on the way down. The sell several times on the way up.
You guys are both right though, selling covered calls is a very good way to deal with holding stocks long term, but I think to do it right still requires gaming the system to find the right time to offer the call.