Buy and hold works beautifully on paper…but it’s really hard to do.
The longer your holding period, the better your chances are of winning. Buy and hold the market as cheaply as possible, over time, the probabilities of utilizing the market to accumulate wealth are skewed in your favor. We have heard this before. If only that simplicity transitioned over to the real world. The road block of this simple transition is investor behavior.
Buy and hold assumes you will do just that, which is a bad assumption. Most of us will invest and then check that investment frequently. Our focus on the short term in the face of long term evidence is fascinating to me and a detriment to us as investors. For the overwhelming majority of people, a set it and forget it mentality is not in the cards when money is at stake. You can forget the rational/optimal decision making rhetoric. Watching retirement savings ebb and flow creates emotions and feelings that are far from rational.
Is the stock market a proven vehicle for wealth accumulation – yes. Can most people buy and hold it – no.
Periods when the needle is moving in the wrong direction are unavoidable and hard to sit through. We believe there has to be a release valve, some form of active risk management designed to increase your ability to buy and hold by limiting drawdown in one area. We believe it should be rules based and supported with evidence.
Keep the long term in perspective and avoid large losses at all costs. Those two things increase your ability to buy and hold dramatically.
In a market with elevated correlations, what’s your release valve?