Should Humans Buy & Hold?

Feb 2, 2012 by

The “buy & hold” investing strategy long promoted by many professional money managers—most notably the esteemed John C. Bogle, founder and retired CEO of The Vanguard Group—is under attack. Some have said it’s “dead.” In particular, Mr. Kenneth Solow, author of Buy and Hold is Dead (Again), advocates “tactical asset allocation” and prescribes new rules for today’s investors:

  • Diversify and seek undervalued assets
  • Make forecasts about the investment markets
  • Do the hard work of learning about market valuation, market cycles and technical analysis
  • Use both qualitative and quantitative methods in making decisions about portfolio construction

I’ve read only summaries of Mr. Solow’s book, but I think his message reduces in part to 1) get smart about the market and have a well-informed opinion, then 2) act on it. Pending being educated by Mr. Solow, here’s what troubles me:

Maybe I’m in the minority, but this picture fits me quite nicely. As I’ve written before, one particularly cruel friend asks that I keep him informed of my investment moves so he can do the opposite, so consistent is my record of standing “buy low, sell high” on its head. I feel as if I make investment decisions on an intellectual basis. Given the results, either I’m a dolt or, in reality, human emotion is playing a large role in my judgements, as depicted above.

Would a disciplined understanding and implementation of “tactical asset allocation” help me to exile emotion from my investment decisions? What’s your view of and experience with buy & hold versus alternative strategies?

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