Buy and hold theorists suggest that investors can't time the markets. They insist that by trying to avoid down days investors are likely to miss the few major up days that they believe account for most of the positive return investments offer.
Our research indicates that over the period starting January 1, 1947 through December 31, 2011 avoiding the worst market days would have significantly magnified the returns of a theoretical $100,000 investment in the Dow Jones Industrial Average. The results demonstrate the dramatic effect missing the ten worst quarters would have had on the accumulation of capital in this example. While conventional wisdom suggests that attempting to avoid losses can diminish performance, in this case avoiding the worst market declines results in a theoretical ending value more than $2.7 million higher than the buy and hold alternative - even if it meant also missing the ten best quarters of gains.
WBI believes successful investing starts with a buy low and sell high approach. Our experience suggests that normal price fluctuation can take a stock's price from undervalued to overvalued and back again over an average period of approximately 18 months. Instead of buy and hold, we think it is more effective to buy low when a stock is cheap and then sell high once it has appreciated, but before it falls again.
WBI's research indicates that performance can be enhanced by controlling the loss of capital in bear market declines over buy-and-hold. Data provided by Global Financial Data.
The Human Factor
Investors face the challenge of facing the "human factor" - the natural emotional response caused by the rise and fall of investment markets. Many conventional approaches assume investors have the emotional tolerance to stay with passive buy and hold allocations, even in the face of declining markets and plunging account values. Individual risk tolerances vary, but it's our experience that bear market losses often trigger a fear response that causes many investors to flee from their investment strategy. Unfortunately, the urge to sell may become irresistible only after significant losses have already occurred. Rather than helping to assure the survival of an account's value, these instincts may leave investors predisposed to repeatedly losing the buy and hold battle.
The Time for Absolute Return
We think WBI's absolute return approach to investing is a refreshing alternative for investors who have had enough of conventional approaches that put growth ahead of dividends, underestimate the importance of reducing risk, and assume buy and hold is a realistic choice no matter how much markets decline. If you are ready for a divided-based, risk-managed, responsive approach to investing, WBI may have an absolute return portfolio strategy that's right for you.
Past performance does not guarantee future performance. This hypothetical illustration is not indicative of any WBI S.M.A. portfolio returns. To obtain current portfolio performance click here.
Past performance does not guarantee future results.
The WBI Dynamic Trailing Stop (DTS) is not a stop loss order or stop limit order placed with a brokerage firm, but an internal process for monitoring price movements. While the DTS may be used to initiate WBI's process for selling a security, it does not assure that a particular execution price will be received.
Although a company may pay a dividend, prices of equity securities - including those that pay dividends - fluctuate. Investing on the basis of dividends alone may cause an investor to buy or sell certain securities when circumstances may or may not be favorable.
Because dollar cost averaging involves continuous periodic investment in securities regardless of fluctuating price levels of such securities, investors planning to pursue this strategy should consider their ability to continue purchases through periods of low price levels. Dollar cost averaging does not assure a profit, and does not protect against loss in declining markets.
All performance information is historical and not indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this document, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Any investment strategy involves risk, including the possible loss of principal invested. Moreover, you should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice All information, including that used to compile charts, is obtained from sources believed to be reliable, but WBI Investments™ does not guarantee its reliability.
The Dow Jones Industrial Average is a price-weighted average of 30 of the largest blue chip issues traded on the New York Stock Exchange.
The S&P 500 Index includes a representative sample of large-cap U.S. companies in leading industries.
The NASDAQ Composite Index (NASDAQ) is a market-value weighted index of all common stocks listed on NASDAQ.
You cannot invest directly in an index.