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The Ugly Truth About Buy and Hold

THE GENESIS OF BUY AND HOLD THEORY Over the past 35-40 years, the industry and media have told investors to invest passively, or to buy and hold. We believe this approach is flawed and hurts rather than helps people invest successfully. The passive, buy and hold concept was developed in response to the damage inflicted on investors and the mutual fund industry in the 1970s. The 1973-74 bear market caused many investors, who still had lingering memories of the Depression, to bail on their mutual fund and stock positions. Hard hit by massive liquidations, many mutual fund companies went bankrupt, and the survivors looked for new approaches to help keep investors invested through future bear market cycles.

Academics went back to the drawing board, and they developed the concept of buy and hold to help investors understand that they would likely sacrifice bull market returns if they tried to miss the bear market losses by moving to cash. Buy and hold theorists suggest that investors cannot successfully time the markets, and by trying to avoid the down days, investors will miss the few powerful up days that provide most of the return. They believe the positive returns generated during bull market uptrends will always be sufficient to allow investors to not only recover lost capital but to generate returns high enough to help them achieve their financial goals.

But the devil is in the details, and as it turns out, investors who follow the “buy and hold” mantra also expose their capital to the markets’ biggest losing days, which have an even worse effect on return…

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Important Information

The views presented are those of Don Schreiber, Jr., and should not be construed as investment advice. Don Schreiber, Jr. or clients of WBI may own stock discussed in this article. All economic and performance information is historical and not indicative of future results. This is not an offer to buy or sell any security. No security or strategy, including those referred to directly or indirectly in this document, is suitable for all accounts or profitable all of the time and there is always the possibility of loss. 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 from WBI or from any other investment professional. To the extent that you have any questions regarding the applicability of any specific issue discussed to your individual situation, please consult with WBI or the professional advisor of your choosing. This information is compiled from sources believed to be reliable, accuracy cannot be guaranteed. Information pertaining to WBI’s advisory operations, services, and fees is set forth in WBI’s disclosure statement in Part 2A of Form ADV, a copy of which is available upon request.


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Unless otherwise indicated all performance is sourced from Bloomberg.


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