The Demise of Buy-and-Hold?
Did you know that waves are an optical illusion (at least to a physicist)?
While individual waves move forward — often at a locomotive speed, as in the case of a tsunami — the water molecules in them are actually stationery (more accurately, they move up and down, but end up in the same place).
Is the stock market the same way?
To a casual observer, individual stocks and even broader indices appear to make dramatic, up-and-down moves, but the overall, long-term effect is . . . nil.
So, after all the tumult of the last decade-plus, the Dow Jones Industrial Average is essentially back where it started (around 12,500).
What does that mean for individual investors, and the markets broadly?
I see two main consequences.
One. Emphasis on dividends.
Even if the stocks you hold make a round-trip, if they’ve paid a healthy dividend in the meantime, you’re ahead.
So, stocks like Johnson & Johnson, Philip Morris, etc. become obvious choices (perhaps a little too obvious: they’ve already had big runs).
Two. The demise of “buy-and-hold” as a strategy.
Generations of investors — myself included — have been raised on the notion that, while individual stock-picking is folly, holding a diversified portfolio of stocks long-term puts the odds decidedly in your favor.
If that assumption is now shown to be flawed . . . trillions of long-term capital now committed to equities may decide to look for better returns elsewhere.