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.  

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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