Tuesday, February 23, 2010

The Age-Old Arguement on Buy and Hold

First of all, the poll to the right is still open --->

We've gone over this in technical circles ad nauseum but John Bollinger posted the following in a technical chat room this week and it is crystal clear. Unless you think we are in a secular bull market - that means like 1982-2000 - then this is for you.

All you money managers and RIAs - take note. Now you can tell your clients how you add value.

"What happens if you miss the best and/or worst days?"
(study period, most recent 20 years )

All days, $100 invested at the open of 1990 becomes $304.33
Miss the best 200 days and $100 becomes 87 cents
Miss the worst 200 days and $100 becomes $134,251.48 <---(hello! do you see this?)
Miss both the best and worst days and $100 becomes $385.53

For me (meaning Bollinger) the most surprising result is that missing both the best and worst days is better than buy and hold.

4 comments:

Amalan said...

do all the best days line up together? similarly, are all the worst days consecutive? If the answer is not in the affirmative, does the study take into account taxes for all the sell trades belonging to the fragmented periods (which is followed by investment of the balance)?

I get the general point though - being out of the market during downturns is not emphasized enough in my opinion. Buy and hold is going to damage some people badly.

On a separate note, do you have any numbers for how the timers have done in the last 20 years - I mean the average performance for those that do this as a profession)? I know Mark Hulbert follows newsletter writers but I don't think he categorizes them by style of investment/trade.

Quick Takes Pro said...

talk to bollinger for the details

as for timers, try this
http://www.cxoadvisory.com/gurus/

not very pretty

ALdeBull said...

I would expect a good timer or newsletter should capture at least 1/2 of the 'best WEEKS' and miss at least 1/2 of the worst WEEKS'. I don't think any of us aspires to be a day trader in the long term, therefore the report of $137,000 for perfection daily is interestng, though useless.
From my experience it is easier to miss the bad WEEKS with the technical-based approach, and tougher to capture the good weeks. My problem is temtation to look at daily not weekly StockCharts.

paulocuana said...

We've talked before in these pages about the 50 day EMA cross with the 200 day EMA as an alternative to buy-and-hold for the average investor.
I don't have access myself to the data. Would someone care to calculate this?
I assume the average investor wouldn't go short.

Paul O'Cuana