Invest-and-Hold Strategy

 the Invest-and-Hold Strategy Suitable for You

Among all the strategies employed by the general trading populace, the buy-and-hold approach is arguably the most renowned and widely adopted. However, the pertinent question remains: hold until when? Until death? While this may be beneficial for the heirs, what about the investor during their lifetime?  
My father was a buy-and-hold investor who began purchasing stocks in the 1960s and maintained them until his demise in 2002. Fortunately, he didn't require the funds, and the strategy proved quite successful, particularly for me and his other beneficiaries. However, this is not always the case.  
Investors must meticulously assess their objectives, risk tolerance, necessities, time frame, and available resources when determining which strategy or strategies are suitable for their unique circumstances. Chapter 3 will delve into the formulation of a detailed plan. For now, it is crucial to acknowledge that any given strategy may or may not be suitable for a particular investor. Consideration should also be extended to investment options beyond stocks or options, potentially including real estate, annuities, or even futures.  
Each investor must ascertain whether all, part, or any portion of their portfolio should be allocated to the buy-and-hold category. On the positive side, historical data suggests that markets have generally trended upwards over time. For instance, the Dow 30 Industrials rose from a low of approximately 760 in 1966 to over 11,800 forty years later in 2006. During the same period, the S&P 500 increased from around 74 to over 1,350. The Nasdaq ascended from approximately 375 in 1990 to over 2,300 in 2006, although it is important to remember it reached a peak of over 5,000 before plummeting in 2000.
Using the Dow (by which I refer to the Dow 30 Industrials) as an exemplar, to reap the benefits, one must have retained all the components throughout the entire duration, despite some of those component stocks having evolved over time. This implies that certain stocks necessitated selling and substitution with others. In such scenarios, holding would imply retaining the stock until it ceased to be part of the Dow.
In the contemporary landscape, this issue is largely mitigated by the availability of exchange-traded funds (ETFs) that replicate various indices like the Dow, Nasdaq, and S&P 500. I shall delve further into ETFs in Chapter 8, but for the moment, it suffices to understand that we are no longer compelled to purchase each stock in an index and subsequently sell and replace stocks whenever they are expunged from the index. Instead, one can trade the index via the appropriate ETF.
Suppose we did acquire all the components of an index, or at least an ETF that mirrored an index. What if we required liquidity at a specific juncture? A family might encounter a costly medical emergency, necessitate funds due to job loss, or perhaps desire to purchase a new home. Alternatively, an investor might stumble upon a compelling real estate opportunity or need to finance a wedding. There exists a plethora of reasons why cash might be urgently and unexpectedly needed. Such events—whether emergencies or otherwise—do transpire in life, and the "hold until when" question may well be dictated by forces beyond the investor’s control. This could be advantageous or detrimental. Although markets have historically appreciated over time, this does not preclude periods of decline, retracement, stagnation, or even collapse.
Purchasing shares at approximately $61, if circumstances compelled them to exit in early 2000, they might have sold at around $116. Conversely, if they entered at the same time but encountered an emergency near the start of the last quarter of 2002, they may have endured a catastrophic loss by exiting when QQQQ had plummeted to the low 20s. Indeed, even by late 2006, they would not have recouped their initial investment from 1999. The precipitous decline from 2000 to 2002 would have been an inopportune moment to be forced out of the market, particularly the Nasdaq.

 Invest-and-Hold Strategy

Ownership of a single stock can wield an even more profound impact. Acquiring Microsoft (MSFT) in its nascent days and retaining it through its nine splits would have significantly bolstered any investor's net worth. Berkshire Hathaway's Class A shares (BRKA), which traded around $100,000 per share in 2006, could have been obtained for a mere $5,500 per share back in 1990. Conversely, the perils of buy-and-hold became starkly apparent to owners of poorhouse. When you decide to buy and hold, I suggest you must define "hold when." Hold 'til death may be your answer, butI can assure you that holding until death isn't the way to go for most investors.

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