I apologize for being scarce around here lately. I came down with a bug on Monday, and have been in bed with a high fever ever since. Not only has this prevented me from writing, but I haven’t answered any but the most urgent e-mail messages.
I have, however, had plenty of time to appreciate Hulu, the website that provides free video from NBC, Fox, and other networks. I’ve spent hours in a feverish haze watching Adam-12, which was one of my favorite television programs when I was a boy. The excitement! The dramatic music! The police officers engaged in high-speed pursuit without seatbelts! (Actually, it’s a much better show than I had remembered.)
Though I couldn’t muster the brain-power to write over the past few days, I was able to surf the web:
Daily Kos shared an interesting chart of the stock market’s historical performance. Laid out like a bell curve, this chart/graph demonstrates the distribution of yearly gains in the S&P market index. So far, 2008 is one of the worst years on record. Judging from reader comments around GRS, many people are bailing out of stocks. I’m not one of them.
When you’re in the midst of financial turmoil, it’s easy to panic. The people saying “buy and hold doesn’t work!” start to sound reasonable. But you know what? The numbers show that, historically, buy and hold has worked. Here are a couple of articles from JLP at All Financial Matters that I’ve mentioned before:
- The 50 worst months in S&P history (and what followed after)
- Dollar-cost averaging through the Great Depression
In order for “buy and hold” to be successful, you have to respect the “hold”. You have to stick with it through good times and bad. If this market seems scary, then maybe you should have less invested in stocks. As Nickel asks, “How is your risk tolerance holding up?”
Finally, Michael sent me an article from The Christian Science Monitor about a Colorado couple who has tried to go an entire year without buying anything new. (Except underwear.) They’re not the only ones to have made such an effort, of course. But I’m always fascinated by those who are willing to make commitments like this. It’s a leap I cannot make.
I’m feeling better this afternoon, but I’m still not 100%. Tomorrow’s post may be a re-run, but I should be back to full strength after that.
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Hi J.D. Sorry to hear about your ‘bug’. I hope you feel better soon. I’m going to have to check out Hulu now. Thanks!
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I was unimpressed with Hulu when I first found it earlier this year, Pat. But I have to say: it’s pretty darn good now. The selection is much broader than before, with all sorts of TV shows and movies from the 1960s to today.
The programs they provide are not commercial-free, but the commercials are minimal. And when you’re home sick in bed, it’s nice to be able to lay there with your laptop watching comforting shows from your youth, you know? Some are not nearly as good as I remember (Square Pegs, for example, is terrible). Others, like Adam-12 are actually excellent.
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All this data just screams that it is a great time to be buying into the market. People have to be contrarians in order to heed the one piece of investing advice that no one can argue: “buy low, sell high.”
I think it’s safe to say that prices are very low, so get in now and not after the market has began to rebound.
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I sold more or less at the top, though too early. Oh well, I still have it all. I’ll buy when it feels right, not by what the herd is doing; if I’d done that I’d be down ~50%.
Not yet, though. The rush to Treasuries tells me more pain is ahead despite the uptrend after t-giving. I also watch the 20/50-week moving averages on the S&P 500; when the 20 crosses back over the 50 by 1-2%, that’s my buy signal. This will miss the actual bottom. I’m fine with that. So far this signal has a long way to go. More on this signal here: http://tunguskan.blogspot.com/2008/10/timing-market-update.html
Frankly, if you did not sell around Sept of last year, you might as well keep holding.
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I agree 100%. It makes no sense to sell when the market is so far down (unless you’re absolutely desperate for cash). I upped my 401k contributions to make sure I get as many shares at a discount as possible.
Since my retirement is still decades away, this opportunity to buy at ~40% discount will probably end up working in my favor.
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“Some are not nearly as good as I remember”
Tell me about it. I was so stoked to find old episodes of MacGyver online, but they weren’t quite as spectacularly awesome as I remember. Not even close. I’m afraid to try Airwolf; I’ll just keep it a happy memory.
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I agree that this is a good time to buy, but I’m just not sure what to buy. I make my monthly contribution to my 403b, and the buying is done for me, but I know that somewhere there are some good stocks to buy and hold now… and I know that in 2-5 I’ll be beating myself up for not knowing which ones they were, and for not buying them! C’est la vie.
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it is a pity that i can’t appreciate Hulu.You know,because i am not from USA
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I had to smile at the CO couple who tries not to buy anything new for a year except underwear. She COULD HAVE gotten her baby’s onesies at a yard sale for probably 25cents each as well. It’s back to that perceived value and standards and where is your level of satisfaction. I didn’t buy anything new for my own children (I’ve got 5) if I could help it. My mom managed to find all the equipment at yard sales.
Like the article said, there are probably lots of people in the world that could say that they don’t buy new regularly and even more who could say that they’ve not been to a mall in a year or more.
But not everyone can be this way or it wouldn’t work. We always need more “first-hand consumers” so that those who are willing to do the second-hand or third-hand have plenty to choose from. So, I cheer when those people buy new, so I can buy it from them in a year for 10cents on the dollar!
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I’m still the market and am shoveling new money marketwards. I agree it looks a great time.
However for the sake of completeness not every financial crisis has recovered… Just ask Russians from the early 20th Century how there assets fared over the next 100 years.
But in practical terms, absent the end of the West, the market is a buy.
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J.D. – hope you fend off that bug and get to feeling better soon. Enjoyed the links, particularly the couple who vowed not to buy anything new all year. We’ve considered doing something like this after reading a couple years ago about a group who pulled this off–I think the group is called The Compact. Like you, I don’t know that my willpower is quite that strong!
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J.D.–
Feel better soon. I like Hulu, too.
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Only if you have time and don’t need your money (or retire) on a ‘down’ like now!!
If you are in for the long term, try something like:
* Don’t buy until ‘it’ (whatever stock or index fund you want to buy) breaks a 200 day moving average
* Always buy with an automatic initial stop loss (say 5-10% of buying price)
* Always have an automatic stop/sell (say at 25% drop from 52 week high.) Have this as a standing order with your broker. Re-calculate it monthly
This method would have kept you in for for most of the ‘up’ years, and limits your losses when things are going down.
It is not perfect, it does not get you in at the lowest, or out at the highest. But it is a very conservative and much more effective than ‘buy and hold’.
The closer you get to retirement, the closer your stops should be.
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Ok, I’m all for a disciplined approach to investing and see the argument that stocks are on sale. It would all make sense to me except for:
The federal budget deficit
The aging population (looming Medicare and Social Security crisis)
Global warming
A multilateral world where the dollar will no longer reign
Dropping family wages in the US
environmental degradation, looming oil shortages, etc.
The fact that college education is getting so expensive relative to wages, which will suppress higher education
The fact that our last two “recoveries” were built on asset bubbles.
Give me a reason to believe in the S&P. But the line about past performance doesn’t sell me–home values haven’t sunk before either for a very long time, and they’re sinking like rocks now.
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Hope you feel better!
Re: Not buying new for a year–I can see the appeal of the challenge, but it just isn’t for me, either. I’m more concerned with buying purposefully than just buying used.
I don’t like imposing strict rules on myself, either. I’ve learned to lighten up, and since we’re debt-free and saving almost 40 percent of our paycheck each month now, I don’t see any reason to concern myself with new/old if we’re within our budget.
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Man, first the bee sting, now the flu! Hope you feel better soon.
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(Fell better JD!)
Sticking to your trading system & rules is KEY.
Purchasing stocks is about the riskiest investment around. Stock is purely a perceived value item. You can only buy & sell to someone else who thinks stocks are worth that much.
Stocks are speculation about the perceived value.
‘Investing’ in the stock market is just a fancy way of saying “Speculation & Gambling”. (I do speculate & gamble on the stock market and love it!)
“Investing” to me is buying tangible assets: A house, car, business, going to school. And only for their usable value, not the perceived value i hope to realize on it later (That would be speculation!)
Frankly I think Buy and Hold is BS. If all you ever do is Buy, when do you sell & realize your gains? If you only buy, that’s a loosing game because you never exit.
Perhaps its an issue of word definitions and personal word usage, but when it comes to the stock market, it pays to be excruciatingly clear.
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Hope you’re feeling better!
If you need a good “watch-while-sick” show, my all-time favorite is Remington Steele. Does anyone else remember that show? I’m actually only 23, but my mom was addicted to it and I was so excited when she got me the DVD sets last Christmas
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I’m still feeling sick, but better. And my appetite is back! Yay!
Now I just need to make myself stop watching Adam-12 and begin writing.
@V.Higgins
Hulu has the first two seasons of Remington Steele. I used to watch that when I was a teenager. I thought it was fun. Maybe I should catch it again.
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Season 2 is fun, I think that has my favorite episode – “Red Holt Steele”, great character development. Seasons 3 and 4 are my personal favorites.
Ok, I’ll stop now.
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The way “buy & hold” was described to me and made sense was that you are buying a stock to own 5 or more years. It doesn’t mean you won’t sell it ever, or even that you wouldn’t sell in less than 5 years if it made sense. But that is your time horizon. The other end of the spectrum are day traders, who ride the ups and downs of the market to [hopefully] make money.
So many people think the value of stock is only in the price per share (making money like a day trader). But buy and hold can take advantage of dividends, splits, and other activity. If you bought a stock 10 years ago, and the share price right now is the same as when you bought it you feel like you made no money. But if you got a 4% dividend every year that factors into your return, (especially if it was worth more in the middle, you could have been looking at 6% or even 8% of today’s value). The share price is only one measure of return.
When DH tells me he wants to buy a specific stock my response is often “better odds than Vegas.” Because the stock market IS a gamble, but it’s closer to poker than a slot machine. With prudence, strategy, and a knowledge of the game you can walk away from the table with more money most of the time. So I always make sure I have enough money in my pocket [savings] to get me through if I lose, but you won’t get far in life without a few calculated risks.
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Glad you are feeling better. I will have to check out this Hulu thing of which you speak.
Ok, call me crazy, but I took the pledge to not buy new for life (http://www.nikkishell.typepad.com/wardroberefashion/). There are exceptions like undergarments and shoes but I like a challenge.
Also I figure if buy and hold works for Warren Buffet, it is probably a good idea.
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I’ve gone at least a year without buying underwear. I admire the goal, but how often does one need brand new underwear? Or am I in the minority of people that doesn’t rip through underwear on a weekly basis?
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I was about to post what No Debt Plan said – I haven’t bought new underwear in over a year. But I had plenty in rotation to begin with.
Not buying anything new in a year is really not a difficult task, so I’m always amazed that this type of thing would generate news. But it depends where you live maybe – I live in a city where freecycle is so big that I might never have to buy anything every again (new or otherwise).
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The problem with “buy and hold” – actually the problem with the entire 401(k) plan approach – is that it assumes that your savings has, essentially, one goal. And, in line with saving for retirement, traditionally, the idea has been to invest substantially all of your savings (except perhaps a small emergency fund).
But savings has multiple functions. Buy and hold as an *investment* strategy implies reduced or non-existent liquidity as a *financial plan*. It just doesn’t conform to the dynamic nature of life.
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