Blogs & Comment

Buy-and-fold investing

Buy-and-hold investing seems to always evolve into buy-and-fold. The following data on October mutual-fund redemptions was sent by Som Seif of Claymore Investments:
– in Canada, net outflows from mutual funds in October were an estimated $8.2 billion to $8.7 billion the largest in history
– in the U.S., outflows from equity funds ballooned to a record $70.7 billion (U.S.) last month, according to data from TrimTabs — 26% higher than in September, the previous record high.
People are not only showing a loss of faith in buy-and-hold investing by their actions but are also verbalizing their disenchantment, as discussed in this article.
A reservation I personally hold about the stocks for the long run view is that its based on inductive reasoning, i.e. it extrapolates what has been seen in the past to the future. In other words, there is no mathematical certainly of receiving an average annual return of 7% to 9% over the long run. Indeed, as discussed in this piece,black swans can appear and drag long-run returns below other assets or even breakeven.
Last year, I took a whimsical poke at buy-and-hold investing in Indexing a portfolio to financial Armageddon. It doesnt look so whimsical now, unfortunately. The point is not that stocks should be avoided. There is a place for them in portfolios but I would tend to differ with those who recommend investing 100% in stocks (or otherwise very large exposures). I personally would prefer to be diversified over other assets just in case my 15- to 30-year investing horizon turns out to be the one with flat or negative returns in the stock market.