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Everyone's A Buy-And-Hold Investor (For Now)
In this week's Wall Street Journal, columnist Mark Hulbert examined investor psychology and corresponding behavior in the context of a buy and hold vs. market timing strategy.
He asserts that,
as the US stock market continues to set all-time highs, many investors are proudly adhering to their mantra of "buy and hold." Market timing tends to become increasingly unpopular during protracted bull markets because during multiyear uptrends, buying and holding will inevitably beat almost all attempts to time the market.
However, the reverse is also true: market timing becomes progressively more popular as the market falls because almost all attempts at market timing during bear markets will improve performance compared with buying and holding. This is because any retreat to cash-even if chosen randomly-will tend to do better than remaining fully invested.
He illustrates this point in a chart (seen at right) where he tracked several hundred stock-market timers during the 2007-09 bear market: No less than 94% outperformed a buy-and-hold strategy. But there were hardly any buy-and-hold investors in March 2009, at the bear-market bottom.
Of course as we've discussed before, virtually all studies have found that the vast majority of market timers lag behind a buy-and-hold strategy over periods that include one or more full market cycles.
But, because investors are emotional beings, they are influenced heavily by the recent past, and it therefore takes rare courage and discipline to remain a believer in buy-and-hold for the long term, especially in the middle of a bear market.
As Mr. Hulbert points out, if you throw in the towel at the bottom,
you almost certainly won't even tiptoe back into equities until the market has staged a convincing rally. That in turn means you will have suffered through all or nearly all of the bear market's losses and enjoyed only a fraction of the bull market's subsequent gains.
Now is the time to engage in honest soul-searching about your commitment to buying and holding and your overall long term investment strategy.
During the 2000-02 bear market, the S&P 500 fell 49.1%. This benchmark did even worse in the 2007-09 bear market, falling 56.8%! There is no shame in admitting that you don't have the intestinal fortitude to stay fully invested through declines of this magnitude, but it's something you should consider before a correction or major decline begins and you find yourself in the trap of buying high and selling low.
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Another milestone was passed last week as the Dow Jones Industrial Average reached a high of 22,000 for the first time. Results were mixed however, with small and mid-cap stocks recording modest losses. Earnings appear to be fueling most of the gains as 70% of S&P 500 companies* have reported better than expected earnings so far this quarter. Large cap companies with global operations are also benefiting from the weaker US Dollar.
*According to data research firm Factset.
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> Earnings Spotlight on Apple:
Apple gained nearly 5% last Wednesday after reporting better-than-expected earnings and providing guidance that eased investor concerns about its ability to deliver the next-generation iPhone in time for the holiday season. That earnings report helped to push the Dow over the 22,000 mark.
On the earnings call,
Apple's CEO, Tim Cook, noted, "With revenue up 7% year-over-year, we're happy to report our third consecutive quarter of accelerating growth and an all-time quarterly record for Services revenue. Apple's year to date performance (through August 8, 2017) is shown below.
> Jobs:
Employment data continues to be a strong factor in the economy. The latest nonfarm payrolls report from the Bureau of Labor Statistics showed better than expected job growth in July. Another 209,000 jobs were added in the month and the unemployment rate ticked back down to 4.3%. Hourly earnings rose 2.5% over the 12-month period.
> 2Q GDP:
The advance estimate of second quarter GDP on July 28 showed growth at 2.6%. A closer look at the data reveals consumer spending rebounded after a weak first quarter and business spending on equipment grew at an annualized rate of 8.2%, the highest growth in almost two years. The two disappointments were residential construction, which slowed after a strong first quarter, and inventories, which were expected to bounce after a sharp contraction in the first quarter but were basically flat.
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The Great American Eclipse
If you are lucky enough to be in the 70-mile-wide area to see the total solar eclipse, then you will witness the first total solar eclipse in 99 years that will cast its shadow across the entire continent, in what is called a "path of totality." It's also the first eclipse since 1776 whose path falls only in the US, which is why it has been dubbed "The Great American Eclipse."
To safely view the
epic solar eclipse you'll need a special pair of ultra-dark sunglasses. Without glasses, the sun's rays could cause permanent damage to your eyes.
The American Astronomical Society posted a
list
of vendors from which you can snag a pair of glasses that are guaranteed to work.
Some of the places AAS recommends to shop online are
EclipseGlasses.com
,
Celestron
,
Explore Scientific
and
Meade Instruments
.
They also have a list of retailers that stock glasses made by verified manufacturers including 7-Eleven, Best Buy, Lowe's and Walmart.
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New Market Wealth Management offers modern investment solutions backed by extensive research and experience serving the needs of wealthy families. Through our strategic partnership with
Cliffwater LLC
, we provide institutional-quality research, investment due diligence and asset allocation tools. We believe this level of experience and unique access to in-depth, sophisticated research are essential for success in today's complex world markets.
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