Competitor: This article comes from Sean of www.OneSmartDollar.com.
Entry Category: PF Olympics Finals
The year of 2008 was quite the time for Americans and most everyone else throughout the world. Corporate profits started to shrink, people began to lose their jobs and the stock market took a nosedive. When all was said and done the average U.S. household net worth had dropped almost $40,000.
The financial devastation that so many families felt during this time could have been eased had they only done away with a popular investment strategy, buy and hold. So many novice investors adopt the idea that buying quality stocks and holding onto them for years is the easiest and safest way to make money. A little look back at history and you would see that it could be the easiest way to lose all profit hopes.
If you go all the way back to the market crash of 1929, you will see that the stock market lost 86 percent of its value. If you had invested money right before the crash it would have taken you until 1955 or 26 years just to get back to even. In 1965, the U.S. economy began a secular bear market in which the buy and hold investor wouldn’t have broken even again until 1982. As for the market crash of 2007, buy and hold investors are still in negative territory.
The question that needs to be asked, is this going to be the final straw to buy and hold investing? If history tells us anything it should be, but Wall Street is still preaching the concept. Personally, I don’t do much short term trading, strictly for the reason that I don’t have a lot of time. I do, however, buy and watch very closely. I make sure that I have stop losses set on all my positions. This will help to minimize the downside risk due to the volatile conditions we have seen over the past few years.
If the average Joe investor ever wants to make a profit again he will abandon the buy and hold strategy. One minute the market is making people jump for joy and then in the blink of an eye it can lose 3 percent or more with one single piece of bad news. Several days like that and any plans for purchasing a new home, car or anything else can go down the drain.