AirJordan said:
Buy and hold, is just as simple as it sounds then, buy and never sell until you're going to retire correct? I've heard differing vantage points, so I just wanted a clarification.
Yes, AJ, that's the answer for that ingneuous question. Buy it and don't sell it until you need it to pay the ER bills.
A better option might be to stop watching TV and to do your own research. Take a historical portfolio of the last 100 years (or whatever lifespan you choose, I'll use 100 for convenience & lots of data). Look at the effect of being out of the market on the 10 worst days of that last 100 years and see what your portfolio ending balance would be. Don't forget to include transaction costs (admittedly minimal) and taxes (more significant). Market timing sure looks good with this calculation, even with your higher portfolio turnover.
Then re-do the calculation for being out of the market on the 10 BEST days of that last century. In other words, if you're going to engage in market timing then you can't afford to screw it up.
Then consider which scenario lets you sleep better at night. Would it be having your portfolio invested during one of the worst market days, a veritable indistinguishable blip in the long term of compounding, or would it be missing out on one of the best days with its permanent compounding benefit? Is either result a high-enough percentage of your total portfolio value to make it worth the research effort and high degree of accuracy required?
For a really interesting project, see which is more significant in dollar terms-- the effect of being in the market, the effect of being out of the market, or the effect of paying high expense ratios for those alpha-generating active fund managers instead of a few basis points for a low-turnover index fund. Of course if you're letting Buffett be your active manager then you don't have to worry about this step.
Another advantage of doing your own research is that you don't have to argue defensively with posters whose advice differs from your anticipations. Just pick the number you like the best and stop worrying about it.
If the TV program is still running after you finish crunching these numbers, you may want to read Tweedy, Browne's top three research reports on market timing and on beating indexes. (
http://www.tweedy.com/library_docs/papers.html) Their "actively managed" mutual funds typically have turnover in the single digits-- stocks are held for periods of longer than a decade. Of course they're not too humble to charge 1.38% for their Global Value fund, and if you want them to manage a personal account they'll do it for a mere 2% per year. They cheerfully admit that they'll underperform the index at least a third of the time, but they don't give refunds.
As for the "fun" comment, I usually change my investments on the condition of the stock-- not the conditions of the market. When I'm ready to have fun, though, it's much more rewarding to do it at Vegas. But I spend most of my time there too at the blackjack table applying probability & statistics to my entertainment "investment" decisions.
