A very thoughtful questioning of the buy and hold strategy to investing in equities..

[LOL!]

OK, buy-and-hold a 100% equity portfolio is not the correct strategy. Well, duh!

Who would actually ever do that? Who actually ever did that? Really? Run a poll or something. Find me an investor who actually did that. Find me anybody who ever recommended that.

 

[DblDoc]

This isn't an issue of stocks losing money. The ENTIRE market lost value for 15 years. No matter when you bought in Japan.

It is a straw man argument to keep focusing on the example of a person buying 1989.

The real issue of the article is: what are the chances that the US equity markets will face a similar fate? And if so, buy and hold is not the correct strategy. Full stop.

That is an issue worthy of debate: not cherry picking.

Entire markets have lost money before. The entire world equity market lost big in 2008-2009. It will happen again. Neither he nor you have demonstrated that a Japanese investor that was diversified, buying and holding and rebalancing would have had (-) returns over that 15 year period.

So what are the odds of a similar pattern in US equities? I'd say they are low, but just in case by the time I retire I'll have sufficient cash and bonds to weather out such a period.

DD

 

[clifp]

This isn't an issue of stocks losing money. The ENTIRE market lost value for 15 years. No matter when you bought in Japan.

It is a straw man argument to keep focusing on the example of a person buying 1989.

No not really it tells the Nikki average of 225 stocks was lower in 2004 than any point in the last 15 years. It really doesn't tell a lot about a how an investor in Japanese stocks has done over a long period. It ignores the impact of dividends, dollar cost averaging, investing in smaller cap stocks etc. Most importantly it ignores a buy and hold strategy over your entire working career which as I show isn't good but it isn't horrible.

Now not speaking or reading Japanese I couldn't find a lot of data on the Japanese stocks with in a few minute Google search. I'd be much more interesting in seeing the long term returns off monthly investment in the Japanese equivalent of Vanguard Total Stock Market Fund much like a 401K investment. That would be interesting article not a simplistic lets look at the Nikkei and use it a straw man for why buy and hold is dead.. It would be also be interesting to see how a retiree in Japan with a 50/50 AA and annual rebalancing would have fared over the last 20 or 30 years.

The real issue of the article is: what are the chances that the US equity markets will face a similar fate? And if so, buy and hold is not the correct strategy. Full stop.

That is an issue worthy of debate: not cherry picking.

I agree it is that returns of the US stock market over the next decade or so is worthy of the debate and even agree that horrible performance of the Japanese stock market (or at least the Nikkei) is a cautionary tale.

But if you think US stocks are going down for a decade the right investment strategy is to not buy them at all period. If that is your view and I don't think it is crazy (or at least less crazy than I thought a couple of years ago), than don't buy stocks. I just don't see how the Japanese stock market makes a case for active investment. Bad marketing timing could have made the a bad situation worse.

If you think that market timing could have have saved the average investor in Japan than I'd say prove it.

 

[LOL!]

Maybe start another thread to ask if "buy-and-hold" literally means buy a portfolio of 100% equities and walk away holding it forever. Or does it mean it buy your asset allocation, add new money either from salary or dividends along the way, rebalance, tax-loss harvest, and manage that asset allocation over time?

I don't think we could find any investors using the literal meaning unless they were in a coma without a custodian. In that case, their state's unclaimed assets office might have already confiscated their holdings.