When stocks fell earlier in the week young investors took advantage of the lower prices and bought some stocks and they plan on holding them for a really long time [no matter what happens] hoping that eventually [crash or no crash] the stock market will recover and they'll make a killing. Is this a good investment strategy? I've heard of bear markets at times lasting for as long as 14 years . . .
It depends of the amount of money you have, the time you are willing to spend trading and so on. If you start small, buying and holding stock is definitely the wisest decision. However, if you want to become a day trader, it's totally different, because your actions are based on what is happening in the market not on any historical earnings and so on. LE: I think that this is the best advice I could give: don't try to beat the market. It's almost impossible. LE2: damn it, I'm not allowed to post links.
Here is a very good article from the NYT: (Oh, wait, sorry, BullMarket Board won't let me post links yet for some reason.) Search for this text instead: "But here is some different advice that’s worth hearing during a week like the current one: Don’t expect the next few decades of stock returns to be as good as the last few. Be prepared for a period in which market dips are not inevitably followed by bull markets that make the dips look like footnotes. Be prepared for something like mediocrity or even disappointment." The rest of my post got deleted, but you will get the point if you read the article.
"Our favorite holding period is forever." —Warren Buffett I have, and continue to, hold investments from a long time ago. The reasons why vary.
Yes, it's a great idea. It's very unlikely that you can time the market well, so why not let the odds be on your side? If you buy & hold, a diversified portfolio WILL be profitable in the long run.. that is unless the world as we know ends. There could be years and years where you are on the negative... but at some point the markets will get back up. And during all that time the dividends keep pouring into your bank account. (often to be reinvested. Check out compound interest) About 90% of my portfolio is buy & hold forever.
The topic asks "buy or hold for 5 years or decades?" I think when people hear buy and hold they automatically think those promoting it mean buy one stock, hold it for a bunch of years, and you can count on winning. I don't think that is what good buy and hold strategy is about. Diversification First, buy and hold should mean multiple investments and investment types to spread out the risk. So for example, buying 20 different stocks of companies varying in maturity, size, and industry. Regular buying Don't try and time the market with buy and hold. It is best to be a regular buyer with a disciplined program. So, for example, buying a new addition to your portfolio each month. You should have decades to go, so be a regular buyer to dollar cost average and cement in good habits of saving/investing. Asset allocation based on time frame How much stock you own should to no small degree be tied to how many years you won't touch the money. So if it is money you will want to spend in 5 years, forget about buying and holding stocks. That time frame is too short and risky for your principle. The general rule of thumb for how much of your holdings should be in equities is basically subtract your age from 100 (I got this from my hero Bogle, founder of Vanguard). The resulting number is a rough ballpark of how much of a percentage stocks should take up. So if you are 30, 70% of your holdings can be stocks.
I buy stocks when they are cheap relative to earnings/book/sales/earnings growth, are experiencing increasing revenues, earnings, margins, cash flows, etc, etc. I also buy when there are other compelling reasons to buy even in the absence of many of the above criteria - unique or innovative products and services likely to be in high demand, activist activity, promising drug pipelines, etc, etc. I sell some or all of a stock when it becomes no longer such a bargain, growth slows or stops, there are problems with management or products and services, etc, etc. It may be many years or only a few minutes in some cases, but it doesn't really have anything to do with the overall stock market... In fact, I'll usually buy more of these companies when the markets sell off and they become even cheaper. I'm mainly a fan of bottom-up investing. Buying individual securities when they are attractive. Buying more of them if they become more attractive. Selling some or all of a position only when it is less attractive itself or no longer attractive at all. One exception is that I'll often trim the more speculative, smaller positions in the higher beta stocks (that are generally relatively expensive and have little or no earnings) when markets start to get very volatile. I'll often have puts on these anyway.
