December 12, 2005
Buy and Hope?
"Here’s a fact that ought to make you think twice before trying to "time" the stock market. Since 1950, the S&P 500 is up over 73-fold (excluding dividends). That’s a period of over 14,000 trading days. However, when you isolate the best 133 days, you get a combined total return of 74-fold. That means that the stock market is flat for 99.05% of the time. The market’s entire profit has been made in just one day in 105, or roughly one day every five months. To time the market profitably, an investor has to hit that bulls eye without ever missing a beat. That’s why the best strategy to buy and hold and never worry about missing that home run day.
Even after the worst bear market in seven decades, the S&P 500 index with dividends reinvested is higher than it was except for a few months right near the market’s peak. If a Rumpelstiltskin had invested in the market 10 years ago, gone to sleep and woken up today, he would have doubled his money. Not bad for the worst bear in market in seven decades."
After trading on and off for 12 years and investing in every kind of strategy known to mankind, I have become less skeptical of the buy and hold strategy. If you account for all the time and wasted energy and aggravation, let alone costs, there is something to be said for a simple indexing strategy.