Doug Kass: The Death of Buy & Hold.
Here is an excerpt from a Real Money Silver Article published back at the end of March by Doug Kass. I've featured Kass before because he has been dead right on the market for the past two years. As usual excerpt, link and then my comments.
Kass: The Death of Buy and Hold?
Doug Kass
03/30/09 - 11:59 AM EDT
Doug Kass
03/30/09 - 11:59 AM EDT
This blog post originally appeared on RealMoney Silver on March 30 at 7:50 a.m. EDT.
......I am now firmly in the camp that believes that the buy/hold strategy, which was almost universally accepted by the investment and academic community over the past several decades, is no longer the sole investment strategy to be employed in order to deliver superior investment returns. A more balanced strategy might now be on the menu. .......In the main, long-term (i.e., buy-and-hold) investors view opportunistic traders/investors as second-class citizens, at best, and as an expletive, at worst. This comes despite some of the most successful hedge-hoggers (e.g., SAC's Stevie Cohen, Michael Steinhardt and George Soros) having made billions of dollars by way of commodity, stock and futures trades.
Recent academic studies, such as Dr. Lubos Pastor (University of Chicago) and Dr. Robert Stambaugh's (Wharton) "Are Stocks Really Less Volatile in the Long Run?" raise questions about the uncertainty of long-term stock market returns and how risky long-term investing might be in the future. A more violent and uneven corporate profit outlook, higher futures-implied market volatility and the instantaneous dissemination of news are changing the investment landscape and portfolio strategies......Market and economic conditions change, and the keys to prospering and delivering superior investment returns are, as always, based on the ability of a money manager to perceive transformative secular and cyclical developments in companies and industries as well as changes in the broader markets and economy.
More leverage equates to uneven profit growth and greater share price volatility. A more leveraged financial system, by definition, provides an increasingly volatile stream of corporate profits; it seems more likely that an era of higher implied market volatility is here to stay. It holds that change will be more rapid in the future than in the past and that those who adapt to that change most quickly will do better than those whose investment holding period is "forever" -- as .....Warren Buffett has learned from the flooded moats that he believed would protect {his} business franchises of depreciated stocks.....
.....An instantaneous dissemination of information spells trading opportunity. The delivery of news and information has also changed the market landscape. When I was a kid on Long Island, back when there was no business news on television, I purchased the New York Post's late edition to get stock prices. Today, Bloomberg, CNBC and Internet sites like this one provide instant information (news and stock prices) to market participants. In an instant-gratification world populated by more instant-gratification investors (both individual and institutional), a premium is put on quick reaction time. Not only are individual stock moves rapid as news is swiftly disseminated but so is industry share movement. Anticipating sector rotation has become a more important determinant of portfolio performance in recent years and will continue for some time to come......
......I am now firmly in the camp that believes that the buy/hold strategy, which was almost universally accepted by the investment and academic community over the past several decades, is no longer the sole investment strategy to be employed in order to deliver superior investment returns. A more balanced strategy might now be on the menu. .......In the main, long-term (i.e., buy-and-hold) investors view opportunistic traders/investors as second-class citizens, at best, and as an expletive, at worst. This comes despite some of the most successful hedge-hoggers (e.g., SAC's Stevie Cohen, Michael Steinhardt and George Soros) having made billions of dollars by way of commodity, stock and futures trades.
Recent academic studies, such as Dr. Lubos Pastor (University of Chicago) and Dr. Robert Stambaugh's (Wharton) "Are Stocks Really Less Volatile in the Long Run?" raise questions about the uncertainty of long-term stock market returns and how risky long-term investing might be in the future. A more violent and uneven corporate profit outlook, higher futures-implied market volatility and the instantaneous dissemination of news are changing the investment landscape and portfolio strategies......Market and economic conditions change, and the keys to prospering and delivering superior investment returns are, as always, based on the ability of a money manager to perceive transformative secular and cyclical developments in companies and industries as well as changes in the broader markets and economy.
More leverage equates to uneven profit growth and greater share price volatility. A more leveraged financial system, by definition, provides an increasingly volatile stream of corporate profits; it seems more likely that an era of higher implied market volatility is here to stay. It holds that change will be more rapid in the future than in the past and that those who adapt to that change most quickly will do better than those whose investment holding period is "forever" -- as .....Warren Buffett has learned from the flooded moats that he believed would protect {his} business franchises of depreciated stocks.....
.....An instantaneous dissemination of information spells trading opportunity. The delivery of news and information has also changed the market landscape. When I was a kid on Long Island, back when there was no business news on television, I purchased the New York Post's late edition to get stock prices. Today, Bloomberg, CNBC and Internet sites like this one provide instant information (news and stock prices) to market participants. In an instant-gratification world populated by more instant-gratification investors (both individual and institutional), a premium is put on quick reaction time. Not only are individual stock moves rapid as news is swiftly disseminated but so is industry share movement. Anticipating sector rotation has become a more important determinant of portfolio performance in recent years and will continue for some time to come......
.......A buy-and-hold strategy may not be dead, but a thoughtful balance between long-term investing and gaming short- to intermediate-term trades is likely the recipe for investment success in the years ahead. Investors, we are not in Kansas anymore.
Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass's daily trading diary, please click here.
My thoughts: Kass can always say it better than I can. This has been one of our periodic discussions with clients and is what helped us several years ago to develop the "Game Plan". Again this is a subject over which I will have a lot more to add in the future. While I do believe that investors can ride out investment cycles, the era of buying something and forgetting about it in a portfolio is over. I have clients who own stocks that they never want to discuss or sell. That is their privilege. They know my feelings about this sort of non-diversification of their assets. In the past 10 years this has been almost without exception a money losing strategy. Owning something just because it worked in the past without any regard for the future is going to continue to likely be a money losing strategy.
posted by CR English at 6:29 AM
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