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BUY AND HOLD?…….DEPENDS ON WHAT YOU BUY AND HOLD.

One of the longest-lasting strategies taught yet today is the practice to Buy and Hold investments.

As an illustration of my beliefs on the subject, take a look below and observe the price history for the last decade and a half, of General Electric. GE is not only a component of the Dow Industrial Average, it is also in the S&P 500 Index.

It also happens to be a favorite amongst the Buy and Hold crowd.

It is true, I could have chosen a different company, however, GE allows me to make my point that it does “depends on what you buy and hold” which is what I’d like to emphasis in this article.

As you can see, the price of GE has had several major price swings.

At first glance, with GE being up 600% since 2009, I was surprised to learn from the calculations that only told part of the story.

If an investor bought GE at the beginning of the millennium, that investment, if held until the present time, would be down roughly 25%.

Compare that to buying the surrogate of the S&P 500 Index, SPY, at the same time and holding it for the same period, the investor would have experienced a 50% profit.

spy15yrlines

That observation, on the other hand, did not surprise me as much. However, what is important to recognize is the significant difference in performance between the two investment choices during the same time frame.

So Buy and Hold really depends on what you Buy and Hold.

First of all the ETF, SPY, as opposed to the single issue of GE, represents very dramatically the power of diversification and why I am such a fan of buying ETFs.

An investor buying and holding GE 15 years ago would have endured two horrific bear markets. Both which cut the value of their investment an average of over 70%. Twice!

Meanwhile, an investor buying and holding the S&P 500 Index for the same period of time, would have endured the same two horrific bear markets, and would have “only lost” 50%. Twice!

What a lot of investors ignore is that an investment they own goes down 50%, it has to go up 100% – just to get back even!

Now I wish to take the subject of “it depends on what you buy and hold” to another level.

What really bothered me most about the market drop in 2007-08 – even after my work saw the disaster coming and I got myself and clients out of the stock market – was that there was no simple way to capitalize on the falling stock market.

Sure, it was great avoiding the tremendous losses experienced by average investors. But I wanted it ALL! I wanted to find a comfortable way to make profits while markets went either up or down – especially down.

Shorting the market was an alternative I could use, as was buying puts. However both of these methods have tremendous risks that I was not comfortable with taking.

Once again, ETFs have come to my rescue as sponsors of these investments have expanded their usefulness significantly.

It is because of this expansion that I have been able to develop my “All-In” strategy that I discuss in my e-book “The Investment Compass- A Down markets” which can be found on my website: www.theinvestmentcompass.com