In one Interview 2014 With Justin Fox, former Fed chairman Alan Greenspan gave Warren Buffett a comment on Oracle’s investment approach:
That tells you why someone like Warren Buffet does so well. I mentioned Warren some time ago, I said “Warren, it strikes me that you never sell unless you do anything else.” That means if you clench your teeth and can only ignore short-term declines in the market or even long-term declines in the market, you will do well.
Buffett is not the best example for ordinary investors because he has so much money that it doesn’t really matter what he does with it. But one of the ways he built up such a large fortune is to really buy and then hold public and private companies for a long time.
In the latest Berkshire Hathaway Letter to shareholders Buffett wrote:
Charlie and I have very pragmatic reasons for securing Berkshire’s prosperity in the years after we left: the Mungers hold Berkshire holdings that outshine all other family investments, and I have a full 99% of my net worth in Berkshire shares . I have never sold stocks and have no plans to do so.
In the bull market that preceded the current crisis, being a buy-and-hold investor like Buffett was not too difficult. Sure, there were a few fixes along the way, but nothing like the current situation.
Buying and holding is relatively easy when you make money. When stocks go up, any kind of risk management is usually punished. When you invest, it’s mostly right not to do anything, but it’s much easier to sit on your hands when things are going well.
With all the money that has flowed into index funds, ETFs, and passive investment vehicles over the past 10 to 15 years, many professional investors predicted a come-up when the next crash hit.
Surprisingly, buy-and-hold investors at Vanguard are doing a good job of staying on course. The company released one report Showing the number of clients who traded in March, one of the worst months in stock market history:
This data goes through last Friday, when the S & P 500 was down about 32%. You can see that trade is slightly above average, but the numbers are commendable given the situation.
They show that more than 90% of their self-managed investors did not make a single trade during the turmoil. And of the approximately 8% of clients who made portfolio changes, half made only one trade (and many of those trades were used to buy more stocks).
This thing could get worse. Maybe this crash happened so quickly that these investors didn’t have time to get the situation under control. If stocks do not recover quickly or continue to fall, it is always possible for passive investors to panic.
But don’t blame mom and pop for the current volatility. You don’t sell. If anything, most retail investors do nothing or even buy.
I am sure that there will be some victims of surrender by the end of this crisis. However, this has nothing to do with the type of investment instruments that people use. There will be long-term investors, short-term traders, hedge funds, institutional portfolio managers and many other investors who sell at the wrong time for the wrong reasons.
If someone buys below, it means that someone is at the other end of that trade and selling to him.
I’m sure there will be stories of Buy and Hold dying in the coming months. You can set your watch on it during a serious bear market.
This only applies to those who do not understand how markets work in the long term.
If you are a buy-and-hold investor, it is important to remember such a market crisis. I’m saying the obvious here, but it’s worth repeating – the stock market has had an annual return of around 9.7% over the past 90 years. This 9.7% includes the Great Depression, wars, recessions, rising interest rates, falling interest rates, various political regimes, bear markets, booms, busts, inflation, deflation and everything in between.
I’m not saying that everyone should be a buy-and-hold investor. Much of this decision depends on your personality and temperament. There is no uniform investment strategy. However, if you have decided to become a buy-and-hold investor when the markets rose, this is the point at which the bill is due.
The hardest part of a buy-and-hold strategy is that it works as expected. You have to buy as well as hold when the markets also fall. It is much easier to buy and hold when the markets go up.
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