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21-08-2011, 08:29 AM
Not sure why the article says "Buy and Hold is Dead". I've bought and held, for example, Boustead for the last 5 years and it is still giving excellent returns. I think the focus here should be on the business of the company, coupled with reading and analyzing the financial statements. In short, invest in value and with a margin of safety! (I do NOT agree with the article, just posting it for discussion).
The Straits Times
Aug 21, 2011
Buy and hold - but not for too long
By Aaron Low
If there is one thing that the huge market swings of the past two years have taught investors, it is that the buy and hold strategy is no longer the best way to approach investing.
The idea that if you buy and hold for the long term, you can make money from a stock market that will rise over time has been debunked by financial analysts.
'Buy and hold is dead,' says independent financial adviser Leong Sze Hian.
He notes that over the past 10 years, the world has seen three recessions and a near stock market collapse.
What this means is that if you had invested in the stock market in 2001 and held on to your investments till now, it is most unlikely that you would have made any money, he says.
Take the MSCI World as an example. A decade ago, the MSCI World, which tracks stock markets across the world, was at 1,152 points.
The previous Friday, it was 1,169, or just 1.4 per cent higher than what it was some 10 years ago. Subtract inflation and the real rate of return, or loss in this case, is about a negative 28 per cent.
But that does not mean that for the retail investor, there is no good way to make money.
While buy and hold is no longer a valid strategy, analysts say that one should still stay invested.
With a little strategising, even retail investors can get ahead.
For one thing, the basic rule of diversification will go a long way in managing risk and keeping returns high, says Mr Leong.
He notes that a simple 40 per cent equity, 40 per cent bonds, and 20 per cent commodities approach is one good way of spreading risk in the market.
'Investors should also rebalance their portfolio once every three months, taking in changes in values of the various investments and tweaking when necessary,' he says.
For instance, if equities have outperformed commodities and tilted the portfolio value to 50 per cent equities, 40 per cent bonds and 10 per cent commodities, selling down the equities and putting the extra cash into commodities would be the right thing to do.
Apart from diversification, it also pays to be sensitive to market and economic conditions, says Mr Albert Lam, investment director at IFF Financial Advisers.
He points out that historically, every four to six years the market will undergo a major fall, due to factors other than valuations of shares.
'These could be external shocks, like a confidence crisis or something related to politics. What is important is to look at the risk-reward ratio,' he says.
A good example of this was when the US Congress was recently locked in a heated debate over whether to raise the US government debt ceiling.
In this case, says Mr Lam, the risk clearly outweighed the reward.
'If the debt ceiling hadn't been raised, the loss would be enormous. The reward? A jump back to normal market levels,' he says.
'So I would take some risk off and wait to see if the debt ceiling was raised before going back in.'
Another way to approach investing in these volatile markets is to simply set a target in the kind of returns you want and the time frame you want to be invested in, says OCBC Bank's head of content and research for wealth management for Singapore, Mr Vasu Menon.
He is still of the opinion that buying and holding works, but for shorter time frames.
So instead of 20 years, a shorter time frame of, say, three to five years will work better.
At the same time, if an investor has set a target and achieved it, and even if the time horizon is not up yet, he recommends cashing in instead of holding and hoping for a bigger return.
'After you sell, you can always re-evaluate before buying back in again,' he says.
But not all financial advisers are against buying and holding, especially since most retail investors are unable to time the market perfectly or compete effectively with institutional investors.
Mr Brian Tan, vice-president at ipac financial planning, says that the key to a good buy and hold strategy is buying quality.
'There is a lot of short-term speculation in the market. So retail investors' biggest advantage is time,' he says.
He recommends investing in a good-quality company with strong potential over the long term of 30 to 40 years.
For the current volatile market, he suggests buying slowly, in small batches.
'Current valuations do seem cheap enough to justify putting money into the market over time,' he added.
The Straits Times
Aug 21, 2011
Buy and hold - but not for too long
By Aaron Low
If there is one thing that the huge market swings of the past two years have taught investors, it is that the buy and hold strategy is no longer the best way to approach investing.
The idea that if you buy and hold for the long term, you can make money from a stock market that will rise over time has been debunked by financial analysts.
'Buy and hold is dead,' says independent financial adviser Leong Sze Hian.
He notes that over the past 10 years, the world has seen three recessions and a near stock market collapse.
What this means is that if you had invested in the stock market in 2001 and held on to your investments till now, it is most unlikely that you would have made any money, he says.
Take the MSCI World as an example. A decade ago, the MSCI World, which tracks stock markets across the world, was at 1,152 points.
The previous Friday, it was 1,169, or just 1.4 per cent higher than what it was some 10 years ago. Subtract inflation and the real rate of return, or loss in this case, is about a negative 28 per cent.
But that does not mean that for the retail investor, there is no good way to make money.
While buy and hold is no longer a valid strategy, analysts say that one should still stay invested.
With a little strategising, even retail investors can get ahead.
For one thing, the basic rule of diversification will go a long way in managing risk and keeping returns high, says Mr Leong.
He notes that a simple 40 per cent equity, 40 per cent bonds, and 20 per cent commodities approach is one good way of spreading risk in the market.
'Investors should also rebalance their portfolio once every three months, taking in changes in values of the various investments and tweaking when necessary,' he says.
For instance, if equities have outperformed commodities and tilted the portfolio value to 50 per cent equities, 40 per cent bonds and 10 per cent commodities, selling down the equities and putting the extra cash into commodities would be the right thing to do.
Apart from diversification, it also pays to be sensitive to market and economic conditions, says Mr Albert Lam, investment director at IFF Financial Advisers.
He points out that historically, every four to six years the market will undergo a major fall, due to factors other than valuations of shares.
'These could be external shocks, like a confidence crisis or something related to politics. What is important is to look at the risk-reward ratio,' he says.
A good example of this was when the US Congress was recently locked in a heated debate over whether to raise the US government debt ceiling.
In this case, says Mr Lam, the risk clearly outweighed the reward.
'If the debt ceiling hadn't been raised, the loss would be enormous. The reward? A jump back to normal market levels,' he says.
'So I would take some risk off and wait to see if the debt ceiling was raised before going back in.'
Another way to approach investing in these volatile markets is to simply set a target in the kind of returns you want and the time frame you want to be invested in, says OCBC Bank's head of content and research for wealth management for Singapore, Mr Vasu Menon.
He is still of the opinion that buying and holding works, but for shorter time frames.
So instead of 20 years, a shorter time frame of, say, three to five years will work better.
At the same time, if an investor has set a target and achieved it, and even if the time horizon is not up yet, he recommends cashing in instead of holding and hoping for a bigger return.
'After you sell, you can always re-evaluate before buying back in again,' he says.
But not all financial advisers are against buying and holding, especially since most retail investors are unable to time the market perfectly or compete effectively with institutional investors.
Mr Brian Tan, vice-president at ipac financial planning, says that the key to a good buy and hold strategy is buying quality.
'There is a lot of short-term speculation in the market. So retail investors' biggest advantage is time,' he says.
He recommends investing in a good-quality company with strong potential over the long term of 30 to 40 years.
For the current volatile market, he suggests buying slowly, in small batches.
'Current valuations do seem cheap enough to justify putting money into the market over time,' he added.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
