Buy-and-hold works - up to a point

[yeokiwi]

I think my greatest lesson learnt in this article is missing out the best 10 days would only yield 1.4% in long term. I should learn to stay vested and not cash liquid as much as possible.

It is hard to get in and out during the best 10 days at the right moment.
2012 was probably a good example. Everyone thinks it was going to suck but it turned out to be one of the better years in the last decade.

It is probably easier to get out of lousy stocks and get into good stocks as long as one is not too emotional and hesitant.

[cif5000]

Thought the title was obvious enough. Buy (low) and hold up to a point (sell high). In other words, buy low sell high. You can do what you want in between - hold, monitor, calculate, recalculate, evaluate, review, blog, secret notes, Porter's forces, talk to management, add, reduce, scrip dividend, cash dividend, hedge, AGM buffet, inspect documents, inspect facilities, site visit, office visit, customer visit, library visit, CEO interview, competitor interview, job interview, Sh**, sleep, etc - but you sell when the price overshoots value. That's the cornerstone of value investing. Price overshoots in both directions!

Buy low sell high. That's what I tell my friends when they ask me what I do.

[KopiKat]

Hi KopiKat and 2V,

Thanks for the explanation. I think her methods are too pure "Graham" - mechanical methods of buying and selling based on metrics, ratios and a set of numbers without accounting for the underlying businesses and the dynamic nature of companies and competition. While it has proven to work in the past, more and more information is now available which erodes the advantage which Graham used to have (not that people in his era were lazy - they just didn't have much access to information, and he was well-known for digging up details).

I do not have any issue with her personally, so I will not think she is looking for fame and fortune. She is more of a number cruncher so uses massive reams of statistics (along with superior data mining skills) to filter out companies and draw conclusions. Nothing wrong with doing that, I suppose, but back-testing may not work for the future.

Which is why I prefer to emphasize a combination of Graham, Buffett and Fisher. In addition to quantitative analysis (Graham), we need to pay a fair price for a great company (Buffett) and do scuttlebutt to assess the qualitative aspects of a business (Fisher).

When I look back at my own long and difficult journey of trying to pick up the knowledge of investing, I'm able to better appreciate what I think Ms Teh is trying to do.

First of all, she's writing for the masses (it's Sunday Times) where the majority are likely clueless about stocks and either think it's a casino or some form of black magic.... Have you tried teaching and guiding someone on stocks investing? It's definitely not something you can do in a few sessions (or articles).

Even after we'd whittled down the target group to those who have some accounting knowledge, there're still 101 ratios which can be used as an aid to Fundamental Analysis....

This is where Ms Teh had narrowed down to 2 possible screens, PE and PB. This is also what Joel Greenblat is trying to do in his book 'The Little Book that Beats the Market'. They're trying to show that investing in stocks is not as difficult as many imagined it to be. Using these simple screens alone plus a long term time frame, the historical data had shown that there's a very high possibility of making $$ if we were to hold a large enough portfolio of stocks.

Here, I don't think she's advocating a pure Graham approach that's based on just number crunching alone. The main objective is likely to 'inspire' those who'd always wanted to pick up investing but don't know how to get started. Using this simple (but tedious as lots of number crunching) approach to get started, you'd definitely be inspired if you were to make $$ for most of the stocks in the portfolio. For the losers, that's where the real learning process kicks in, assuming you were to do a more indepth analysis on what went wrong. Over time, you'd be able to develop your own approach... Hey! I'm an optimist, anything's possible as long as you're willing to put in the hard work...

As for the latest article on Buy and Hold, I think there're many who equates Value Investing to just Buy and Hold. They're both wrong and right! If you're able to find a stock which fits Warren Buffett criteria of Moat, Franchise, Management,... then yes, cling on, add on,... to this stock with your dear life ie. Buy and Hold forever... But, for most of us (or maybe just me alone.. haha...) I'd be happy if I can just find a handful of such stocks (then I'll follow Warren Buffett punch card recommendation). Most times, the story changes (or I was wrong), even though I patiently hold after buying. So, ya, don't just blindly buy and hold. Learn how to sell...

PS. Don't mistaken me to be a fan of Ms Teh. I don't even read her articles if it's not posted in this forum...

[corydorus]

The 10 worst and 10 best days are independent of individual stocks. Is more of macro level like index.

When is worst and when is best days are subjective. Is only on hindsight that we may conclude.

As with inflation, i would think the trend is up long term. We can invest in index and go for lower growth. Or as most of us would wish for consistently beating it.

[Temperament]

I think my greatest lesson learnt in this article is missing out the best 10 days would only yield 1.4% in long term. I should learn to stay vested and not cash liquid as much as possible.

Ha! Ha!
Missing out the best ten days would only yield 1.4% in long term. But if you also missing out the ten worst days, then what happens? Actually if you know when is the ten worst days every year or one B/B cycle, that is the time to buy not "missing out". But how can one knows?
After 24 years, i never get it right either way. But i try to be as close as possible. And thank GOD, i survive.
i have many worst money losing counters (usually i found i deviated from my principles of investing or become greedy). Stick to your main strategy and you should make money in the long run.
I found one strategy of investing in the stock market is if you can, take out the "time factor" ; not only you can choose what to buy/sell, the most important when to buy/sell or hold forever. Another words, money for stock market is money for stock market only. Not for anything else. Then you can tahan easily, come what may.
Sorry to say, i choose to hold "HP" (under DRIP) forever but not very good result leh. If only i choose "IBM" or APPLE". If only i know. Ha! Ha! Actually i happened to work for HP once; if only i work for "APPLE" or even "IBM".
So you see circumstances play a part of your life too.
Shalom.
Amen.

[Ben]

I find it hard to understand what she meant by missing the best and worst 10 days? Missing the ten best days could mean not selling your shares in those 10 days when the price reach a high? How about missing the 10 worst days? Not selling when the price hit a low? I think for most LT value investors, these 10 best/worst days are not so relevant.

[yeokiwi]

I find it hard to understand what she meant by missing the best and worst 10 days? Missing the ten best days could mean not selling your shares in those 10 days when the price reach a high? How about missing the 10 worst days? Not selling when the price hit a low? I think for most LT value investors, these 10 best/worst days are not so relevant.

My interpretation..

Missing the best 10 days means you are not holding the stock during the 10 best days.
Missing the worst 10 days means you are not holding the stocks during the 10 worst days.

1) To avoid the worst 10 days, an investor has to buy at low valuation and it is likely that the investor will avoid the worst.
2) To avoid missing the best days, an investor has to hold long enough so that the holding period can cover the best days.

Common sense. But it is quite difficult to explain it to others.

[setan]

What she write out is based on history, nobody will know what is the future that make life interesting.

Just guide by your own fundamental investing principle, I believe we will emerge winners big or small does not matter.

[nsengkia]

A few observations around the theme that context does matter.

o In the US, with capital gains tax, buy and hold does have an edge over buy and switch but the same does not apply in Singapore as we do not have capital gains tax. Similarly, share buybacks and capital gains has a tax edge in the US over dividend investing that is not found in Singapore.

o There is a difference in scale between the US and Singapore i.e. large caps in Singapore are only equivalent to small to mid caps in the US and small caps in Singapore are below pink sheets in the US. So a concentrated portfolio in Singapore small caps may have very different characteristics from a concentrated portfolio in US small caps (maybe more equivalent to micro caps).

o During Graham's era, nett nett stocks were still available, not so much during Buffet's era. Also Buffet has the advantage of insurance float which means slow growth pre leverage to him is equivalent to fast growth post leverage (as long as the growth is steady).

In the final analysis, you should read all the advise of the giants of value investing that have come before you, contextualise it to your own unique circumstances (Singapore market characteristics or personal situation) and think long and hard as to what makes sense and works for you. After all, in the end, it is your money that is at risk .

P.S.: For the record, I am mainly a practitioner of Joel Greenblatt's style of investing with an almost fully invested at all times orientation (80 to 100%).

[chialc]

#1. I respect Ms Teh because she gives some tips/guides on what make sense to be successful in stock market operations.
You may not believed me, every year, I re-read all her articles on stock market operations with a simple objectives.
Understand what works and what does not and learn from her articles. It's fun.

#2. Michael Leong separate his money into two piles. One for tikam tikam and the other for buy-and-hold. Of course, he is "the" buy-and-hold man, the tikam tikam serve some purposes like itchy finger or simply cheap chill (sorry, I use my own word as I can't remember his exact words.
Buy-and-hold definitely works... as he is a proven example.
Selling of a "buy-and-hold" stocks is also well discussed in his book too. (??? you mean he sold his "buy-and-hold" stock??? - of course)

#3. Prof Zhen yuen chang is also a "buy-and-hold" man. In fact, he says something very funny.
He says, once his stock zoom up 4x, he will sell 25% to get back his cost. The remaining stock, he will take scripts. The scripts will be locked in his singapore bank vault and not to be touch. (I love this strategy too).

I learn a lot from Ms Teh, Michael and Prof Zhen as they always gives me some idea on how to be better buy-and-hold investor.