Death of Beta-Centric Buy & Hold Long-Only Strat
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Here’s what I predict the academic finance community will suddenly discover – if you re-run their ‘buy and hold’ recommendations using data since 1770 (thats when security market prices began being kept in the UK), you’ll find that a 'diversified porfolio of securities allocated among different asset classes produces returns .5% higher than cash".
C’Mon New. What happened in 1792 in England is completely relevant today.
Going back just to 1924, I have the holdings page of the first mutual fund - Mass Investors Trust (MFS). It had 4 categories: Banks & Insurance, Industrials, Railroads & Equipment, and Public Utilities. Of the 50 something holdings, maybe 10 still exist (now, some may still exist as other names, but I have no idea). You would recognize: Kodak, GE, GM, Standard Oil, Canadian Pacific, Union Pacific, and AT&T. Some of the utilities and rails have merged/sold, etc. Point is, what went on back then is of little consequence today.I had a mutual fund wholesaler tell me recently that ‘Buy and Hold is dead.’ (Not you, he added.) Buying and holding a mutual fund is different, he said, because there the managers are constantly moving around.
To illustrate (and he wasn't an AF guy), if you whip out your ICA guide, there's a page somewhere that shows the ICA has outperformed each individual stock in the Dow 30. If you'd been fortunate enough to hold the best of them for years, you still wouldn't have beaten the fund. I do think you need to go back three or four hundred years if you are studying investment return. It kills me when somebody says 'history tells us,' and then cites something from 20 years ago.I had someone tell me buy and hold was dead simply because he made 10.5% on his account this past year channel trading AMAT while everything else was down 50%. Listening to his explanation was brutal.
Buy and Hold is a strange term. I mean, like someone said above, if you buy actively managed mutual funds, then you are really buying and holding only the funds your managers want to keep. So you are not really JUST buying and holding.
Now, some may say that this doesn't work either - only "market timing" works now. But who the hell can do that accurately? But if you buy quality and hold it, why would you sell it (except to monetize a large gain that you think cannot be replicated in that stock/bond)? Point is, investing is the process of buying discounted future cash flows. In it's simplest form, is that REALLY going to change? Is this REALLY the New Paradigm? (we know what happened the last time the "old economy" died). So I have heard asset allocation is dead. I have heard that "buy and hold" is dead. I'm going to start a Tulip bubble again.So, if buy and hold is dead, does this mean a return of the retail “commision” broker?
Here’s what I predict the academic finance community will suddenly discover – if you re-run their ‘buy and hold’ recommendations using data since 1770 (thats when security market prices began being kept in the UK), you’ll find that a 'diversified porfolio of securities allocated among different asset classes produces returns .5% higher than cash".
Doug Kass crunched these numbers on Warren Buffett:
Wells Fargo: $6.3 billion lost on 290 million shares
American Express: $2.9 billion lost on 151 million shares
Coca-Cola: $2.1 billion lost on 200 million shares
Burlington Northern Santa Fe: $1.8 billion lost on 63 million shares
ConocoPhillips: $1.5 billion lost on 60 million shares
U.S. Bancorp: $1.5 billion on 73 million shares
Kass's bottom line: "All good things, it seems, in markets and life, must come to an end."
Over what time frame? That sounds a lot like someone saying their team is down by a touchdown after the opponent scored on their first possession, so they have obviously lost the game, the playoffs and any chance of the championship.
Perhaps Buffet’s looking at an investment horizon that is a tad longer than Mr’ Kass’ analysis, which presumably covers, what - a year or less?
The investment world is filled with geniuses like Kass who presumed to declare Buffett a bust. There were a ton of them during the tech bubble as well. Only time will tell, but given their respective long term track records of judgment and results, who are you more inclined to back?
I guess my point was that buying actively managed mutual funds is inherintly NOT buy and hold/buy and forget. That's what the managers are paid for doing. Now, if you just buy a couple individual stocks/bonds and then just leave them forever, you have a point. But the point of buying a mutual fund is so that someone else is doing the buying and selling for you. Now, if you are a true asset-allocation, style-box, index sort of advisor, then you might be inclined to shift your allocation strategy on a periodic basis. But in this day and age, with managed money/mutual funds being so prevalant, it's HARD to be a buy and hold investor. Even the most stable funds have security turnover every year.Hey EDJ has built a large business on that premise…
[quote=skeedaddy2] [quote=MinimumVariance] Here’s what I predict the academic finance community will suddenly discover – if you re-run their ‘buy and hold’ recommendations using data since 1770 (thats when security market prices began being kept in the UK), you’ll find that a 'diversified porfolio of securities allocated among different asset classes produces returns .5% higher than cash".
[/quote]Doug Kass crunched these numbers on Warren Buffett:
Wells Fargo: $6.3 billion lost on 290 million shares
American Express: $2.9 billion lost on 151 million shares
Coca-Cola: $2.1 billion lost on 200 million shares
Burlington Northern Santa Fe: $1.8 billion lost on 63 million shares
ConocoPhillips: $1.5 billion lost on 60 million shares
U.S. Bancorp: $1.5 billion on 73 million shares
Kass's bottom line: "All good things, it seems, in markets and life, must come to an end."
[/quote] It is virtually IMPOSSIBLE for someone like Buffett (buys equity) to NOT lose some equity value in a time like this. Regardless of what you own, if you are AT ALL diversified in equities, you have lost money.
I would advise Warren to diversify a little bit. He is too concentrated in financials and consumer cyclicals and has too much of his money tied up in single positions. Also, a man of his age should have more money in fixed income and I have a bar chart to show him that. Then I would offer him a credit card and ask if he wants to refinance his mortgage.
[quote=buyandhold]
I would advise Warren to diversify a little bit. He is too concentrated in financials and consumer cyclicals and has too much of his money tied up in single positions. Also, a man of his age should have more money in fixed income and I have a bar chart to show him that. Then I would offer him a credit card and ask if he wants to refinance his mortgage.
[/quote] That's a great idea; he's definitely too old to be in the market. I've recently heard about a product he may be interested in. It allows you to enjoy all of the upside of the market with no downside risk. Apparently, someone's figured out how to cheat capitalism. The best part is, there are NO fees! None, zero, zilch... What's 8% of $30 billion?[quote=Borker Boy]
That's a great idea; he's definitely too old to be in the market. I've recently heard about a product he may be interested in. It allows you to enjoy all of the upside of the market with no downside risk. Apparently, someone's figured out how to cheat capitalism. The best part is, there are NO fees! None, zero, zilch... What's 8% of $30 billion?[/quote] A couple things. First, you can't "enjoy all of the upside of the market" above a certain point. Get your facts straight. Second, it has been written that Warren Buffett has some of his money invested the same way as an index annuity...just with his amount of money, he doesn't need an insurance company to do it for him. Don't be jealous...[quote=MinimumVariance]Here’s what I predict the academic finance community will suddenly discover – if you re-run their ‘buy and hold’ recommendations using data since 1770 (thats when security market prices began being kept in the UK), you’ll find that a 'diversified porfolio of securities allocated among different asset classes produces returns .5% higher than cash". [/quote]
Money that once stayed put for three to five years can now get moved in three to five days or sooner.
"What's happening is people have learned that if you don't take a profit it goes away," says Kathy Boyle, president of Chapin Hill Advisors in New York. "Even somebody who's really biased towards buy-and-hold is giving up."
More than half the company’s in the Standard & Poor’s 500 have
beaten earnings expectations, yet the stock index has dropped over 8
percent. Probably the worst January in more than a generation.
Its times like these that separate the men from the boys.
[quote=skeedaddy2] [quote=MinimumVariance] Here’s what I predict the academic finance community will suddenly discover – if you re-run their ‘buy and hold’ recommendations using data since 1770 (thats when security market prices began being kept in the UK), you’ll find that a 'diversified porfolio of securities allocated among different asset classes produces returns .5% higher than cash".
[/quote]Doug Kass crunched these numbers on Warren Buffett:
Wells Fargo: $6.3 billion lost on 290 million shares
American Express: $2.9 billion lost on 151 million shares
Coca-Cola: $2.1 billion lost on 200 million shares
Burlington Northern Santa Fe: $1.8 billion lost on 63 million shares
ConocoPhillips: $1.5 billion lost on 60 million shares
U.S. Bancorp: $1.5 billion on 73 million shares
Kass's bottom line: "All good things, it seems, in markets and life, must come to an end."
[/quote] Isn't this what he owns through Berkshire?? I think his personal holdings are a lot fixed income and Berkshire..
GENTLEMEN: My look what I started.
The point is to HOLD, after buying, the WHOLE MARKET. Thats Jap real estate, cocoa futures, base metals, antiques, futures, the Zimbabwien S&P12 (theres only 12 companies in Zimbobwiea), FRA's, private equity, etc +stocks and bonds -- in PROPORTION to their respective weights in the sum total of all the worlds assets. As RELATIVE security prices change, the holdings weights are adjusted accordingly, thats passive mgt. buy-&-hold. If you elect to change the weights to your own liking / predictions -- that's active mgt. So whats wrong with this? It doesn't work during periods of systemic collapse -- a la NOW. Watch -- in the next year the whole focus of managing money will be on controlling asymetric tail risk. You heard it here first.