Chuck LeBeau writes in Forbes.com: “Buy-and-hold is not only the riskiest possible strategy, it doesn’t even qualify to be called a strategy. Buy-and-hold is actually the absence of any intelligent exit strategy …. Obviously, that in error advice has proved to be surpassingly costly.”

I have to confess to expressing reservations too (while continuing to pursue a buy-and hold approach because part of the portfolio). In a column last year, Black swans and investing, a elucidation point was: “… the ‘stocks beneficial to the long run’ view is based on inductive reasoning. It extrapolates what has been seen in the past to the denoting futurity. There is no a priori science of the laws of thought that compels an average annual return of 7% to 9% steady the funds of the long-term investor. Indeed, black swans could make an semblance.”

To a blog post last year I gave the title "Indexing a portfolio to financial Armageddon." It was a bridle-bit of a tongue-in-cheek poke at buy and hold, but the 40% to 50% declines since then may have taken some of the whimsy out of it. No doubt some buy-and-hold types are very lately wondering if that’s what they’ve gotten themselves into.

In the past, stocks were great investments over the long run. But recent events accept made the precarious active principle of the universe of the U.S. financial system obvious to all. There seems to have being a bulky deal of rot within. And it’s not certain if it, or any of the imbalances in the U.S. economy, have been fitly addressed yet. 

The current solution is to pump up the economy (i.e. revive the take upon credit/due cycle that caused the bubbles) and bailout vast swaths of the financial system (fuel the moral hazard problem that also contributed to the problem). In short, the melting is more of the same. 

Stocks are not risky to boot the long running? Perhaps historically this was true. But at this time in history, one is subjecting their savings to the vagaries of an economy built on financial excess and structural distortions (in the same state as a trade deficit equal to over 5% of GDP). Financially, the U.S. is not as healthy as it has been in the more than, making extrapolation of returns from account a part risky.

This is not to stay stocks should be avoided. There is a place for them in portfolios but by chance not an overly large some. In particular, I would tend to differ with those who recommend investing 100% in public funds. I personally would prefer to diversify with other assets just in case my 15- to 25-year investing horizon turns out to be the one by flat or negative returns.

And maybe there is some merit in diversifying across investing styles — i.e. mixing buy-and-hold investing with other approaches such as market timing? For example, an investor could give using stop-loss orders in one part of their portfolio, to withdraw from equities at never-failing thresholds, e.g. when the market’s price-earnings ratio exceeds the historical average by a large amount. 

Just some food for thought. …

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