The Age of Buy and Hold Is Over?

Based on various feedback, this is a mixed view. Some say the age of "buy and hold" stocks and/or equity related investments is simply over, simply due to the fact that economy and business are cyclical in nature. For instance, many stocks (even the bluest of blue chips) effectively wiped out the entire gains made during the last 10 years in just one year of global economic crisis last year!

On the other hand, others say that adopting the "buy and hold" strategy is the best strategy to investing as it is not possible to time the market in terms of peaks and troughs.

Personally for me, the "buy and hold" strategy will not work at turbulent times like this as every single company 's market share will be severely affected by sentiment. Instead of "buy and hold", the likely apprroach during such time in fact is "dump first, think later"! The objective of course, is capital preservation.

However, the strategy of "buy and hold" may make sense during market bull rally. For instance, US market went through a 5 year up trend from 1995 to 1999, followed by from Year 2003 to 2007. Notice that market went through a 3 year correction from year 2000 to year 2002. Assuming the stock price performance is correlated to the index, it would be wise to take some profit during initial market downtrend instead of waiting out for the unknown.

Year 2007 to date performance is a classic example where things really turn nasty! For those who hold on to their investments, chances are the entire gain built up over the last 10 years or so may be wiped off completely! Is it worth while to continue with the gung ho approach then?

So the question is how do you tell the market is undergoing bullish trend or bearish trend then?

Answer lies with Technical Analysis. As technical chartists often say, the charts do not lie! Mind you, technical charts are no crystal ball! They serve the purpose of serving a strategic or tactical guide, based on market "psychology" which will be reflected in the chart. As one say, the Trend is your Friend! Do not fight against the trend when it comes to trading or Investing! Tonnes of hard earned gains accumulated over the years could well be wiped off in an instant!

At the end of day, trade or invest with the trend rather than fighting it. One may not be able to time the market perfectly but at the minimum invest with proper risk management in place is the key to long term success.

Similarly, one needs to know when to cash out when the trend changes. No point be the hero. After all, IT'S YOUR MONEY!