February 29, 2024

Today, the Dow closed under 10000. Almost 10 years of gains wiped out.

One of the basic mantras of stock investing is to buy and hold. And it is one that I disagree with. Sure, if you look over the long term (as in decades), stocks do go up. But, if you want to get somewhat decent returns, you’ve got to be a little more active than simply buying and holding.

People point to the indexes (Dow, SP500, etc) and show that over the long term, they go up. I would say though that it’s rigged to go up. Here are some reasons:
– Bad stocks are dropped from the index and good stocks replace it. If you just keep the same stocks on the index forever, it would not go up that much.
– Inflation also goes up. If you discount inflation, the results would be less dramatic.
– The FED, SEC, and Treasury will do everything in its power to keep stocks from falling (banning shorts, lowering the interest rate, bailing out companies, PPT). But they will do little if stocks are flying. If the market was truly a free market, it’d probably go down as much as it goes up.

What is my point? It’s simply that just because the indexes go up, that doesn’t mean that simply buying stocks and holding them is a great idea.

The minimum strategy would be to invest in an index ETF during a bull market and in an inverse index ETF during a bear market. Sure, it’s difficult to time the markets, but I think even if you had bad timing, you’d have more than 0% return over the last 10 years.