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The pitfalls of the buy-and-hold strategy

The pitfalls of the buy-and-hold strategy. Gabe Varga. T. Rowe Price New Asia fund. The boom and the bust. 100 day moving average. The last 10 years. The lifting tide. Is the S&P indexing strategy a dogma?. Long-term study of returns by Ed Easterling. A question from the summer of 2001.

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The pitfalls of the buy-and-hold strategy

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  1. The pitfalls of the buy-and-hold strategy Gabe Varga

  2. T. Rowe Price New Asia fund

  3. The boom and the bust

  4. 100 day moving average

  5. The last 10 years

  6. The lifting tide

  7. Is the S&P indexing strategy a dogma?

  8. Long-term study of returns by Ed Easterling

  9. A question from the summer of 2001 • The average individual investor expected that the stock market would return about 10% a year over the next 10 to 20 years, according to surveys • What is the return investors can truly expect? • Easterling created a chart of returns going back to 1920 • He found • The returns are dramatically different based on different starting and end dates • The market returns are much more volatile than people realize, even over time periods as long as 20 years

  10. Green areas are few and far between More red is on the chart than green

  11. Key points • The buy-and-hold strategy of the S&P 500 index is “not a good deal” • The markets are more often in the state of disequilibrium, than in equilibrium • Extreme volatility is normal • Timing IS everything • 20-year median return of 4.1% is much below expectations • A holding period of 60-70 years is required to see stability in the returns • Hybrid strategy: an approach to managing core portfolio holdings • Know when to hold and when to fold • Trading in the intermediate and/or long-term timeframe • Simple and time tested tools include the moving average (MA100 or MA200)

  12. Example of hybrid strategy: SPY & MA100

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