Gotta Know When to Hold Em'

I don't know about the rest of you, but I've always been told in the past that the way to invest in the stock market is to buy a good stock and hold it. Stock brokers in particular will tell you this, and of course they're more than willing to help you execute that strategy.

And indeed, in 1966 the Dow Jones closed just short of 1000, while it now stands at around 10,700, a 10 fold increase. But does tell the whole story of a buy and hold strategy?

Look at this chart (via The Big Picture)


Yep, stock returns have grown dramatically since the early 20th century. However, there are long periods of time where the market is flat, down, and with distinct upswings. Bob Brinker, the financial consultant and radio show host, is a huge advocate of evaluating the market in terms of long cycles and "secular" cycles. Indeed, look at this chart from 1966-1982 (again via The Big Picture), if you had executed a buy and hold strategy, you wouldn't have made much. Yet inflation would have eaten you alive.


It would seem that the better strategy would be to buy in the secular bull (green) markets only, and sell into the secular bear (red) markets.

Duh.

So, how do you time it?

That's a very good question. And if I knew the answer, I wouldn't be writing a blog.

I'm no financial expert by any means. But as a schmo trying to make some money, I recommend finding a financial adviser who does not just advocate the knee jerk "buy and hold" strategy in the stock market. The Angry Bear (mentioned above) has been a good resource for watching the market. Bob Brinker offers a monthly newsletter ($185/yr.) advising on buy/sell strategies and on the use of no/low fee funds for a do-it-yourself approach to investing. I'm sure there are many other resources out there that do the same thing.

Something to consider if you're into investing and want to maximize your returns.

Oh....and consider this when deciding when to get in/out:


If history repeats, next year should be a tough year.