Some things the masses believe about investing simply aren't true. For example, you may have heard that "set and forget" investment portfolios are the only way to make money in the stock market... Here's why I disagree:
When the market has been moving up for 3+ years, we call it an “old bull”. It is not always wise to make major long-term investments (Buy & Hold/ Set-and-Forget), in stocks, during an old bull. If you’re already invested, understanding when to “go to cash” could save up to 50% or more of your hard-earned money. The market crashes of 2000 and 2008 proved this to be true.
What many people don’t understand, is that the market undergoes cycles between up (bull) and down (bear) markets, and one would be wise to buy & hold stocks near the beginning of a new “up” market, rather than near its end. Near the end of a bull market, short term trading would, perhaps, be a better strategy. Many advisors will invest your money long-term, using the buy & hold method, in the stock market without regard to the current point in the cycle. What if they buy & hold through a recession?! Knowing how to STOP your advisor from making this mistake can potentially save you many thousands of dollars.
It is important to know that many financial advisors are simply repeating what they’ve learned. So, they are not lying to you, or attempting to hurt you when they exclusively practice buy & hold, or encourage you to do so. They think it is the right method. They probably have your best interest at heart, yet they also must sell products for their company, such as mutual funds, annuities, and life insurance. Even though they mean well, the fact is, they are acting off of information that is not always true or complete and your savings can be diminished, sometimes in a devastating way! So what will help?
I learned this from my own family by learning how we’ve invested for three generations—a combination of short-term trading skills, with longer-term investment strategies. Now, through TRADEway we teach these skill sets passed down through our family, to you ...A way to reach your BIGGEST goals, through taking small steps!
Buy & hold is a popular notion, even in most business schools. However, to assume long-term strategies should be used exclusively is most likely wrong in many stages of a market cycle. My grandfather knew this. William O’Neil, also a gifted investor and the owner of Investor’s Business Daily, agreed that long-term buy and hold can be detrimental sometimes. He pointed out:
"The erroneous belief that no one can time the market evolved more than 30 years ago when most mutual funds that tried it weren’t successful at it. This is because they had to both sell exactly right and then get back in the market at exactly the right time, but due to their asset size problems, it took weeks to raise cash and weeks to reenter the market. Funds lost relative performance during the fast turnarounds that frequently happen at market bottoms.... Therefore, the top management at these mutual funds imposed rules on their money managers that required them to remain fully invested (95% to 100% of assets)."
So, because these major institutions were slow in their transactions, “buy & hold” became their primary strategy. So until about 30 years ago, most people didn’t believe buy & hold was the only way, as many do now. Over time, the opinion of those major institutions has influenced the masses.
Meanwhile, my grandfather realized that the retail investor (i.e. the individual) had advantages over professional fund managers, and the main one was that the individual did not have to be in the market all the time. He could also enter and exit quickly, due to the smaller size of the investments. He discovered this years ago, and our family has benefited from it. We have had some longer-term investments, but we also have had some shorter-term trades which lasted from 2 weeks to 9 months. King Solomon said, “Knowledge is better than Gold.” What do you think the knowledge of when and how to do these strategies is worth?
I can remember sitting in the M.B.A. program at Baylor University and hearing my professor say it was mathematically impossible to make money in the stock market without leaving money in for long periods of time. At that time, he was probably making an $80,000/yr. salary, while my grandfather was 35 miles away, a multi-millionaire, and successfully doing the very thing I was being taught was “impossible.” He was watching market cycles and determining better times to enter and exit certain trades. He knew from the cycles when it was wise to be in bonds vs. heavy exposure to stocks, and vice versa. The professor taught that knowing this was impossible. Who do you think I listened to?