Buy-And-Hold Is Essentially Dead

The buy-and-hold strategy offers great advantages to investors.

However, it has become almost impossible to implement nowadays due to increasing competition and technological advances.

Many stocks that were excellent buy-and-hold companies for decades caused disastrous losses to their shareholders in the last few years.

Many investors prefer holding their stocks for many years or decades, as they save precious time in this way. This strategy has offered excellent results for those who had the luck and the astuteness to invest in the right companies, e.g. the dividend aristocrats. However, in this article, it will be analyzed why it has become extremely difficult nowadays to hold stocks for decades. It is not that no one can implement it successfully. The strategy has just become extremely hard to implement. Moreover its referred to the investors who are striving to achieve their retirement goal and not to those who have easily exceeded their retirement goal and hence they do not mind underperforming the S&P 500v(NYSEARCA:SPY) by a wide margin.

First of all, it is worth pointing out the great advantages of buying stocks and holding them for decades. Investors who follow this strategy save thousands of hours from monitoring their holdings, as they do not need to follow every piece of information that is relevant to their holdings. Moreover, they avoid the stress and the potential mistakes, which are inevitable when a portfolio is churned on a regular basis. In addition, they minimize the cost of commissions and fees, which may seem innocuous but have a significant impact on long-term returns. Therefore, if some investors can achieve their desired returns by holding their stocks for decades, they should certainly pursue this strategy.

However, while this strategy has worked perfectly for a limited number of stocks in the past, there is no guarantee that it will keep working forever. Most Greek investors applied this strategy on Greek stocks, especially the four largest banks, which had an exceptional growth record and had always rewarded their long-term shareholders, regardless of their investment horizon. People would keep their shares in the drawer and would not open the drawer for the next 20 years. Well, unfortunately the country went bankrupt and hence all the major Greek banks have implemented 2-3 extremely dilutive secondary offerings during the last 7 years. Consequently, the shares have essentially gone to zero. While some investors will claim that the shareholders of Greek banks did not do their homework, it is important to note that everything is obvious in retrospect but really difficult to predict in advance. Holding shares of Greek banks was the most guaranteed way to achieve great returns for decades.