Is Buy-And-Hold So Over?

Let’s hope not.

Fortune: That’s about the craziest thing I’ve ever heard!” shouts Jeremy Siegel through the phone when I mention the headline of this story. “I mean, what’s the rationale for anyone saying that?” I had called up the Wharton professor because he’s one of the high priests of buy-and-hold investing. In his classic book, Stocks for the Long Run, Siegel analysed 200 years’ worth of U.S. market returns and concluded that patient, consistent investment in stocks over a long period is the most effective strategy for wealth creation among regular folks.

It’s a message that makes a lot of sense to people under normal circumstances. But lately, of course, the market has been anything but normal.

As Siegel and I were speaking in mid-October, the Dow was down some 39% from its high a year earlier. Investors were taking their money out of equities by the billions. The S&P 500’s 10-year return was -11% (with dividends included, it was up a measly 5%). Plenty of people had suddenly begun to ask themselves whether the idea of long-term investing was a sham.

After the writer goes on a fact finding mission which you can read about here, he comes up with a conclusion. SPOILER ALERT!

…A few days after our initial conversation, I call Siegel back and tell him that I have come up with three reasons why buy-and-hold isn’t dead. The market is even lower, but he is in good spirits. “Look, it’s always painful near the bottom, but the outlook from here is extraordinary for investors,” he says, echoing Malkiel. “I think the important thing is that the question of buy-and-hold comes up at the bottom of every bear market that I have gone through, and I get calls about it, and invariably that proves to be the time when you should own stocks.” Let’s hope history repeats itself.

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