The rising level of market volatility as 2011 comes to a close seems to be bringing with it a return of doubts about “buy and hold” investing that became a fixture of investment debate in the market crash of 2008.
In a letter to clients released Monday, Hussman Funds manager John Hussman opined that what he described as a “near 100%” chance of recession combined with rich market valuations suggested investors would be prudent to sell risky assets now to beat the rush. Investors committed to a buy-and-hold should do so only after making “a conscious and deliberate” choice, he warned.
Billionaire Mark Cuban, owner of the NBA’s Dallas Mavericks, put it less delicately in an interview with The Wall Street Journal in September, when he said “buy and hold is a crock of s***.” Cuban was rebuked by no less a personage than John Bogle, known as the father of index funds, who told The Journal that investors, collectively, are inherently buy and hold creatures: “For instance, if I sell my shares of Microsoft (although I’ve never owned it) and you buy them, the world is unchanged.”
But even Bogle delimited the principle of buy and hold, explicitly rejecting the stocks-only approach with which the strategy is best known: “But what do you mean by buy and hold? Do you mean buy and hold stocks? I would say don’t do that. I would say buy and hold stocks but buy and hold some bonds as well. Call it having a bit of dry powder to protect you from your own emotions.”
Other investment professionals are chipping away at buy-and-hold investing from other perspectives. Kristof Bulkai, manager of the Thames River Global Emerging Markets Absolute Return Fund, writes in Monday’s Daily Telegraph that buy and hold is a losing strategy for commodities investors:
“Commodities do not produce income, they cost money to store, and when the price is high enough, invite substitutes to take their place. For these reasons, ‘buy and hold investors’ in most commodities do not make money over the long run, and the inflation-adjusted return of most commodities is in fact negative over the past century.”