2009 November 05

I’ve posted (in two parts) an article entitled Buy-and-Hold Is Dead — These Studies Prove It! to the Valuation-Informed Indexing section of the site.

Juicy Excerpt: Buy-and-hold is dead. The Stock-Selling Industry has made millions promoting it. But buy-and-hold investing cannot survive the wealth of academic research showing that long-term timing always works.

The Stock-Selling Industry has long promoted the dangerous idea that it is okay for investors to stick to a single stock allocation at all price levels by pointing to academic research showing that short-term timing (changing your stock allocation with the expectation of seeing a benefit for doing so within six months or a year) never works. However, the same historical data that shows that short-term timing never works also shows that long-term timing (changing your stock allocation in response to big price swings with the understanding that doing so may not yield benefits for five years or even as long as ten years) always works. Thus, it is every bit as accurate a statement to say that “timing always works” as it is to say that “timing never works.” Which statement holds depends on what form of timing it is that you are employing.

Set forth below are links to 20 stock valuation studies either showing directly that long-term timing works or showing that valuations affect long-term returns and thereby suggesting that long-term timing must work (if valuations affect long-term returns, it obviously does not make sense to go with the same stock allocation at dramatically different valuation levels).