The Myth of Buy and Hold
by Kim Husebye, CFA, CMT

The above chart of the S&P 500 clearly illustrates the weakness of a buy-and-hold investment strategy.  Investors who have taken this approach have made little or no progress over the last ten years.  When the annual hidden fees in mutual funds are deducted, the results are lower still.  As a matter of fact, since mutual funds were first introduced, the majority has never managed to match or exceed the results of the corresponding index.

In 2008 the average stock mutual fund lost as much as 50%, virtually eliminating all the gains since 2002.  In order just to break-even, the needed gain going forward is 100%, or a doubling.  Doubling one’s money in the stock market is not that common, particularly when employing a buy-and-hold strategy.  The following table shows the danger of allowing your capital to erode.

Active portfolio management seems to be a much more sensible approach, particularly in today’s volatile economic climate.  A portfolio manager who is equally skilled in technical as well as fundamental analysis should be able to protect your capital in bear markets and build profits in bull markets.

This article was originally published at http://www.kimhusebye.com/reports/featurestory.html and is reprinted with permission of the author.

Kim Husebye, CFA, CMT, is licensed as an Investment Advisor and Portfolio Manager in the province of Ontario, and has more than twenty years’ experience in brokerage and investment management. Kim graduated from the University of Toronto with a Bachelor of Science and double majors in Commerce and Applied Mathematics. In 1994 he earned the Chartered Financial Analyst designation (CFA), and in 2006 he earned the Chartered Market Technician designation (CMT). In 2006 Kim attended Investor’s Business Daily Masters Program in Los Angeles, which was taught by Bill O’Neil and six of his top portfolio managers.  In 2007 he successfully passed the associated exam.