My error of thought: Buy and Hold – until death do us part?

Buy and hold investors are the gourmets among investors. They sit in the stock market restaurants for a long time and enjoy their securities dish. Quite in contrast to the fast food junkies, who change their food every minute. But how long should the local investor hold on to his meal? “Long”, I replied myself and succumbed to a mistake in thinking.

Things are going downhill. Anyway, we’re thinking long term.

This mantra drones on me as if blaring down from a sky choir. But also worldly Sing-Sang tries to influence: Instagram investment gurus draw chic arrows in charts and, like a Hare Krishna monk in a prayer wheel, mention the advantage of a long, no really very long, therefore really extremely long holding period for securities.

Buy and Hold is almost always broken down to “eternal holding”. And of course, why not? When I look at the charts, that’s a good decision, isn’t it? At least that’s what I thought.

But what if a security loses 30, 40, 50% of its value? It depends, of course. A simple answer would be nice. We’ll take a closer look at that. But what we have to keep in mind is that a 50% loss represents a 100% future performance.

Back and forth empties pockets. Buy and Hold can do that too.

The constant buying and selling of securities is a killer of returns. But don’t worry, buy and hold can do that too. Example: A buy and hold investor buys the company XY. XY is doing well, and for several years – let’s say 10. After 10 years it comes to a loss of 30% of the value. The buy and hold investor now thinks that this is not so bad anyway, because in the long run everything will be fine.

Of course, a loss can be a correction or something. But what if not? And here was my error of thought. If a company suffers such losses, I can keep it going or take a closer look at the facts. Because it can also be that the company is in difficulties. Then the question is: What are the opportunity costs? We cannot be clairvoyant, but we can at least determine the subjective probability of how the company will proceed.

In plain language, this means that even as a buy and hold investor, it makes sense to sell before the personal expiration date. It is also important to have a strategy ready for such cases. I ask myself the following questions:

  • Which losses do I accept?
  • Is this due to the company itself and why?
  • Selling is also allowed

For me, buy and hold has always meant that everything is good in the long term. That can be the case. It is important, however, to evaluate the company critically in the event of losses and to ask oneself whether it is really sustainable to stick to it. Because a ship with a small leak will eventually sink.

 

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