Rumors of the demise of 'buy & hold' investing are greatly exaggerated, to say the least.
Purveyors of market timing would like us to believe that this investment strategy is no longer relevant to the current uncertain environment.
Market sentiment has improved since the election, with many hoping for the post-election momentum to continue into the New Year and beyond. But many individual investors still remain hesitant to get back in the fray, with memories of the last market crash making them question their long-held beliefs, including the virtues of 'buy & hold' strategies. This shows up in weak money flows into equity mutual funds, which have yet to fully reverse despite the market's strong recent gains.
But long-term investing, particularly a 'buy & hold' approach, remains as relevant today as it ever has been. And notwithstanding naysayers' claims to the contrary, empirical evidence continues to show the long-term superiority of a 'buy & hold' strategy over any other investing approach.
But to adequately benefit from this tested and proven strategy, investors need to guard against three major pitfalls. Here they are:
1) 'Buy & Hold' Doesn't Mean 'Buy & Forget'
Staying engaged with your portfolio is a must. Investing for the long run doesn't mean that you lose sight of developments in your portfolio. The 'buy & forget' mantra is a simplified take on the typically long holding horizons of investment icons such as Warren Buffett.
Buffett may be in the habit of keeping his investments for the long term, but he stays fully tuned into what's happening in each of his holdings. While the Oracle of Omaha is no doubt one of the most successful and famous exponents of the 'buy & hold' investing approach, he is by no means the only one. All of the successful practitioners of this approach stay well informed of what is going on with each of their holdings.
More . . .
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Notification of Release: Zacks Top 10 Stocks for 2017
The Top 10 Stocks for 2017 portfolio brings you 10 steps closer to a strong start in the New Year. That's because this 'buy & hold' opportunity perfectly positions you for market-beating gains no matter the direction the market heads. In fact, from January 2012 through September 2016, this portfolio has nearly doubled the S&P 500 with a total gain of +161%. And we anticipate building on our success in 2017.
Today is your chance to get in on the ground floor of these 10 ripe profit opportunities when they're released on Tuesday, January 3.
Be first to see them >>
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2) Don't Fall for the 'Buy What You Know' Mantra
Guard against the simplistic beauty of the 'buy what you know' mantra; another one of those skin-deep lessons learned from Warren Buffett's investment style.
Adherents of this 'philosophy' load up on stocks from a bunch of companies whose products they use. And then they keep those stocks forever, a la Buffett who has famously hung onto his investment holdings for years.
Being familiar with a company's product(s) is a useful, but not a necessary, starting point to 'knowing' the stock as an investment opportunity. The decision to buy the company's stock should follow a thorough, due diligence process that gives you a solid appreciation of the company's prospects, competitive position and the proper value of its stock.
In fact, studies show that people have a crippling blind spot when it comes to stocks that they think they know. Too often they will overlook the negatives of the firm because they have fallen in love with the stock. Love is nice in your personal life, but there is no place for passion and emotions while evaluating stocks.
3) Stick With a Plan
Avoid haphazardly or randomly filling your portfolio with stocks you like. Always build your portfolio around an investment outlook and stay ready to make adjustments should that outlook change.
I am not suggesting that you need to have an elaborate and explicit outlook for GDP growth in the next quarter or year, but you absolutely need to have a base-case sense for the economy and the market.
If you expect a major economic downturn in the coming 12 - 18 months, your choice of investments would be very different from someone looking forward to a goldilocks-type scenario.
And you must stay nimble and flexible enough to adjust your positions should your outlook change.
Putting It All Together
Please keep each of these pitfalls in mind while putting together your stock portfolio to increase your odds of success. Note that we here at Zacks have been successfully managing an annual 'buy & hold' portfolio for many years. We call it Zacks Top 10 Stocks, a portfolio featuring 10 stocks I personally select and then actively monitor on your behalf. We are about to come out with Zacks Top 10 Stocks for 2017.
We construct this portfolio by first taking a look at the economic and earnings outlook. Then we narrow in on the industries that we believe will outperform and stay away from the others. From there, we use our proprietary stock-rating system to help select the best stocks in those favorable groups. The Zacks Top 10 portfolio for 2016 returned +12.9% through December 15th, which followed double-digit returns in each of the preceding three years.
The New Year brings a host of challenges and opportunities for the investing public. But rest assured that the stocks we have picked for 2017 fully take into account what lies ahead.
The best way to tap into this long-term investing opportunity is to get in on the ground floor. After all, the sooner you invest in Zacks Top 10 Stocks for 2017, the more you figure to gain. Be among the first wave of investors to this new list of stocks when it releases on Tuesday, January 3.
Get access to Zacks Top 10 Stocks for 2017 now >>
Happy Investing,
Sheraz Mian
Sheraz Mian is the Director of Research. He determines which valuable data to use to assess winning stocks and funds. He is a contributor for Zacks Equity Research and Earnings Analysis, and is also the Editor of Zacks Top 10 Stocks.
Image: Bigstock
Avoiding the 3 Pitfalls of 'Buy & Hold' Investing
Rumors of the demise of 'buy & hold' investing are greatly exaggerated, to say the least.
Purveyors of market timing would like us to believe that this investment strategy is no longer relevant to the current uncertain environment.
Market sentiment has improved since the election, with many hoping for the post-election momentum to continue into the New Year and beyond. But many individual investors still remain hesitant to get back in the fray, with memories of the last market crash making them question their long-held beliefs, including the virtues of 'buy & hold' strategies. This shows up in weak money flows into equity mutual funds, which have yet to fully reverse despite the market's strong recent gains.
But long-term investing, particularly a 'buy & hold' approach, remains as relevant today as it ever has been. And notwithstanding naysayers' claims to the contrary, empirical evidence continues to show the long-term superiority of a 'buy & hold' strategy over any other investing approach.
But to adequately benefit from this tested and proven strategy, investors need to guard against three major pitfalls. Here they are:
1) 'Buy & Hold' Doesn't Mean 'Buy & Forget'
Staying engaged with your portfolio is a must. Investing for the long run doesn't mean that you lose sight of developments in your portfolio. The 'buy & forget' mantra is a simplified take on the typically long holding horizons of investment icons such as Warren Buffett.
Buffett may be in the habit of keeping his investments for the long term, but he stays fully tuned into what's happening in each of his holdings. While the Oracle of Omaha is no doubt one of the most successful and famous exponents of the 'buy & hold' investing approach, he is by no means the only one. All of the successful practitioners of this approach stay well informed of what is going on with each of their holdings.
More . . .
------------------------------------------------------------------------------------------------------
Notification of Release: Zacks Top 10 Stocks for 2017
The Top 10 Stocks for 2017 portfolio brings you 10 steps closer to a strong start in the New Year. That's because this 'buy & hold' opportunity perfectly positions you for market-beating gains no matter the direction the market heads. In fact, from January 2012 through September 2016, this portfolio has nearly doubled the S&P 500 with a total gain of +161%. And we anticipate building on our success in 2017.
Today is your chance to get in on the ground floor of these 10 ripe profit opportunities when they're released on Tuesday, January 3.
Be first to see them >>
------------------------------------------------------------------------------------------------------
2) Don't Fall for the 'Buy What You Know' Mantra
Guard against the simplistic beauty of the 'buy what you know' mantra; another one of those skin-deep lessons learned from Warren Buffett's investment style.
Adherents of this 'philosophy' load up on stocks from a bunch of companies whose products they use. And then they keep those stocks forever, a la Buffett who has famously hung onto his investment holdings for years.
Being familiar with a company's product(s) is a useful, but not a necessary, starting point to 'knowing' the stock as an investment opportunity. The decision to buy the company's stock should follow a thorough, due diligence process that gives you a solid appreciation of the company's prospects, competitive position and the proper value of its stock.
In fact, studies show that people have a crippling blind spot when it comes to stocks that they think they know. Too often they will overlook the negatives of the firm because they have fallen in love with the stock. Love is nice in your personal life, but there is no place for passion and emotions while evaluating stocks.
3) Stick With a Plan
Avoid haphazardly or randomly filling your portfolio with stocks you like. Always build your portfolio around an investment outlook and stay ready to make adjustments should that outlook change.
I am not suggesting that you need to have an elaborate and explicit outlook for GDP growth in the next quarter or year, but you absolutely need to have a base-case sense for the economy and the market.
If you expect a major economic downturn in the coming 12 - 18 months, your choice of investments would be very different from someone looking forward to a goldilocks-type scenario.
And you must stay nimble and flexible enough to adjust your positions should your outlook change.
Putting It All Together
Please keep each of these pitfalls in mind while putting together your stock portfolio to increase your odds of success. Note that we here at Zacks have been successfully managing an annual 'buy & hold' portfolio for many years. We call it Zacks Top 10 Stocks, a portfolio featuring 10 stocks I personally select and then actively monitor on your behalf. We are about to come out with Zacks Top 10 Stocks for 2017.
We construct this portfolio by first taking a look at the economic and earnings outlook. Then we narrow in on the industries that we believe will outperform and stay away from the others. From there, we use our proprietary stock-rating system to help select the best stocks in those favorable groups. The Zacks Top 10 portfolio for 2016 returned +12.9% through December 15th, which followed double-digit returns in each of the preceding three years.
The New Year brings a host of challenges and opportunities for the investing public. But rest assured that the stocks we have picked for 2017 fully take into account what lies ahead.
The best way to tap into this long-term investing opportunity is to get in on the ground floor. After all, the sooner you invest in Zacks Top 10 Stocks for 2017, the more you figure to gain. Be among the first wave of investors to this new list of stocks when it releases on Tuesday, January 3.
Get access to Zacks Top 10 Stocks for 2017 now >>
Happy Investing,
Sheraz Mian
Sheraz Mian is the Director of Research. He determines which valuable data to use to assess winning stocks and funds. He is a contributor for Zacks Equity Research and Earnings Analysis, and is also the Editor of Zacks Top 10 Stocks.