The tech boom of the late 1990s and very early 2000s made day trading a household term. Before the days of cheap stock trades and even cheaper real-time information, buy and hold was the norm. For regular folks, buying and selling stocks during the day was both expensive and fruitless because you didn’t know the exact price (you just called your broker to fill an order) and you wouldn’t until the next day, when it was printed in the newspaper. The internet changed all that.
However, buying and holding is still the smartest strategy, despite lower transaction costs, because the vast majority of people are terrible at picking stocks. We don’t do enough research, we aren’t as knowledgeable about a company as we should (it takes more than reading their income statement and balance sheet – a lot more), and we aren’t able to research as much companies as we should (we should know the company, it’s competitors, it’s suppliers, it’s distributors, it’s regulatory environment, etc.). We have day jobs!
I came to this realization because I’ve been reading Crossing Wall Street for at least a year. It’s written by Eddy Elfenbein, a self-proclaimed stock market addict and named by CNN/Money as the best buy and hold blogger. His “thing” is his annual Buy List of stocks that he changes once a year and frequently puts up against the S&P500. He’s beaten the S&P500 each of the last four years and his site, and his list, is completely free (so no “fee” so to speak).
All that is well and good but when you read his posts, and his email newsletter, you’ll probably realize how little you know about the companies you own. He has an uncanny way of predicting a company’s earning’s results and is rarely surprised (if there is every a surprise, it’s usually with annual projections or some other surprise), which is a sign that I don’t know enough!
One example, his buy list, doesn’t necessarily “prove” that Buy and Hold investing works but it certainly doesn’t hurt when you have a well informed person making up that list. (I don’t have anything patterned about the Buy List, I do own a few companies on it, but I do like reading his posts – and he responds to email)