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. The crash of 2008 and the market's sub-par returns
over the last decade have made investors question many of 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
gains in the last three years.
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
'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
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. And all of the successful
practitioners of this approach stay well informed of what is going
on with each of their holdings.
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The Zacks Top 10 portfolio features long-term stocks handpicked to
outperform the market in the coming year. Despite the highs and
lows of this year, the Top 10 Stocks for 2012 portfolio nearly
tripled the S&P 500 with a +29.3% gain versus +11.1% returned
by the S&P 500 from January 19 through November 30, 2012.
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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
necessary, starting point to 'knowing' it 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 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.
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 here 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
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 our "Zacks Top 10
Stocks" portfolio. We are about to come out with the
Zacks Top 10 Stocks for 2013.
We construct this portfolio by first taking a look at the economic
and earnings outlook and what that means for stocks. 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.
How Did It Work?
In 2012, we had a phenomenal +29.3% return through the end of
November, way ahead of the +11.1% performance of the S&P 500
I personally selected the
Zacks Top 10 Stocks for 2012
and look forward to helping you achieve market-beating returns in
2013 as well.
The investment landscape is never easy to navigate, but the
situation has become particularly challenging given the uncertain
backdrop on the home front as well as abroad. Rest assured,
however, that the stocks we have picked for 2013 fully take into
account the opportunities and challenges waiting for us in the New
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
Top 10 Stocks for 2013
portfolio, the more you figure to gain. Plus, you will be well
positioned to withstand any market uncertainty with fewer worries
in the year ahead. Be among the first to get in on these
best-of-the-best stocks before they're released on January 2.
Subscribe to Zacks'
Top 10 Stocks for 2013
Thanks and prosperous trading,
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 for 2013 report.
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