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As if the past few years haven’t been proof enough, the recent plunge in stock prices may finally shut up the chorus of buy and hold investing proponents.  I’ve been saying it for a long time, but maybe hitting people in the pocketbook is the only way to make them understand.

Buy and hold is dead.  It has been dead since the tech bubble popped in 2000, but people just didn’t realize it because Alan Greenspan created the real estate bubble to replace it.

When the S&P 500 index peaked at 1527 in March of 2000, it took until May of 2007 to see those levels again.  7 years of “experts” preaching “buy and hold”, “stay in stocks for the long term”, “you need to be fully invested in stocks if you’re a long term investor”, etc, etc, etc.

The amazing part is that people listened to the “experts” – and followed their advice for 7 years of negative returns on their money.  I’ll put it another way.  If you put $1000 into the stock market in 2000, you didn’t break even until 2007.  0% return.

If you put $1000 into the stock market before or after 2000, you might have had some return on your money depending on when you invested, but you didn’t have much.

With the market close today, you’ve lost money if you bought into the stock market at anytime since April of 1997.  I’m no math wizard, but I know this is February, 2009, and April 1997 was 12 years ago.  That’s a long time to wait just to break even.

Since the late 80’s, I’ve followed a simple strategy that the “experts” kept saying was a losing strategy – I buy when the 75 day EMA crosses above to 200 day EMA, and I sell when the 75 day EMA goes under to 200 day EMA.

It’s an extremely simple strategy for long term investments like 401k’s and other IRA’s.  You don’t move in and out of the market very often, but you’re in the market when stocks are rising, and you’re out when they’re falling.

As a result of following this strategy, I got out of stocks in January of 2008 when the S&P 500 was still over 1300.  I didn’t get faked out by the false bottoms during 2008, and I’m still in cash and bonds.  My money is just setting there, waiting until the 75 day EMA turns back up and crosses over the 200 day EMA.

This strategy will beat the snot out of buy and hold, and it’s extremely easy to follow.  You can check out a chart of it here on Yahoo Finance.

Maybe the “experts” will finally shut up – or better yet – maybe people will learn to make their own decisions about investments.  When you do, don’t be surprised if you start realizing that the “experts” also don’t understand capitalism and free markets.  Read other posts in this blog if you’re curious about those subjects.

gk

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I just read a great article on FEE.org entitled Less than Nothing that explains why the federal government should have nothing to do with managing the economy.  But the article goes further and explains that it’s now too late to simply do nothing – we need to undo the existing policies which brought us to this point.

In other words, we need to get the government out of the way and let the people run the economy again.  Please read the article – it’s short and won’t take long.

Be sure to check out the rest of FEE.org.  FEE stands for Foundation for Economic Education, and there are a lot of excellent articles on the site.  There’s even a special FEE edition of the Henry Hazlitts’ classic “Economics in One Lesson” available online – so you don’t even need to buy it.

But I encourage you to buy a copy anyway.  maybe you can give it to your Senator or Representative after you’ve read it.  Here’s a link to it on Amazon: Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics

gk

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I read this a few minutes ago from yesterday’s DailyReckoning.com.  It’s an excellent article by Doug Casey.

I’m going to quote a few paragraphs from his article (linked above) and highlight a few items which tie into my diatribe about savings yesterday.

“The things they’re doing are not only unproductive, they’re the exact opposite of what should be done. The country got into this mess by living beyond its means for more than a generation. That’s the message from the debt that’s burdening so many individuals; debt is proof that you’re living above your means. The solution is for people to significantly reduce their standard of living for a while and start building capital. That’s what saving is about, producing more than you consume. The government creating funny money – money out of nothing – doesn’t fix anything. All it does is prolong the problem and make it worse by destroying the currency.

Over several generations, huge distortions and misallocations of capital have been cranked into the economy, inviting levels of consumption that are unsustainable. In fact, Americans refer to themselves as consumers. That’s degrading and ridiculous. You should be first and foremost a producer, and a consumer only as a consequence.

In any event, the government is going to destroy the currency, which will be a mega-disaster. And they’re making the depression worse by holding interest rates at artificially low levels, which discourages savings – the exact opposite of what’s needed. They’re trying to prop up a bankrupt system. And, at this point, it’s not just economically bankrupt, but morally and intellectually bankrupt. What they should be doing is recognize that they’re bankrupt and then start rebuilding. But they’re not, so it’s going to be a disaster.

And that’s just a few paragraphs.  Read the rest of it.  If you happen to think that our government is doing the right thing by propping up bad companies, you’ll most likely not agree with Mr. Casey’s article – but hopefully it will open your eyes a bit to the fact that Keynes didn’t get much right after all.  Maybe it will allow you to think about production vs consumption, and enable you to learn something.

gk

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