Buy-and-hold evidence can be misleading

You’ve heard all the nonsense from the mainline advisers and brokers. They say a buy-and-hold approach is the answer, the
market always comes back, and diversified investing is the key to long-term success. They show some chart demonstrating every
rolling 20-year period is higher and, therefore, you’re supposed to just stay the course.

You are starting to get the sense that it’s all bull. Here’s why.

Markets, even great ones like American equities, can spend long periods of time doing nothing or going down. There is not
one exception to this in all of human history. Those rolling 20-year charts might look good on a marketing piece from Joe’s
Wealth Shop, but they are totally dependent on when you begin the 20-year period.

A chart that starts in August 1929 looks vastly different from one that began in May 1932. Or, more recently, a much different
result appears when starting in September 1987 vs. November 1987. Just about any money put into the stock market in 1928 or
1929 did not begin to see a positive rate of return for 15 years or longer. And only a few weeks ago, the Dow Jones industrial
average was trading at the same level it was at in 1997.

The challenge of long-term sustainable success holds true even for those highly venerated investors whom we seem to think
of as untouchable. The great Warren Buffet had a tremendous run from 1974 until the mid-1990s. His stock, Berkshire Hathaway,
has demonstrated a different track record over the last 10 years or so, recently trading at the same level it was at in the
middle of 1998. Even after a five-week rally that has seen the market go up more than 20 percent, Berkshire is still down
more than 40 percent from the all-time high it hit in November 2007. That is obviously a train you should have left quite
some time ago.

I keep three charts on my desk at all times. One is a picture of the U.S. stock market from 1980 until 2000. The second is
the U.S. stock market from 1970 until 1982. The third is the Japanese market from 1990 until today. These are reminders as
to the only three things stocks ever do: They can go up (1980-2000), they can go sideways (1970-1982), or they can go down
(Japan).

Those are the only things stocks can ever do. They can’t hire or fire people. They can’t pay dividends or borrow money.

Take the three possible outcomes, assign a probability level to each one for the next 10 years and, then, rank them. If you
have 1980-2000 as your highest probable outcome for the next decade, you and I are looking at different fact sets.

Of the three possibilities, general upward movement of stocks over the next decade is the least likely outcome. I actually
assign an equal probability to the other two events, but either one is going to make minced meat out of traditional investing
methods. This means that for anyone over the age of 52, and that is a majority of investors, buy-and-hold is dead to you.
You have to do something different.

The rally that kicked off in early March should still have some life. I would stay with the same areas I mentioned back then—semiconductors
and select big-cap technology.

Due to this likely being a bear-market rally as opposed to the early stages of a new bull market, use smaller capital amounts
and be ready to bail in the coming weeks or months. More likely than not, a solid long-term buying opportunity will present
itself sometime later this year.

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Hauke is the CEO of Samex Capital Advisors, a locally based money manager. Views expressed here are the writer’s. Hauke can
be reached at 203-3365 or at keenan@samexcapital.com.