Because we've had some, uh..., debates about the strategy of buying and holding, I thought I'd post the following piece from the Cabot Heritage Newsletter...
"Consider the words of wisdom found in that classic investment book, "Reminiscences of a Stock Operator," which profiled the life of Jesse Lauriston Livermore. First published in 1923, the book recounts the gaining and losing, several times over, of millions of dollars (back when millions were real money!)
He writes, "After spending many years in Wall Street and making and losing millions of dollars I want to tell you this: It was never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight! Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market your game is to buy and hold until you believe that the bull market is near its end."
We agree wholeheartedly. The big money is made by the patient holders, not the impatient buyers and sellers. Sure, when you sell a stock in which you have a profit you reward yourself. But you also reward the broker with your commission and maybe the taxman as well. More important, you automatically forgo any future appreciation in that stock. And as we know from the huge long-term successes of stocks like Amazon, EMC, Microsoft, Qualcomm and Yahoo, these long-term profits can be stupendous.
So next time you're tempted to play a short-term trend, ask yourself if it's really worth it. Even better, look back over the trades you've made in the past year, and analyze whether simply holding would have been better. We believe you too will agree with Jesse L. Livermore that sometimes the best course of action is inaction."
copyright 1999 Cabot Heritage Corporation |
