To buy and hold?

I’m not posting this video just because of the historical interest (to that end, Phil Town – of Rule #1 Investing fame, and supporting actor in a recent post – does advise to “get the heck out of the market”) as it aired on August 17, 2007 … but because of the explanation that Phil Town gives about how Rule # 1 is NOT about buying and holding … equally, it’s NOT about trying to time the market, but it IS about:

1. Finding a quality stock that is ‘on sale’ (as MANY stocks are right now), and

2. Moving in / out when the ‘Big Guys’ do (i.e. when the major mutual funds buy or sell huge quantities of your favorite stock/s).

The major mutual funds control the short term price of stocks as they decide to move in/out of positions; the Rule # 1 investor takes advantage of this by buying into – or selling out of – a stock that they would otherwise be willing to buy/hold …

… but, the Rule # 1 investor has one advantage: they can buy into / sell out of a stock in the time it takes them to log into their online trading system (eg E*Trade, Scottrade, etc.) and press the BUY/SELL button.

The mutual funds, on the other hand, can take weeks to buy into / sell out of a major position for fear of causing a major price correction if they move their huge volume of stocks too quickly.

Warren Buffett has commented on this advantage of the small investor:

During a shareholders meeting in 1999, Warren Buffett lamented that he could generate 50% returns if only he had less money to invest.

I’d even accept a paltry 25% return … how about you?

PS If you’re interested in learning more about Rule #1 – but, are not yet ready to buy the book – then listen to these podcasts: http://www.philtown.com/podcast/

6 Responses to “ To buy and hold? ”

1. Steve says:

   April 12, 2009 at 7:45 pm

   this strategy of moving into and out of stocks that the majors are either moving into and out of might be sound advice for those who trade, but I suspect ,not so good for those with a buy and hold strategy.A better idea there would be to move into sound companies (watch them periodically) and if something changes fundamentally, perhaps then would be a good time to think about getting out, otherwise hold on to it)….
2. Joshua says:

   April 13, 2009 at 11:46 am

   Alright, I’m going to finally read this guys book.
3. Dana says:

   April 13, 2009 at 1:17 pm

   What a problem to have huh? If we were Warren Buffet and had too much money to invest. For investors with such large sums, I guess their problem is not having enough worthwhile assets to invest in. Good thought
4. The Dean of Wall Street « How to Make 7 Million in 7 Years™ says:

   April 17, 2009 at 7:41 am

   [...] Phil Town reportedly turned $1,000 into $1,000,000 using Grahamesque ‘value investing/trading’ techniques, and Warren Buffett created a $40+ Billion monolith using similar techniques … and Graham himself made millions. And, studies have shown that this is due to skill, not luck (as is the case for most successful ‘businesses’). [...]
5. Does technical analysis even work? « How to Make 7 Million in 7 Years™ says:

   May 11, 2009 at 3:46 am

   [...] might be a little surprised to know – given my recent posts, apparently condoning technical analysis a lá Phil Town – that I tend to agree with [...]
6. A couple of reader e-mails …- 7million7years says:

   August 27, 2010 at 12:20 am

   [...] But, I do admit with great shame that I have ‘recycled’ material from Robert Kiyosaki, Michael Masterson, and Phil Town [...]