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:

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6 thoughts on “To buy and hold?

  1. 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. 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 🙂

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