2006 August 14 | The Underground Investor

Archive for August 14th, 2006

The Days of Buy and Hold are Over

August 14, 2006 -

Unless your name is Warren Buffet, the days of buy and hold are over. Actually even if your name is Warren Buffet, the days of buy and hold are over. At least they are for the rest of this decade. Buy and hold as a strategy is dead and will get you nowhere for the second half of this decade.

Take a look at the following stats.

The U.S. Indexes

From Oct. 31, 2000 to Jun 16, 2006, the U.S. S&P 500 index went from 1,429 to 1, 256, a loss of 12%.

From Oct. 31, 2000 to Jun 16, 2006, the U.S. Dow Jones index went from 10,971 to
11, 014, a gain of 0.3%.

From Oct. 31, 2000 to Jun 16, 2006, the U.S. Nasdaq index went from 3,369 to 2, 129, a loss of 37%.

The London Indexes

From Oct. 31, 2000 to Jun 16, 2006, the FTSE 250 index went from 6,589 to 9,114, a gain of 38%,

From Oct. 31, 2000 to Jun 16, 2006 the FTSE Techmark100 went from 3,353 to 1,321, a loss of 61%.

The Japanese Indexes

From Oct. 31, 2000 to Jun 16, 2006, the Nikkei 225 went from 14,539 to 14,860 , a gain of 2%.

For the past six years, if you had primarily been invested in the U.S. in portfolios that tracked the major indexes, you would have gained no money, or lost between 12% to 38% of your money. During this same time period if you were invested in the U.K. indexes, you would have gained 38% or lost 61%, or somewhere in between, depending if you were invested in the tech sector or not. Even if you had gained 38%, broken down to annual returns, this return rate is much less impressive return of just over 8% a year. And in Japan, you basically would have made no money over the past six years being invested in the Nikkei 225 index.

Knowing Your History is More Important to Preserving and Creating Wealth Than Fundamental Analysis

August 14, 2006 -

“The central bank is an institution of the most deadly hostility existing against the principles and form of our constitution. I am an enemy to all banks discounting bills or notes for anything but coin. If American people ever allow private banks to control the issuance of their currency first by inflation and then by deflation, the banks that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent that their fathers conquered.” – U.S. President Thomas Jefferson.

“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.” – U.S. President Dwight D. Eisenhower

Two former American Presidents, Thomas Jefferson and Dwight D. Eisenhower, predicted with amazing prescience the development of two situations that they stated would threaten the very liberties and economic well-being of the world. Thomas Jefferson made his statement over two centuries ago, and Dwight D. Eisenhower made his comment almost half a century ago.

One must wonder why these two presidents were so worried about these possible developments that one was compelled to state it would cause a nation’s children to become “homeless” and another was compelled to state it would become a direct threat to “liberties and democratic processes”.