Holding Forever?

After Monday’s drubbing, the markets roared back on Tuesday with the major indexes more than cutting their losses in half. The only fly in the ointment was that the rebound occurred on weak volume suggesting that not everyone was convinced that this would be more than a dead cat bounce.

Of course, the big factors behind the comeback were hopes that Congress will approve a rescue package of some sort to bail out the ailing banking system. Only time will tell how this is going play out.

On a different subject, I received an email from reader Jean, who had this question:

Fidelity Advisor VII Technology Fund – T (FATEX) and Franklin Small Mid Cap Growth Fd Class A (FRSGX) are two funds I’ve held for almost 10 years. I keep waiting for them to reach the cost for which I purchased them.

What do you think I can expect from these two funds?

Hmm; she’s held these funds for almost 10 years waiting for a comeback to reach a break even point. Let’s take a look at a long-term chart of FATEX:

I don’t know at what price point Jean bought this fund, but it seems to me that were several opportunities to sell for a profit when the long-term trend lines were crossed to the downside during early 2000.

The problem with this scenario is not Jean’s fund selection but the investment method she employed in the first place, which is Buy and Hold. It’s a fallacy in that there is no clear plan as to when to enter or exit a position. Let’s say you bought in at $20/share, when will you sell? When the price hits $40? Or $60? How about $500? It’s simply ridiculous to expose yourself to the vagaries of the market place in that fashion.

The inevitable result is that even almost 10 years later, her investment is still negative and she’s looking to break even. Both funds are in downtrends right now and should not be held at all.

I suggest to reader Jean to re-evaluate her investment approach and come to terms with the fact that, long-term, buy and hold is nothing but a loser’s game.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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