Many prudent investors follow a “buy and hold” investing strategy. They eschew market timing, i.e. buying and selling based on fundamental analysis, valuation, technical analysis, chart reading or the macro economy. After all, no one has the ability to predict the future, at least not well enough to consistently make above average return.
And the “stay the course” philosophy has blessings from academia and sound theoretical underpinnings in Modern Portfolio Theory (MPT).
Or does it?
Below is a link to an interview with Harry Markowitz, the father of Modern Portfolio Theory.
‘Buy and hold’ investing often misapplied by Gail MarksJarvis.
Markowitz developed MPT in the 1950s and won a Nobel Prize for it. But what are is thoughts about buy and hold? Here is a quote from the article:
As it turns out, Markowitz said, “I’ve never been a buy and hold guy,” and he thinks his “modern portfolio theory” has been misapplied into naively staying the course when deeper analysis is warranted.
Hmm. I recall a story.
The Tale of the Novice Monk
A novice monk named Thelonius entered the monastery. All the monks took vows of poverty, were unmarried, celibate**, etc. They generally led rather ascetic lives and worked as scribes, writing out the text of the Bible longhand.
As part of his novitiate, Thelonius was handed a copy of the Bible by the Head Abbot.
The Head Abbot said: “Here is a Bible that was transcribed by Brother Mark. You are to copy it word-for-word, exactly as written.”
Thelonius asked: “Very well. But suppose I were to make a mistake when I copying it. After all I am only human and not divine. And suppose Brother Mark’s transcription has an error, since Brother Mark is only human as well. I will copy Brother Mark’s error and it will propagate to further generations of Bible that monks transcribe from my copy.”
The Head Abbot thought for a minute. Then he said: “You are correct, Brother Thelonius. I will take Brother Mark’s copy and check it against the original manuscript we have stored in the catacombs below the monastery.”
So the Head Abbot, who bore an uncanny resemblance to Homer Simpson, went down into the catacombs with Brother Mark’s manuscript. After a while there was heard a load moan from the catacombs.
The Head Abbot called out: “The word is celibrate! cel-i-BRATE!”
DOH!
**Cel-i-bate
(n.) one who abstains from sexual intercourse, especially by reason of religious vows.
(adj.) abstaining from sexual intercourse, especially by reason of religious vows.
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