Buy and Hold Strategy For The Long Term...Rethink again

So what does the term buy-and- hold really mean? How long does one hold to consider oneself such an investor? Frankly, its just an academic jargon which is of no use debating over. Life is larger than this. We were reading up on Marc Faber cos he looks abit like Hannibel Lector in the movie and also because he said that it is a myth that stock markets go up generally in the long run. So well.. this guy is a smart guy..having gotten his PHD in economics at age 25 and having so much experience in the money markets of the world.....his comments is at least worth some consideration. Besides, conventional wisdom says that when one is young, start investing in equities as in the long run, equities in general rises. One can see this is by clicking on the charts for the DJIA (Dow Jones Industrial Average Index).

Taken from the book below......

" The average life expectancy of a multinational corporation-Fortune 500 or its equivalent-is between 40 and 50 years. This figure is based on most surveys of corporate births and deaths. A full one-third of the companies listed in the 1970 Fortune 500, for instance, had vanished by 1983-acquired, merged, or broken to pieces. Human beings have learned to survive, on aver-age, for 75 years or more, but there are very few companies that are that old and flourishing. "

And this research is based on Fortune 500 companies which are considered blue chips and therefore relatively considered less risky than those mid-cap or small- cap stocks. Its quite scary to think whats the average lifespan for mid-cap or small cap stocks then.....10-30 years? Therefore, it is imperative that one researches the stocks thoroughly before buying, instead of just buying many different stocks after a surface read-up on the company, in the guise of the oft-used word of "diversification".

Serves to remind one also to allocate at least 2-3 times a year to rebalance and relook at ones portfolio. Anyway, the authors also did a study on why some select few companies were able to grow beyond the lifespan of a normal company and one of the common factors is the financial prudence of the company management and board.

It terribly irks SGDividends when we receive glossy, thick annual reports every year! Save the money and trees..dudes!

Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team

Why Tempted SGDividends Are Not Investing into US Equities....

Aww man...we like Krafts and General Electric. Why? Do you know that Krafts are the brandowners of Oreo Cookies? Their financial ratios are not outstanding but they did a restructuring just 2-3 years ago which makes sense and we have the gut feeling that Irene B. Rosenfeld is a good leader.( we don't really like it that she is both chairman and CEO though...). How about General Electric?General Electric are beseiged by their GE Capital..but their other divisions are going damn strong. Just click on the links of key developments for GE under Reuters, compare with other companies you think are big and you will understand. But we are not investing in these, neither are we intending to do so( unless something interesting happens). Among many reasons such as the exchange rate risks, the lack of a homeground advantage as Singaporean investors, we just found another reason to not invest in US equities. (If you are trader, yeah think US market is for you...its damn volatile . Investing and Trading are different)

This reason is not new actually..think we read it in a book initially and it makes sense to us. It suggests that the US stock market will not be able to see as good a returns as the past due to the mandatory withdrawal of US citizens of their 401Ks at age 70.5years. Just in case, as a Singaporean and you are not familiar with 401Ks, its like a retirement account, similar to our Singapore Supplementary Retirement Scheme (SRS) which was incepted somewhere in year 2001. Below is a summary timeline of 401Ks..

Let's look at the current population pyramid of US as of year 2009. ( taken from their Censeus Bureaus....don't play play and who says Geography is useless, we will punch you..see how useful it is!)It should be noted that the inception of 401Ks was around year 1978. That means that as of current year 2009, about 31 years have passed, enough time for US citizens to have amassed a large amount of equities or mutual funds and other securities in their 401Ks. Add to that, as can be seen from the population pyramid above, the baby boombers are coming of age. At around 6-10 years time, the currently 60-64 age group would have to begin mandatory withdrawals, which means selling of US securities. Wouldn't this add to the downward pressure on stock market prices?See the fattening of the population pyramid downwards.

Just a minor additional point. The US government temporary suspended the mandatory withdrawal of 401Ks for year 2009 and thereby effectively postponing such withdrawals to a later date, giving the explanation that forced withdrawals in such current environments would cause a realised loss for retirees. That makes sense. But another additional reason, in our opinion, is that it would cause additional downward pressure on US stock prices. Duh.....

So great, all this, baby boomers, postponed mandatory withdrawals should just add to the relatively sub-par performance of the US stock market in the future...don't you think?

Updated in response to the first comment.

A random search brought up this chart by the US Census Bureau. This is showing data in year 2000 and 2002. Let us focus on year 2002.

As can be seen below the amount of stocks and mutual funds US persons are holding are USD20,665. The amount in 401K is USD21,450. So, the amount of 401K is not insignificant. Granted, not all 401K are in stocks....

Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team