In my last post, I exposed the undeniable human traits that hold you back from making smarter and better investment decisions. My goal was to empower you with the tools necessary to identify WHY you are making the trading/investment choices that you are making.
Most of the questions and comments I received revolved around one specific self-sabotaging human trait that I believe is responsible for a lot bad investment decisions: communal reinforcement.
To refresh your understanding, communal reinforcement is a strong belief that is formed when a claim is repeatedly asserted as fact, rather than due to the existence of empirical evidence for the validity of the claim. One working example of communal reinforcement is the theory that buying and holding investments for the long term works.
For decades you and I have been told over and over again that buy and hold investing works. But what if this wasn’t true? What if buy and hold is really buy and hope? Well, being the natural skeptic that I am, I have yet to uncover any real evidence proving that buy and hold has worked (unless you want to wait for decades).
Rather, I’ve uncovered evidence proving quite the contrary to what Wall Street and lazy advisers want us to believe.
Take the Japanese stock market as an example. Some 23 years ago, the Nikkei hit an all-time high of 38,916. More than two decades later, the Nikkei sits at a paltry 8,459. That’s a drop off of 78 percent. Do you think the Japanese believe that buy and hold works after waiting patiently for 23 years?
Now consider something a little closer to home: the Nasdaq. Toward the beginning of 2000, the Nasdaq closed at 5,048. Now more than 12 years later, it’s only “worth” 2,858, for a total return of -43.3 percent over the long term.
Do you still believe that buy and hold works? Or is it simply a tool that brokers/advisers use to get you to accept poor results?
Robert Russell is CEO & CIO of the Ohio-based Russell & Company, a private wealth management firm specializing in helping affluent individuals ages 45 and up create and preserve their wealth. He co-hosts a radio show, authors The Rob Report blog, and is a frequent contributor to FOX Business and CNBC.
Securities offered through Kalos Capital, Inc., Member FINRA, SIPC. Investment Advisory Services offered through Kalos Management, Inc., 3780 Mansell Rd. Suite 150, Alpharetta, GA 30022, (678) 356-1100. Russell & Company is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.