7 Steps to Timing a Buy and Hold Strategy that Works

Right now the managed fund industry is still in denial that “buy and hold” has failed and will always fail in the long run. Or should I say it will fail every 5-7 years as the funds run up stock prices to unsustainable levels.

This is your opportunity to play a winning hand by “timing a buy and hold strategy” for money you won’t need for the foreseeable future. Is that an oxymoron? Most financial guys will tell you it is.

Even if the stock market didn’t cause its own downfall this time around there was too much paper profit on the table when the sub prime rumors started.

Turning paper profits into real money in your bank is impossible if everyone is invested in the same things and tries to sell at the same time. That’s the flaw their models keep ignoring. They have no exit strategy.

Aggressive buying sending the markets up and then an “event” causing fund managers to panic sell driving the prices down. The result will always be the decimation of your nest egg.

If they can convince you to “buy and hold” while they trade like hell to recover your losses and repeat their silly investment strategy every 5-7 years, then since there is an upward bias in the stock market, over the lllloooonnnnngggg term you might make a profit.

This philosophy gets screwed up when the 5-7 year dip becomes a major bear market like now, and destroys all previous hard-earned paper profits.

I say paper profits because they are not REAL until you CASH OUT those paper profits. If they are not in your hot little hands you should not count them as real.

Despite my belief that “buy and hold” is a flawed strategy there are times when it makes sense 😉 Here’s my 7 step strategy for timing a buy and hold strategy.

First you should have money to invest that you know you will not need for several years. Or only invest 10% of your nest egg this way. Money left in the markets with no stop loss strategy is seriously at risk.

Second you need to have a bear market where stocks have fallen significantly so the downside risk is reduced. A market falling 50% is a good place to start.

Third you need to use another strategy I don’t like most of the time and that is dollar cost averaging into the markets on a monthly or weekly basis until you are fully invested with the money you do not need to live on.

Fourth you need to invest in blue chip stocks with no or low debt and “honest management” if that is possible. ETFs and Indexes are a safer option. You are not looking for wind-fall profits only steady returns. Greed is not good in retirement.

Fifth you just have to sit tight and wait, 1, 2, 5, 10 years and when the markets start to move up and the trend confirms the bulls are back you need to begin using stop loss orders to lock in profits. At that point buy and hold is dead. I’ll repeat that buy and hold is dead.

Sixth your main concern now should be to lock in your profit or some percentage of it with trailing stop losses as the bull market takes off. You will need to ignore the market guru’s and be prepared to be kicked out of the markets on a “retracement”. This is the market rewarding you for your common sense – be grateful.

Seventh  stay in cash and wait for the opportunity to repeat the process. Ignore the financial press telling you cash is no good.

No one knows if a “retracement” is merely a dip in the bull run or the start of a bear market. If it is the later your stops will get you out with much of your profit intact, every 5-7 years after a bull market has begun. You just need to sit tight and wait.

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