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Buy and Hold Is Really Difficult

Buy and hold investing as a strategy might seem really simple. But it’s one of the tougher strategies to stick with and here is why.

Buy and hold is an investing strategy, much like day-trading or trend following are investment strategies. For a long time I didn’t understand why buy and hold was such a tough strategy for people to adopt, despite its amazing track record. When reflecting on this today I realized that I’m just as much of an offender as anyone else.

Buy and hold means that you buy a particular fund (i.e. index fund) and you hold it. You hold it and you try to buy more of it. Over the years you’ll buy when the fund is at a low price and you’ll buy it when it’s overpriced.

You’re always buying. A dollar-cost-averaging method.

You hold on to the investment and don’t sell when it peaks. You certainly don’t sell when the fund comes crashing down. You resist all of those urges and keep investing.

But the reason buy and hold as an investment strategy is so hard is that you have to stick to it and not disturb it. It’s boring, it’s monotonous, and you have to ignore the ups and downs.

Buy and Hold Investing Strategy

Many of the individual stocks which I’ve purchased over the years, if I simply held onto them, they would be worth a lot of money by now. These spectacular returns would have been mine if I could have resisted the panic to sell in 2002 and 2008.

You can read all sorts of intelligent books on why a buy and hold strategy works. I won’t be discussing that here. As simple as I’ve made it seem over the years in my writing, I now I realize that I haven’t been following my own advice.

Cashing out 401k in 2013

I cashed out my 401k twice in a span of a few months back in 2013. I had a ton of credit card debt and needed the $150,000, or so I thought.

Those investments in 2013, that $150,000, would have been worth a lot of money right now. But I cashed it out because the value had been steadily going up since 2009 and I didn’t care about the 10% penalty.

The main reason I bailed on my buy and hold strategy in 2013 was because I felt that I had a better use for that money. A misguided drive which repeats itself.

Cashing out Private Brokerage in 2016

I was living in Portland, Oregon and working full-time at Kaiser Permanente. My rent went from $810/month to nearly $1,000. Back then I was cognizant of even an extra $1 in spending.

I had been looking for cheap real estate but they kept getting snagged up in cash. I finally found the right condo, the one I own now. I put a cash offer on it but knew I had enough time to secure a mortgage.

Instead of getting that mortgage, I got lazy and decided to pay cash for it. I had to once again sell off my investments, though this time it was my private brokerage and not retirement accounts.

Once again I used the excuse that I had a better use for that money; that it would have been better off in a real estate investment than sitting in passive index funds.

I had saved up nearly $190,000 in that brokerage. I sold it all and used the rest to pay down my student loans. I became debt-free and bought a house in cash. Maybe this wasn’t a bad move, who knows, but I still couldn’t follow my own advice of buy and hold.

Spain, 2019

Now, again, in 2019, in Spain, I am contemplating selling off some of my investments so that I can pay for a condo in cash.

I have all sorts of mathematical reasons why this could be a good move on my part. I can pull up spreadsheets which show that buying this condo will lock in a potentially lower cost of living which will offset any potential gains I might have in the securities market.

The Forces Against Buy and Hold

The problem is that as humans we can justify damn near everything. I’m reading Man’s Search for Meaning, so what better example than that whole mess.

I have identified several factors which are my biggest hurdles to overcome:

  1. Fear of market volatility
  2. inflated ego
  3. Ignoring the process
  4. Activity vs. Productivity
  5. Distraction
  6. Simplicity

1. Market Volatility

I know that the market will crash at some point. And it will be something we’ve never seen before. There will be all sorts of signs that this is the big one and that it’s never going to be the same. Basically, the same shit which everyone thought and felt every time there was a market crash.

The only way to fight this one is to just keep more cash on the sidelines or decrease your volatility by either diversifying your investment strategies or buying less volatile assets.

2. I’m Smart…

One thing I have concluded for a fact is that I’m not all that smart. I have made far more bad decisions than good decisions. I meet a ton of people who can dance circles around me when it comes to intelligence, comprehension, or logic.

But, somehow I still think I’m quite smart. The problem is that when you think you’re smart, you act on it. You try to do things that others aren’t doing because you think that your action is that special snowflake which will set you apart.

3. Ignoring the Process

The process of stashing away that money every week, transferring it over to my brokerage, and then babysitting that money – it’s so easy to take that for granted.

I’ve done it for so long that my finances are now automated. I earn some money, it gets automatically transferred to my Vanguard brokerage account and a very specific asset allocation is purchased with that money every week.

It’s so easy to forget that. It’s easy to look at all of the money that’s sitting there and not think of it as individual dollars, as 150 different investment transactions, but instead to look at it as what it could buy.

4. Activity Isn’t Productivity

Activity is why the stock market is so volatile. It’s when funds are overvalued when everyone buys in. Selling out at the bottom of the market is feels better (momentarily) than sitting around doing nothing as the investments are tanking.

People ask “Hey, what do you do in Spain all day, don’t you get bored?” Inactivity doesn’t have to be boredom.

I have to remind myself that this is my investing strategy and it’s gonna be boring. Trying to switch asset allocations around all of the time isn’t productive. Selling out to buy real estate or whatever else, that’s not part of the buy and hold investing strategy.

5. Distraction

It’s easy to poo-poo the process of investing, beating it down to an obsession with money. “Why is everyone so obsessed with money? Life is about more than money.” And yet most of us probably would walk off of the job if we weren’t paid for our time.

Lots of factors distract us from sticking to our investing strategy. We get busy with our work or we have shit to deal with, like medical board investigations or lawsuits or patient complaints.

When distracted, you forget your strategy, the one you spend countless hours researching and putting into action. With just one quick move you can tear the whole process down.

6. Simplicity

I’m a physician, I don’t believe in simplicity. I overanalyze everything and think that complexity has intrinsic value. It’s what drew me into healthcare.

It’s hard to convince my personality type that a simple life is as gratifying as one for which I had to bust my ass. Maybe I also take easy things for granted. Regardless, I always have and probably will try to look at things from that distorted lens.

Sticking to the Buy and Hold Strategy

The best thing I can do is stick to my investing policy statement and not sell out of the funds which I have worked hard to build up. Each and every one of those security funds cost me sweat and tears.

I risked a lot to earn the money needed and paid hefty taxes in order to buy those investment funds. I can’t take that process for granted and cash out my investments so easily.

Every year the brokerage houses publish statistics to put investing into perspective. The average investor always underperforms the market. They consistently buy high and sell low. They switch in and out of various investments and lose gains because of market timing and expensive transaction costs.

Buy and hold investing as a strategy works, it’s the individual investor, like myself, who can’t stick with it.

2 replies on “Buy and Hold Is Really Difficult”

Really enjoyed the way you break down some common pitfalls for us average investors. It’s stories like this that help me grow the armor to truly do the buy and hold.

“But, somehow I still think I’m quite smart”

Going on my epitaph.

If you invest in the markets regularly and if you have an investment plan and if you have a strategy to check yourself and learn from your mistakes then you aren’t an average investor – you are full-on, legit, and branded. You are a professional investor who chooses to only fuck with their own money and not other people’s …. and you don’t make money off commissions, you actually produce value. Kpeds, I hereby knight thee as a professional investor.

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