Is Buy And Hold Really Dead As A Strategy?

That was a bizarre question I heard posed to me not too long ago, and it really made me think. In fact, the question had some merit. After all, the idea of "buy and hold" is an idea that got a lot of people rich in its day. You don't see Warren Buffett making lots of changes to his portfolio. He's no day trader.

But according to the Economic Cycle Research Institute, there's one really bad situation in which to be a buy-and-hold investor: when there are "more frequent recessions". And that's exactly what ECRI is expecting to be the case for the next ten years.

It's easy to forget that we're looking at a new decade already. 2010 is the last year of the first decade of the new millenium, you know. 2011 will kick off a whole new one. And by ECRI's figures, we're going to be looking at two serious problems that will make the economy extra jittery through the newfound teens: one, every recovery following a recession since World War II is progressively weaker than the one that preceded it, and two, there's just a lot more volatility in the economy now than there ever was. Those who doubt that need only look at 2008-2009.

With recessions more likely, and more likely to be worse, investors will want more bang for their bucks for owning stocks, which will essentially be likely to tank at any time because no one will know when the next recession is going to suddenly slam into us like a runaway Buick covered in cinderblocks.

Thus, those who buy and hold may be buying and holding a fist full of firecrackers, and we all know what happens when you hold onto a firecracker too long. So buy and hold may not be completely dead...but it may be worth re-evaluating as a market strategy.