Thursday, July 03, 2008

Buy and hold and lose.

The S&P 500's close of 1261 on Wednesday was lower than the closing price of 1272 on January 6, 1999.

With an average dividend yield hovering around 2% for more than a decade, the U.S. stock market has been a poor investment since the mid-1990's. The rallies of the late 90's and mid-2000's were really just speculative stampedes that had more in common with pyramid schemes than any fundamentally driven price appreciation. Many people thought buying stocks in October 2007 was a good idea - not for the dividends, but because they thought prices would just keep going up.

I'm not really complaining for myself. Sure, I would rather have access to a universe of stocks with yields of 4% or 5%, but in lieu of that I'm happy to surf both sides of the speculative waves now that I can anticipate them. I only wish that the average ma and pa investor could do the same. Instead, armies of financial planners have been telling those 401(k) investors to buy and hold their overvalued stock funds throughout this entire period. Shame on these "professional advisers." They're supposed to know what makes a stock worth holding, and they should have known better.

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