10 reasons why being an active investor surpasses buy & hold
Mum and dad buy & hold (also known as "buy & forget" and "buy & hope") gets heavily promoted as some holy grail.
Take advantage of the market rewards with the least effort, stress, and without having to pay fees to money managers, fees that will eat your retirement.
To Bitcoin holders this is the greatest thing and they dream of wealth, they think they found the ultimate "best performing asset".
But professionals don't really care about crypto, and anyone that is able to be somewhat competitive sees it as really bad.
1- The front page of this idea. Bitcoin holders are at 1.75R. In 3 years.
2- The risk adjusted returns are terrible.
UBS Global Allocation Fund (buy & hold everything) has a max drawdown of close to 50% for a yearly return of something like 2.5%.
The S&P averages about 7% a year and has drawdowns of 30%, 50%, and so on.
Bitcoin has gone up 500% since september 2017, as well as march 2019, but it casually gets 85% drawdowns.
Managed funds typically provide small returns for small risk, for example 5% annual returns and a max drawdown of 5%.
Quants via ultra diversification (on assets and in time) get only green months, very little drawdowns and decent returns.
Active traders, if they are good, get small volatility and consistent slow and steady growth.
3- It is what gets advised to noobs in investing as well as other competitive activities, like esports.
Warren Buffett advises "just buy and hold". There is an equivalent.
The game league of legends is popular so I think most people will get it.
Players at the top say to poor players desperate to climb "just pick annie and roam", play an easy champion and rinse & repeat something simple.
But no one is seeing armies of Annie one tricks in the higher elos.
It's stupid advice that does not work. And if it does it's really the worse, second hand, "better than nothing" thing to do.
4- "Buy & Hold" is a one size fits all method, but there is no one size fits all opportunity.
First an exception. People looking to pay their children university, or retire, have a 1 size fits all opportunity: fixed income.
There are so many bonds and other contracts with all kinds of maturation dates, it's impossible to not find something right.
Kid goes to uni in 10 year: Find a safe decent 10Y bond (still have to hedge currency risk if it is foreign...), collect some interest every year and get the entire amount in 10 years.
So here you already see what can go wrong. What if you needed your money in March 2020? Bitcoin is down 80%. Sell?
What if you bought and held Japan stock market and by the time you retire it's down in the gutter? Wait 30 years or more?
5- Some of the favored tools of passive investors do NOT buy & hold themselves.
The vast majority US stocks go to zero. The S&P 500 which is buy & holders favorite itself does not buy & hold, performant stocks are added all the time, and poor ones are removed.
So there is a fundamental flaw.
And the S&P 500 strategy is as dumb as it gets, it simply buys winners sells losers. What if growth gets more volatile? It will be buying and selling all the time, or if there is a rule not to sell too often, hold losers too long and miss winners too.
Besides the S&P 500 is only for the US and no matter what you think bull or bear it is basically betting on 1 single economy so still a simple buy & hold on a single thing (even with all the adding winners and removing losers).
6- Number 6 is abstract. Max simplicity and a total lack of effort and risk management cannot possibly create a reward.
One cannot help but to think nothing can be free, there is no magical energy well, matter does not pop out of thin air, and in the same way there is no magical trick to get money without doing anything.
Every critter on this planet needs to work to get something in return.
In other activities being passive leads to no result. Do nothing, nothing happens. Why would this be different? The power of greed?
Losing or gaining weight requires some action, magic trick special diets still do not work, buildings don't build themselves even government contractors have to work at some point.
7- No one successful does it.
There might be a few lucky exceptions, but never lucky enough to really get to the top.
George Soros was or is active, Buffett is active, every billionaire and centamillionaire on the planet is active.
I have never heard of passive buy & holders that happily retired.
The only "retired" passive novices are the ones that got lucky, bought dot coms before they went ballistic, bought Bitcoin early enough...
8- You'll miss out on great opportunities
Giant contangos, mispricing, very underpriced stocks...
Imagine being underwater rather than full of cash when a certain investment is super undervalued.
And look at Bitcoiners, rushing in to buy "the dip" in january 2018 and laughing at me when I suggested a price decline and being patient as I thought there would be opportunities.
They end up holding some $16000 BTC, then add more as the price goes down because let's risk everything.
Each $16000 Bitcoin they have is 4 $4000 Bitcoin they did not buy. After 3 years BTC made it to 22000 wow fantastic! From 16k to 22k.
If they "risked missing out", did something else with their cash, and bought $5000 BTC this year they'd have more than quadrupled their money.
When BTC makes it to 20k then drops to 3000 it easily has much more upside than downside.
I always said I would not short under 5000 even when I said it will eventually go to zero (it 100% will).
Buying a coinflip ultra risky casino chip with no stop loss when it is close to ath. Just so bad.
There is a difference between timing every top and bottom which only twitter crypto traders do, and avoiding really stupid actions.
9- "Buy & Hold" is a hoax perpetrated on credulous retail investors to milk them.
You know what reduces risk and adds liquidity in the market? Dumb money consistently throwing money in the pot.
Institutional investors that are happy to promote this hoax sell when they consider prices to buy too high, we witness phenomenal crashes, and why would anyone choose to not sell high prices and just hold the bag?
Institutions are literally dumping on willing dumb money that has no idea how low prices will go and how long the drawdown will last.
While they recommend to "just buy and hold" their own holding periods have never been shorter.
And many of the professionals that buy and hold are just getting more AUM out of it.
We know for a fact they are scamming energy ETF "investors" (USO), day traders, Robinhood "investors"
From Jim Cramer:
“Pick a couple of stocks, you gun them in the morning, and then you hope people are stupid enough and they buy them.”
Like institutions cannot wait 9:30 to buy their shares, no no they are in a hurry they have to get in at terrible prices in the pre-market.
Hedge funds are happy to rob dumb money. No matter how, no matter the time horizon.
10- I have no crystal ball do you?
This scam summed up: "Hello individual investors. Today, based on available info, try guessing what will happen in the quarter century, and then for the next 25 years discard any new info".
Emotions & logic are on a spectrum, and this idea is not on the more logic side of it.
It makes less sense than buying a lottery ticket. At least the ticket buyer can say he is having fun, a sort of little adrenaline rush, and lottery ticket buyers can use flawed logic saying they only pay little and in their lives they'll never pay as much (not even close) as what the reward is.
But buy & holders cannot even say they are having fun. What fun? Fun forgetting about something?
"I'm having fun being passive sitting on a bench and not playing basketball and not even watching it". See it makes no sense.
Or fun watching your money disappear while you do nothing maybe?
And I don't see how they could use flawed logic here "ye so I make a bet on the future with limited info and as more info becomes available I put my fingers in my ears and go lalala".
Take advantage of the market rewards with the least effort, stress, and without having to pay fees to money managers, fees that will eat your retirement.
To Bitcoin holders this is the greatest thing and they dream of wealth, they think they found the ultimate "best performing asset".
But professionals don't really care about crypto, and anyone that is able to be somewhat competitive sees it as really bad.
1- The front page of this idea. Bitcoin holders are at 1.75R. In 3 years.
2- The risk adjusted returns are terrible.
UBS Global Allocation Fund (buy & hold everything) has a max drawdown of close to 50% for a yearly return of something like 2.5%.
The S&P averages about 7% a year and has drawdowns of 30%, 50%, and so on.
Bitcoin has gone up 500% since september 2017, as well as march 2019, but it casually gets 85% drawdowns.
Managed funds typically provide small returns for small risk, for example 5% annual returns and a max drawdown of 5%.
Quants via ultra diversification (on assets and in time) get only green months, very little drawdowns and decent returns.
Active traders, if they are good, get small volatility and consistent slow and steady growth.
3- It is what gets advised to noobs in investing as well as other competitive activities, like esports.
Warren Buffett advises "just buy and hold". There is an equivalent.
The game league of legends is popular so I think most people will get it.
Players at the top say to poor players desperate to climb "just pick annie and roam", play an easy champion and rinse & repeat something simple.
But no one is seeing armies of Annie one tricks in the higher elos.
It's stupid advice that does not work. And if it does it's really the worse, second hand, "better than nothing" thing to do.
4- "Buy & Hold" is a one size fits all method, but there is no one size fits all opportunity.
First an exception. People looking to pay their children university, or retire, have a 1 size fits all opportunity: fixed income.
There are so many bonds and other contracts with all kinds of maturation dates, it's impossible to not find something right.
Kid goes to uni in 10 year: Find a safe decent 10Y bond (still have to hedge currency risk if it is foreign...), collect some interest every year and get the entire amount in 10 years.
So here you already see what can go wrong. What if you needed your money in March 2020? Bitcoin is down 80%. Sell?
What if you bought and held Japan stock market and by the time you retire it's down in the gutter? Wait 30 years or more?
5- Some of the favored tools of passive investors do NOT buy & hold themselves.
The vast majority US stocks go to zero. The S&P 500 which is buy & holders favorite itself does not buy & hold, performant stocks are added all the time, and poor ones are removed.
So there is a fundamental flaw.
And the S&P 500 strategy is as dumb as it gets, it simply buys winners sells losers. What if growth gets more volatile? It will be buying and selling all the time, or if there is a rule not to sell too often, hold losers too long and miss winners too.
Besides the S&P 500 is only for the US and no matter what you think bull or bear it is basically betting on 1 single economy so still a simple buy & hold on a single thing (even with all the adding winners and removing losers).
6- Number 6 is abstract. Max simplicity and a total lack of effort and risk management cannot possibly create a reward.
One cannot help but to think nothing can be free, there is no magical energy well, matter does not pop out of thin air, and in the same way there is no magical trick to get money without doing anything.
Every critter on this planet needs to work to get something in return.
In other activities being passive leads to no result. Do nothing, nothing happens. Why would this be different? The power of greed?
Losing or gaining weight requires some action, magic trick special diets still do not work, buildings don't build themselves even government contractors have to work at some point.
7- No one successful does it.
There might be a few lucky exceptions, but never lucky enough to really get to the top.
George Soros was or is active, Buffett is active, every billionaire and centamillionaire on the planet is active.
I have never heard of passive buy & holders that happily retired.
The only "retired" passive novices are the ones that got lucky, bought dot coms before they went ballistic, bought Bitcoin early enough...
8- You'll miss out on great opportunities
Giant contangos, mispricing, very underpriced stocks...
Imagine being underwater rather than full of cash when a certain investment is super undervalued.
And look at Bitcoiners, rushing in to buy "the dip" in january 2018 and laughing at me when I suggested a price decline and being patient as I thought there would be opportunities.
They end up holding some $16000 BTC, then add more as the price goes down because let's risk everything.
Each $16000 Bitcoin they have is 4 $4000 Bitcoin they did not buy. After 3 years BTC made it to 22000 wow fantastic! From 16k to 22k.
If they "risked missing out", did something else with their cash, and bought $5000 BTC this year they'd have more than quadrupled their money.
When BTC makes it to 20k then drops to 3000 it easily has much more upside than downside.
I always said I would not short under 5000 even when I said it will eventually go to zero (it 100% will).
Buying a coinflip ultra risky casino chip with no stop loss when it is close to ath. Just so bad.
There is a difference between timing every top and bottom which only twitter crypto traders do, and avoiding really stupid actions.
9- "Buy & Hold" is a hoax perpetrated on credulous retail investors to milk them.
You know what reduces risk and adds liquidity in the market? Dumb money consistently throwing money in the pot.
Institutional investors that are happy to promote this hoax sell when they consider prices to buy too high, we witness phenomenal crashes, and why would anyone choose to not sell high prices and just hold the bag?
Institutions are literally dumping on willing dumb money that has no idea how low prices will go and how long the drawdown will last.
While they recommend to "just buy and hold" their own holding periods have never been shorter.
And many of the professionals that buy and hold are just getting more AUM out of it.
We know for a fact they are scamming energy ETF "investors" (USO), day traders, Robinhood "investors"
From Jim Cramer:
“Pick a couple of stocks, you gun them in the morning, and then you hope people are stupid enough and they buy them.”
Like institutions cannot wait 9:30 to buy their shares, no no they are in a hurry they have to get in at terrible prices in the pre-market.
Hedge funds are happy to rob dumb money. No matter how, no matter the time horizon.
10- I have no crystal ball do you?
This scam summed up: "Hello individual investors. Today, based on available info, try guessing what will happen in the quarter century, and then for the next 25 years discard any new info".
Emotions & logic are on a spectrum, and this idea is not on the more logic side of it.
It makes less sense than buying a lottery ticket. At least the ticket buyer can say he is having fun, a sort of little adrenaline rush, and lottery ticket buyers can use flawed logic saying they only pay little and in their lives they'll never pay as much (not even close) as what the reward is.
But buy & holders cannot even say they are having fun. What fun? Fun forgetting about something?
"I'm having fun being passive sitting on a bench and not playing basketball and not even watching it". See it makes no sense.
Or fun watching your money disappear while you do nothing maybe?
And I don't see how they could use flawed logic here "ye so I make a bet on the future with limited info and as more info becomes available I put my fingers in my ears and go lalala".
