The “long run” is something of a hopeful illusion that will take markets, stocks, exchange traded funds (ETFs) and the economy at large to a better point later on. But investing for the long-term – buying-and-holding – does not work. Why?

As Peter Bernstein for Financial Times reports, states a number of reason why buy-and-hold simply doesn’t work anymore

  • The S&P 500 has underperformed long-term Treasury bonds for the last five-year, 10-year, and 25-year periods, and by substantial amounts. As the data implies, the capitalist system as we know it would come to stop – the long run expected returns on bonds are actually yielding higher then equities.
  • Sure the S&P provided a total annual return of 13.1% from the end of 1949 until 2000, but what does that tell us about what lies ahead? Nothing. What happens in the market is not random – each event is the result of preceding events, and they can’t be replicated.
  • There’s no precedent for what happened in 2008. The speed and depth of the decline were unanticipated by most It’s made the unknown even more unknown than it’s ever been.

The truth is, nobody really knows what lies ahead for investors or markets. The tried-and-true historical view has been deemed unreliable at this point. There isn’t anything to “bank upon” and the buy-and-hold strategy is dead.

“The long run” is a mystery, and it always will be. Instead of hoping the markets will trend up over time, why not become a trend follower? We rely on the 200-day moving average to determine when we’re in and out. Such a strategy gives investors the chance to take advantage of any potential long-term uptrends, as well as avoid the lion’s share of any long-term downtrends.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.