The Market's Latest Victim: 'Buy-And-Hold' Strategy
CNBC.com Senior Writer
As traditional market signposts lose their relevance, so does the traditional "buy-and-hold" strategy that investors have followed for decades.
Market pros in increasing numbers are eschewing the usual investing strategies and watching technical levels as their guides for making money. They examine temporary market tops and bottoms as guidelines when to sell and buy, and are in many cases utilizing funds rather than individual stocks to make their plays.
Earnings and economic data have proven unreliable to gauge the long-term prospects for the market, which has become a trader's battlefield. Money that once stayed put for three to five years can now get moved in three to five days or sooner.
"What's happening is people have learned that if you don't take a profit it goes away," says Kathy Boyle, president of Chapin Hill Advisors in New York. "Even somebody who's really biased towards buy-and-hold is giving up."
The phenomenon has been on display markedly since earnings season kicked into gear this month.
More than half the companies in the Standard & Poor's 500 have beaten earnings expectations, yet the stock index has dropped nearly 7 percent.
The economic data, meanwhile, have been close to expectations. Friday's report on fourth-quarter GDP was actually better than what Wall Street predicted—though at a 3.7 percent drop, the numbers were hardly encouraging.
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But investors seem to be ignoring the data.
Instead, they've turned towards more of a trader's mentality, pushing the Dow back up when it approaches 8,000 and the S&P when it falls near 800. It's a trend that bucks the traditional long-term horizon most investors are supposed to take, but for many it's working.
"The idea of saying valuations are historically low so we're just going to buy and hold, that comes at great peril over the next year or two," says Lee Schultheis, founder and chief investment strategist at AIP Funds in Harrison, N.Y. "But also being overly bearish might also come at peril if the government's able to get ahead of the curve on the liquidity-credit issue. Once that gets solved equities will have the opportunity to advance."
Indeed, Boyle has moved nimbly in and out of positions in exchange-traded funds--these days mostly those with a bullish look on the market. She expects a run higher for the market to last into mid-February, when stocks will move lower and Boyle will quit or reverse her positions.
Dealing with the market's intense moodiness is all part of the job these days.
"People get hopeful and say, 'oh good,' and pile in, or they get depressed and they hit the support level," Boyle says. "It certainly makes for an interesting day every day."
A Better Mood—For Now
Even as the market was surrendering the gains it saw earlier in the week, there was plenty of enthusiasm for the market to go higher.
Ben Lichtenstein, a long-time bear who had been warning through much of 2008 about the pressures facing the market, reiterated on CNBC that he thinks stocks are in for a nice gain, with the S&P 500 flirting with the mid-900s if it breaks through 880.
"Everybody expected the worst to happen and it's slowly starting to fade out a little bit," he said. "I think the energy's only to the upside right now." See full comments in video.
Lichtenstein, of Tradersaudio.com, could be expected to follow technical levels.
But those with a traditional investors' horizon of 18 months and beyond are following suit, moving through positions in a way that would be discouraged in a normal market.
Some advisors are disturbed at the trend.