Buy and Hold works well when the market has been ripping
forward as it has over the last 5 years. While we debate how long this can last, it beats all the pundits predictions of pullbacks and keeps going forward
while frustrating many technical analysis oriented frequent traders.
When I think of the huge drop commodities (such as DBC) have
seen, I tell myself you can’t rely on buy and hold. But this blog will be about
how can you do a buy and hold and not all the afflictions against it.
Many months back, listening to a visiting speaker at AAII
(American Association of Individual investors) I heard of a superb method to
invest if you had lots of money.
The speaker (I cannot remember his name or face) told us
about this rich widow who lives in Florida .
He manages her investments by putting her money in high quality dividend paying
stocks that will appreciate in value over time. She just lives off the
dividend. His logic was that by buying a high quality stock such as these for
$40, she would get 3% dividend annually ($1.20 for each stock held). In a few
years, this stock could hit $60 and her dividend would be 3% of $60 ($1.80 for
each stock held) – an increase of 50% in dividend or a net 4.5% dividend on her
original investment. That would more than keep up with the pace of inflation.
Sounds too good to be true? Not at all… he was right on the money. And how do I
know? Because I created a list of his stock selections two years back and put
them in a folder and I am amazed at the appreciation her portfolio has seen in
capital value as well as dividend growth!
Below is a list of the el primo stocks he gave us that day
in her portfolio. All I had to do was stick my money into those, forget about
the ups and downs any individual stock went through and kept the dividends…
alright with my technical analysis, I could even just have stayed on stocks
with an up signal. And based on a long term view, that could have been just
based on a weekly chart and not the daily chart shown below! Therefore there is
a case to be made for Buy and Hold… as long as I do that with top quality, high
free cash flow, diverse set of stocks such as listed below….
ABT, COP, INTC, JNJ, KO, MDT, MMM, PEP, PFE, PG, SYK, SYY,
UTX, WMT, XOM.
For now, I will trade these in the direction of the long
signals as they come up, although some look pretty overbought now… take a look
at WMT, KO etc…I am in KO and PEP and sold JNJ, ABT, WMT recently.
