Many of us are fervent believers in a “buy and hold” philosophy, meaning buying quality investments and holding them for the long term. That keeps transaction costs down and has shown to produce the best investment results.
But sometimes buy-and-hold is the wrong approach, and all too frequently, we encounter investors who resist selling stock holdings that have passed their prime. Why?
Sometimes they don’t want to take capital gains. Other times they argue that the stock has “done well” over time (ignoring that other investments might have done better). It may pay a hefty dividend, or has some sentimental attachment to a family member.
Does that sound like you? Better take a look to make sure that your buy-and-hold strategy isn’t just turning into “buy-and-get-old.”
As an example, take a look at what is happening with Sears. The once innovative retailer, credited with changing the way America shopped, is now shuttering stores. Or look at GE, which stunned long-time investors by slashing its dividend and losing almost half its market value over the past year.
The Takeaway: Buy-and-hold is usually a good policy, but don’t take it as a license to hold on to underperforming individual stocks forever. By the same token, don’t allow positions to grow disproportionately large, ignore lasting or disruptive industry trends, or let tax considerations overrule sound investment management. The world changes, and your portfolio needs to change with it.