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Buy And Hold Forever?
THE KAHUNA`S RANT O` THE WEEK: The Second Biggest Crock in Investing: "Buy These Stocks and Put Them Away Forever"--By Tobin Smith
I have a habit I`ve followed for years which has been a great education for me. I save the Industry Group Rankings from the Investor`s Business Daily (IBD) newspaper. I admit this affliction for one reason: I hope it will forever cure you of the concept that ANY cyclical growth sector of our economy is a "buy and hold forever" area for stocks.
Cut to early January 2001: The "Energy" industry group in IBD listings is "en fuego"--rocketing up the speed charts every week. On television, investors were being told that "Calpine will be a 75 megawatt power dynamo by 2005," or "Enron is the Goldman Sachs of the 21st century" and that these stocks were the next rocket ship.
"Buy `em and put them away," I remember a guest panelist on Fox News Channel`s "Bulls & Bears" proclaiming. You know the names:
Calpine
NRG Energy
El Paso Corp.
Exco Resources
Dynegy
Reliant Resources
AES
Enron
To these buy-and-hold disciples, I share this moment. This morning, I looked at the IBD`s "New Low" section, and guess what companies were there less than 12 months later:
Calpine
NRG Energy
El Paso Corp.
Exco Resources
Dynegy
Reliant Resources
And you know what happened to AES and Enron.
Now, we recommended a few of these companies earlier in the year as they rode the electrical power growth wave. I say we RECOMMENDED them (past tense--we recommended selling them in June of this year) because three ChangeQuakes hit the industry, causing us to change our growth thesis and, thus, want to "kick-off" the industry as its growth potential peaked:
1. Our economic forecast changed--we called for a recession based on our demand surveys, and since these stocks were priced like growth stocks (higher P/E than market average), we felt the business cycle would sap demand and earnings growth.
2. Vermont Sen. Jim Jeffords left the Republican Party to become an Independent--which changed the balance of power in the Senate in the Democrats` favor and with it the power to change our energy policy.
3. The federal government started regulating power prices in the West.
All of the quakes shifted the fabric of competition and/or meant reduced demand. We call that a "CrashWave."
Today, there are many widows and orphans holding these stocks with 50%, 70% and 90% losses because they used a Warren Buffet strategy in a fast-moving and changing world of independent power production.
Please do not make the same mistake. I am a buy-and-sell investor in rapidly moving ChangeWaves because these areas of our economy ARE rapidly changing. This is the complete opposite of the Buffet genius of buying zero-changing consumer and business services with significant barriers to competition.
If you do not get this concept, go out and buy an IBD today and put it in your desk. Buy one next year at the same time and compare the 197 industry group ratings and 52-week highs and lows located in the second section of the newspaper.
I guarantee only one thing: The stocks in the industries that are in an upswing will have appreciated in value, and vice versa.
The moral of this latest expensive lesson in growth investing? If you want to "buy and hold," buy Berkshire Hathaway stock and hang with Warren B.
If you want to actually MAKE profits owning growth stocks (as opposed to buying/getting profits/holding and losing profits/holding and being buried for years), you have to learn to ride these growth waves like the waves we surfed back in California:
* Sit out on the bay and let most waves pass--they`re not the primo big ride waves
* Scan the horizon for those primo waves that roll in every fourth or fifth set--and be ready to paddle like hell to jump on.
* Get to your feet quick and ride that wave as it makes powerful moves up and up and up...
* And then KICK-OFF that wave as it peaks and BEFORE it crashes.
If you mix buy-and-sell strategies with buy-and-hold investing, you are destined to have more birdcage-lining material courtesy of the (almost) always-changing world we live in.
Toby
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Der erwähnte IBD ist übrigens m.E. relativ gut.
OT:
Jo, die richtige Welle reiten, z.B. in Mavericks (in der Nähe von Half Moon Bay etwas südlich von S.F.). Wäre mir in dem Fall doch etwas zu hoch
. Die Wellen bei M. stehen jedenfalls den Jaws-Wellen (Hawaii) in nichts nach. Speziell in M. sind die Wellen (im Winter, Wassertemperatur ca 12 Grad) nicht nur sehr hoch, sondern auch sehr "breit", d.h. eine 10 m Welle kann auch 10 m breit sein, wobei enorme Wassermassen bewegt werden. Bei einem sog. Wipeout wird man 5-7 m unter die Wasseroberfläche gedrückt.Die höchsten türmen sich übrigens bis über 50 Fuss (ca 15 m) auf. Als ich in M. war (beruflich), waren die Wellen allerdings höchstens 8 Fuss.
. 
.grüsse Andy