Buy and Hold

When it comes to investing, there are all sorts of "systems" of which only one has any merit. That's the Dow Gold ratio method described in my book on the subject.

However, the Dow Gold method is not the most popular, probably because it advocates staying away from the stock market for prolonged periods of time. This does not generate any revenue for fond managers and the like.

The far more popular system is the buy and hold strategy in which the investor sits patiently through any downturn, buying stocks whenever he can afford and remaining calm throughout. This strategy would have produced positive results for anyone investing in the US or in Norway. However, it would not have worked out very well for the Portuguese investor. The Lisbon stock exchange is down 60% in nominal terms since 1998. Over a period of 20 years, the investor playing buy and hold in Lisbon would have lost money. Even if he was lucky enough to catch many low points, he would still be down.

Gold, on the other hand has had about 400% gain during the same period.

This should serve as a warning to anyone following the buy and hold strategy. Sooner or later, all stock exchanges experience a Lisbon like decline. To stay invested in stocks during such a prolonged downturn can ruin a lifetime of savings.

The trick to success is not to stay invested in stocks all the time but to identify when stocks are cheap and when they are expensive. That's where the Dow Gold ratio comes in handy.

Gold eagle

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