Published July 25, 2025
As summer hits full steam (and heat!), we will dive into our archives and post a few briefs from our Knowledge Base. The Knowledge Base section of our website contains historical notes about investing and how to best use our TimingCube system and website. Enjoy!
The vast majority of investment advisors and brokers preach the wonders of buy-and-hold. It is industry doctrine and much print is devoted to convincing clients that buy-and-hold is the only rational approach to investing. As trend-timers we have largely rejected the buy-and-hold mantra of the investment industry. But why do we reject it? This week, we’ll explore some of the more common arguments presented to support the buy-and-hold investment approach and our contrarian view of those arguments.
Buy-and-hold argument 1: despite the ups and downs, the stock market generates a significantly positive return over time. Investors should stay invested for the long-term and take advantage of this natural tendency for stocks to go up as the economy grows.
This is certainly true. Stocks DO tend to go up over long periods of time. The chart below shows that over the past 100 years, stocks have generated an average annual return of about 10%. The chart also shows the variation in returns over various rolling periods of time. For example, over any 10-year period, stocks have almost always delivered a positive return with some 10-year periods offering almost a 20% return. Of course, stocks just concluded a rare “lost decade” where the return was negative. Over any 20-year period, stocks have never given a negative return. Hopefully, that statistic continues.
Chart 1: Range of Stock Market (Dow) Returns (for holding periods from 1 to 100 yrs)
If an investor is now 20-30 years old and has decades of investing ahead of them, perhaps there is some comfort to be taken in these long-term averages. However, if an investor is recently retired without enough resources to last, they can ill afford a 10-20 year period of single digit annual returns. In summary, the stock market delivers a solid return over long periods of time. But those returns can vary dramatically over shorter periods of time, even to the point of being negative for entire 10-year periods. Having just gone through such a “lost decade”, it seems highly unlikely such performance will be repeated, however.
Buy-and-hold argument 2: missing the 10 best days in stocks dramatically reduces returns. Thus, investors must stay the course in order to be present for these critical days.
This argument is trotted out frequently to support buy-and-hold. And the data can look pretty compelling. To whet our appetite for buy-and-hold riches even more, let’s take the most recent secular bull market from 1984-2000, a period where stocks offered an enormous 17.89% annual return. $100 invested at the beginning of 1984 would have grown by almost 14x by the end of 1999. So, what’s the impact of missing the biggest up days? below shows the impact of missing not only the best 10 days; but extends that to the impact of missing the best 20 days, best 30, and 40 days. The effect is dramatic. We obviously cannot afford to miss those key days.
Table 1: Missing best days impact
Okay, it’s obvious that missing large up days damages returns. What is usually missing in this argument is the other side of the coin: What if you miss the WORST days? It turns out the impact is far more dramatic than missing the best days.
Table 2: Missing best days versus missing worst days
Chart 2: Growth of $100 from 1984-2000
Almost every investor has heard the story of missing the 10 best days. How many have heard about missing the 10 worst days? And the data above was during the longest running Bull market of our generation. A period when buy-and-hold generated outstanding returns. Even during this stellar stock market period, the benefit of avoiding losses to preserve capital for future gains is abundantly clear.
Buy-and-hold argument 3: You can’t time the market. Just look at the dismal performance of professional mutual fund managers! As a group, they underperform the market over any extended period of time. If the best minds in the investing world cannot beat the market, why would you, Mr/Mrs Individual Investor, think that YOU can do it?
This one we won’t spend much time on. Many of the articles espousing this view focus on timing the market from one day to the next, which misses the point. Timing the market on a given day is not what any trend following strategy attempts to achieve. We think it’s ludicrous to believe you cannot time markets. We acknowledge that it’s impossible to consistently call the tops or the bottoms. But that’s never our intent. We simply argue that taking a passive buy-and-hold approach to investing is a disaster in a secular bear market such as we are in. The data above shows that, while not a disaster, being mindful of avoiding losses even during a strong secular bull period can improve results handsomely. We feel that our results speak for themselves, and offer a very strong endorsement for the benefits of preserving capital and building wealth through a trend timing philosophy.
Buy-and-hold has its place for investors who do not have the knowledge, capability, or resources available to pursue any other strategy. But with the advent of discount brokers and the vast information available on the internet, excuses are far fewer than they once were. Spread the word: there are better ways to invest! You need not rely completely on the generous spirit of market forces to deliver your returns. After all, we have seen that the market can be anything but generous.
Market Update
It was yet another up week for the markets, with the indexes pushing new all-time highs, driven by steady employment figures and trade deals with Japan, the Philippines, and Indonesia. Japan secured a modest 15% tariff on exports to the US which may have set the benchmark for other major trading partners – an imminent similar deal with the EU was rumored on Wednesday but had not yet materialized as of Friday afternoon. Gamestop-esque meme stock trading came roaring back as WallStreetBets followers dove into the markets’ most shorted stocks early in the week with Open Technologies (a nearly bankrupt company) stock rocketing >115% on Monday. Similar short-lived moves were experienced by GoPro, Beyond Meat, and Krispy Kreme on Tuesday and Wednesday. Wednesday after the close of trading Google beat earnings estimates and unveiled a remarkable $10B planned increase in CAPEX spending – still investors cheered and the stock rose. Tesla also announced earnings with sales and margins continuing to decline, showing free cash flowing collapsing by an astonishing 89% as it tries to pivot to robotaxis to move inventory and reposition the company. Thursday brought a slew of earnings reports and while the S&P500 closed slightly up on the day, small cap stocks closed down -1.3% and several significant stocks closed with big losses including Dow Chemical (-17.5%), Southwest Airlines (-11.2%), American Airlines (-9.6%), Chipotle (-13.3%), LKQ (-17.8%), IBM (-7.6%), and Tesla (-8.2%). Friday was a fairly quiet trading day as the indexes crept higher, however investors learned that the US and Japan still had not fully agreed on the terms that Trump announced earlier in the week.
All three indexes marking little movement from their Monday opening values. That left the S&P 500 up 1,1% while the Nasdaq 100 (QQQ) was up 0.9%. Small caps closed the week up 0.93%.
Warm wishes and until next week.