Many ‘gurus’ have been saying how the ‘buy and hold’ strategy for investing is now dead. Whenever people start talking about the death of something, particularly with investing, it is often the moment it’s about to surge. The classic example of this is Business Week’s “Death of Equities” cover from 1979.

The other reason for my skepticism is a misunderstanding of the arguments for buy-and-hold. I often hear people say, “Ha! The market’s down! Where’s your buy-and-hold NOW?” Well, the case for buy-and-hold isn’t that the market always goes up. Rather, it’s that buy-and-hold beats anyone else’s ability to time the market consistently, successfully and in a practical way. It’s that last part in italics that’s often overlooked. If you can time the market successfully, fine. Go do it. In my opinion, I’ve never seen anyone who can do it consistently, successfully and in a practical way.

Additionally, it is that time again! With a new year of investing underway, the crystal balls are getting a workout as media and market prognosticators publish their considered forecasts for 2009. Occasionally, though, the gurus make the mistake of putting actual flesh onto their forecasts. For them, that can be embarrassing should anyone reflect on their calls a year later. For the rest of us, it can be a reminder about how hard it is, even for the supposedly smartest people, to reliably forecast the future. Looking back now on the forecasts made for the markets at the beginning of 2008, it’s fair to conclude that the overwhelming bulk of them turned out to be a little on the optimistic side.

As it turns out, the world ends 2008 with more talk of deflation than inflation, with growth in the world’s new powerhouse China reported to be slowing sharply and with talk of a commodities “super cycle”, so prevalent only a few months ago, now almost entirely absent.

And where do we begin with the equity market calls made a year ago? At the end of 2007, New York newspaper Newsday sampled “eight major Wall Street Securities firms” and came out with an average price target for the S&P-500 by year-end 2008 of 1,653, representing a 12 per cent rise on the previous year. As of mid-December, those analysts were about 80 per cent off the mark.

Even many of the people who were bearish at the beginning of the year turned out to be worrying about the wrong things—rising inflation, tighter monetary policy and steadily increasing oil prices, for instance.

The point of all this is not to paint a gloomy picture for the markets in 2009, but to demonstrate, yet again, how hard it is to accurately forecast (at least with any consistency) financial market outcomes.

At the start of 2003, for instance, with the Iraq war looming and the SARS virus appearing in Asia, commentators were overwhelmingly downbeat about market prospects. Yet that turned out to be one of the best years for risk assets in some time.
The fact is no matter how credentialed these commentators are, no matter how many degrees they hold, they are still, after all, only guessing. It’s something to keep in mind when you trawl through the special editions, year-end wraparounds and ‘Outlook 2009′ covers in the coming weeks. Read this stuff by all means, but you’re best to view it in the same light as your annual horoscope. And leave your investment strategy to us!

If you are looking for a long term strategy that you can depend on, contact Odyssey Advisors. Leave your investment strategy to us.

Mark Collard authored the above article.

Mark Collard is a Partner in the investment management firm, Odyssey Advisors, LLC. Collard received a BS in Business Finance and Accounting, Cum Laude from Saint Vincent College and an Executive MBA from the State University of New York at Buffalo.