BONUS LESSON: Examples of Buy and Hold not working
MORE EXAMPLES OF BUY AND HOLD SCREWING YOU
I just picked AOL because it was on the top of my list. I went back 5 years from today and did some math:
If you had purchased AOL 5 years ago it would have cost you $18 a share (roughly) and with $10,000 you could buy 555 shares. In the year 1999 the stock split and you would then have 1110 shares.
In January of 2000 AOL hit it's high price of $80 (roughly) which would have given you a total of $88,800 worth of stock. 888% gain in a little over a year.
But did people sell? Hell no! They held onto it! The stock split one more time in November of 1999 right as it hit the high (It could have been before the high, in which case, people were REALLY dumb to not sell, but we'll stay conservative), so you would now have 2,220 shares of AOL today worth a whopping $36,430.20. A loss of $52,369.80! In 3 years!
Horray for buy and hold, eh? Brilliant strategy. A loss of 59% of my money sounds good to me!
Here's another favorite. Everyone owns Disney, right? Here's the same scenario:
December 1998 - $10,000 would get you 357 shares at the $28 price it was at.
October 2000 - Hits the high of $42 roughly, your stock is worth $14,994. A gain of almost $5000.
Today - Your stock is worth a whopping $7,854! Yes, after risking your $10,000 for 5 years you have lost $2,146 of it! Great investment! You're down $7,140 from what you had at the peak! Go Buy and Hold!
Are you guys seeing a pattern yet? Buy Low and Sell High works. Buy and hold and hope the company stock keeps going up and up forever doesn't work. Just like all the books can show examples of how buying and holding made people rich, I can post 10 times the examples where buying and holding made people poor. It's a great theory in retrospect, but it's not a great strategy for an individual investor when the future isn't known.
I just picked AOL because it was on the top of my list. I went back 5 years from today and did some math:
If you had purchased AOL 5 years ago it would have cost you $18 a share (roughly) and with $10,000 you could buy 555 shares. In the year 1999 the stock split and you would then have 1110 shares.
In January of 2000 AOL hit it's high price of $80 (roughly) which would have given you a total of $88,800 worth of stock. 888% gain in a little over a year.
But did people sell? Hell no! They held onto it! The stock split one more time in November of 1999 right as it hit the high (It could have been before the high, in which case, people were REALLY dumb to not sell, but we'll stay conservative), so you would now have 2,220 shares of AOL today worth a whopping $36,430.20. A loss of $52,369.80! In 3 years!
Horray for buy and hold, eh? Brilliant strategy. A loss of 59% of my money sounds good to me!
Here's another favorite. Everyone owns Disney, right? Here's the same scenario:
December 1998 - $10,000 would get you 357 shares at the $28 price it was at.
October 2000 - Hits the high of $42 roughly, your stock is worth $14,994. A gain of almost $5000.
Today - Your stock is worth a whopping $7,854! Yes, after risking your $10,000 for 5 years you have lost $2,146 of it! Great investment! You're down $7,140 from what you had at the peak! Go Buy and Hold!
Are you guys seeing a pattern yet? Buy Low and Sell High works. Buy and hold and hope the company stock keeps going up and up forever doesn't work. Just like all the books can show examples of how buying and holding made people rich, I can post 10 times the examples where buying and holding made people poor. It's a great theory in retrospect, but it's not a great strategy for an individual investor when the future isn't known.
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