Stock Market Research: The REAL Effect of “Buy and Hold”

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The Statistics Behind 1000 Random Buy and Hold Portfolios

Many times you will hear the talking heads on CNN or even your local financial planner, stock broker or accountant shouting the benefits of a “hands off” approach to investing in the stock market.

Simply buying and holding a stock for long periods of time is an approach often shunned by traders, advocated by Financial Planners, and hidden by Stock Brokers (who obviously want you to trade more and pay their brokerage fees).

But what are the real ramifications of Buy and Hold?  Using powerful technology now available to the common investor through Amibroker, I was able to create the effect of 1000 different random buy and hold portfolios over the last 15 years.

Then, with a little statistics knowledge, we can see the range of results, and the most common annual return using a histogram.  With a scatter plot, we can also see the maximum drawdowns, versus the annual returns.

The results are amazing, and may surprise you.

Essentially, we see that even though an Index (like the S&P 500 or the All Ordinaries Index) might return only 3% per year over time, a portfolio of stocks themselves will return a larger amount – even when completely random.

The range of results over 15 years was 8% to 16% annual returns.  This is quite a feat, considering it is without doing a single thing except buying the stocks initially.

The only caveat to a buy and hold strategy (and one that the talking heads on TV won’t tell you) is that every single portfolio bar none experienced an average of a 70% loss in their overall portfolio at some point, before it recovered to new highs again.

So, as long as you can stomach that kind of drawdown, then an easy and moderately powerful approach to the markets could very well be: “Buy and Hold”.

Happy trending!

Dave McLachlan


November 15, 2015  Tags: , , , , , ,   Posted in: Amibroker, Stock Market Research

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