Buy, Hold, and Sell!

Chapter 10Buy-Hold Myth #1: The Market Always Comes Back

Hang on to your investments, say the buy-holders. “Don't worry if your stocks drop. You're a long-term investor, and the market always comes back.”

The market always comes back? Who says it will? When will it? Let's ask the Japanese.

Back in the late 1980s, the Japanese were wealthy. They were buying all our golf courses. Everyone held up Japan as the preeminent economy. They said, “Wow, look how great Japan is doing. We should copy them.”

The Nikkei, Japan's stock market, peaked at 38,916 on December 29, 1989 (see Figure 10.1). It's never come back. It's still down about 64 percent from its apex in 1989. The Japanese stock market hasn't fully recovered, and it's been 25 years!

Figure 10.1 Japan's Stock Market Peaked in 1989 and Is Still Down 25 Years Later

“Wait a minute, Ken,” you may say, “That's the Japanese. We're not Japan. We are the United States of America. That won't happen to us. We always find a way. American ingenuity can overcome all.”

Let me tell you a little story:

Orphan Annie was asleep in her bed when a noise woke her up. A shadowy figure stood over her dresser—doing what? Breaking into her piggy bank! Annie turned on her bedside lamp.

“Leapin' lizards!” she said. “Daddy Warbucks! You scared me half to death! What are you doing with my piggy bank?”

“I'm sorry, Annie,” said Daddy Warbucks, “but we ...