Buy, Hold, and Sell!

Chapter 14Buy-Hold Myth #5: You Won't Make Any Money If You Sell and Sit in Cash

Let's play a game. I'll put a plank of wood—300 feet long and three feet wide—in the parking lot. In the middle of the plank I will place a thousand dollar bill. I'll dare you to get on one end, walk to the middle of the plank, pick up that bill, and walk to the other end. If you get to the far end of the plank without falling off, you can keep the thousand dollars.

If I offered you this challenge, would you take it? Of course you would. Why wouldn't you? But what if I took that plank of wood to the Petronas Towers in Kuala Lumpur and anchored it between the two towers, 88 stories high? I'd even put a rock on the bill, to keep the wind from blowing it off. Would you still take my dare? No? Why not? Your investment in both situations is the same: a 300-foot walk. The return on your investment is the same: a thousand dollars. Your investment and return are the same in both circumstances, but one challenge you would take and the other you would not. What's the difference? The second dare has 88 stories of risk underneath it. You could die.

Source: Fotolia.

What if I increased the prize to a hundred thousand dollars? Or a million? Would you walk that plank, 1,483 feet above the ground? (you're not allowed to wear a parachute, by the way). Most of you would still decline and you'd be right to do so. ...