Where is the Exit Strategy with Buy and Hold?

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Michael,

I’ve been listening to your podcast and really enjoy it. Thank you for bringing different perspectives on investing, and for all the trend followers you interview who are candid about their processes, advantages, and disadvantages. I really enjoy all the interviews, especially those with Jerry Parker.

I’ve got a question: You disparage buy and hold, but is it the same thing as trend following? Charles Dow (in my mind) is the inventor of trend following. He defined primary trends, that could not be manipulated, secondary trends that could be manipulated, and shorter term trends (daily) that are generally random.

When you think about it, buy and hold (in equities) is just a bet on the longest of primary trends, namely, that the market goes up and down, but it goes up more than it goes down. It is divorced from any fundamental analysis, and has a clear entry and exit points: buy when you have funds throughout your working career and sell when you need money for retirement.

Sure, it has more volatility and drawdowns than something like the turtle strategy, but it has bigger gains at times too – trend following can’t match the gains in large bull markets. Thus, a buy and hold person subjects themselves to more volatility and drawdowns to follow a long-term (and hopefully more lucrative) trend, while a Turtle uses systematic trading rules to trade on the shorter – akin to Dow’s “secondary” – trends to reduce volatility and drawdowns, sometimes at the loss of gain but likely with superior preservation of capital.

The only difference is the length of trend one wants to follow. Otherwise, they’re effectively the same. Entry and exit rules, no fundamentals, seeking to ride a trend.

Agree?

Thanks for keeping the trend following torch burning. Keep up the good work!

Cheers,
[Name]

Where is the exit strategy with buy hold?

Pretty big issue to leave out if making the comparison to trend following.