Is buy and hold, a bad strategy?

With the recent collapse of so many icons of American capitalism, is a strategy of "Buy and Hold" such a good idea?




I think that taken by itself it is more important now than ever.




If taken in the context of buying and holding Blue Chip stocks, I am not so sure anymore.




My approach to navigating this market, while I've been unconsciously doing it for some time, is to buy and hold real tangible assets as my core portfolio. I didn't realize that I was doing this until I went to analyze my over all position and portfolio allocation, which I do periodically to check my"investor psychology".




This is really a 180 degree shift.




The collective wisdom of the past was to buy and hold blue chips and speculate with risk capital(money you can afford to lose), in other markets such as commodities, energy, tech and Bio-Tech.




As it stands now I find that I sleep better at night knowing that my real wealth is protected by hard assets. When you look at some of the monsters in the financial industry teetering on the brink, I wonder if they are in any stronger position than Bernie Madoff was prior to his collapse.
Take for instance B of A, a year ago they were trading at 40 bucks now they are worth 5 and standing under the bailout TARP



Yeah I know that Bank of America deposits are insured by the Government, but who insures the Government?



We do, the people, with our tax dollars. And despite what some politicians believe, that is a finite and unpredictable number. It is a dangerous merry go round that the Government is on. As the economy worsens, they continue to bail out failing companies. Companies that still cut jobs and production with the end result being a smaller tax base.



Fewer workers, fewer payroll taxes.



Less production, less profit for the corporations and therefore less corporate taxes.



Less sales, less sales tax collected.



President Obama has stated that he is not concerned with deficit spending, but I am and we should all be. With foreign nations less willing to buy our debt, the only other way to fund his stimulus plan and various other programs is through the printing press.



Sure he could raise taxes but I doubt that he will do this. Despite the rhetoric the Democrats know that tax hikes in this financial environment would be a disaster.



So that leaves increasing monetary supply as the only avenue.



This is the big picture; Monetary supply has doubled from this time last year, which means that you have half the spending power that you had a year ago.



Don't let the fact that we have had a dramatic drop in the price of fuel as well as other commodities, lead you astray. These things take time to work through the system.



In fact this lag is itself the very opportunity that we should be looking at.



I am looking at this sale in precious metals the way I would have looked at a major pull back in Boeing two years ago.



Or Johnson and Johnson, Dow Chemical, Lockheed Martin even Exxon. Had someone told me last year that I would be able to buy these names at the current prices, I would have thought them insane.



But now, looking at precious metals, I see that they must rise in price and I don't have to know when, I just have to know when they are on sale and then buy and hold.



A very good analyst that I trust, points to a possible, further pull back in metals before they take off to new heights. It's possible. I don't think it will happen, but because I trust his conclusions, I am putting some extra cash aside in case it does. And no, I'm not selling my real metals. Those I will hold for the foreseeable future. Don't try and time this market it is still way too volatile. Buy the dips and hold. Build your positions.



Another position that I will be hanging onto is the short position on treasuries(TBT)(see Obama Bounce? Dated 1/08/09) Again I don't know when these things will happen but in the big picture they must happen.








Good Luck and Godspeed





JT




Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.