Buy and hold investing (I like to refer to it as “sit and take it”) has such a hold on the population that a recent Wall Street Journal story points out that the majority of investors—61%—have made no changes to their 401k allocations since the stock market began to decline. If investor behavior works like it has historically, most of the 39% who did make changes probably did the wrong thing.
Frankly, even investors who did nothing had their allocations change dramatically, because the market movement changed their allocation for them—although maybe not in the way they intended. Standing pat has just as many consequences as any other choice.
Various financial advisors quoted in the article give widely varying advice on what clients should do, as if they weren’t confused enough already. One advisor says many new clients “are arriving with portfolios heavily weighted in cash and questions about when and how to enter the market.” In other words, they are dazed and confused.
I can’t think of a better argument for an adaptive, systematic investing strategy. A systematic strategy gives you a plan of action that can be followed in all markets. An adaptive plan changes holdings as the market environment changes. Not every change will work out perfectly, of course, but a systematic, adaptive plan that exploits a factor known to outperform over time (like relative strength) gives you a good shot to do the right thing.
—-this article originally appeared 8/27/2009. Investors still have a lot of cash (and now bonds!) and are still wondering how/when/if to get back into the market. An adaptive, systematic investing strategy is still critical.
