Zweig: Tie Yourself to the Mast -- Or Don't Buy Stocks

With stocks at all-time highs, is it time to bail? Not if you want to make money over the long haul, says Jason Zweig.

On the Wall Street Journal’s Total Return blog, Zweig responds to a reader who contended that continuing with a buy-and-hold strategy “when you see a train [that is, a market downturn] coming at you” is foolish. “If only it were that simple,” writes Zweig. “Does history show that there are indisputable and unambiguous signs that consistently forewarn that the stock market is about to crash? There’s no such thing. Which market forecasters have reliably, repeatedly seen — and publicly warned about — the train coming down the track? None. Who discloses the complete track record of all market predictions, right and wrong, so we can evaluate the overall accuracy of prediction? No one.”

Zweig notes how few investors saw big downturns coming over the past decade or so — and that those big downturns were often preludes to huge gains. He says that his point isn’t that “all investors should tie themselves to the mast” — that is, put in place measures designed to force themselves to stay disciplined during tough times (a reference to Ulysses, who asked to be tied to a mast so he wouldn’t succumb to the song of the sirens). “It was that if you can’t tie yourself to the mast, you probably shouldn’t buy stocks at all — because your willpower alone will not be enough to enable you to stay the course. And the ultimate benefits of owning stocks accrue only to those who can buy and hold. Investors who either can’t afford to take the risks of short-term losses or can’t stand the psychological trauma don’t belong in stocks — and should feel no shame about staying on the sidelines.”

Zweig also offers some interesting data on just how much stocks returned over the past two turbulent decades — it’s more than you might think. “Along the way,” he says, “investors lost roughly half their money twice, in 2000-02 and in 2008-09. That’s what stocks do.”

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