A lot had been said of the value of by and hold in the long term. Many investment book in the market talk about the US market, so the example commonly encountered is the Dow Jones Industrial Average (DJIA).
Take a look at this long term chart:
The continuous long term up trend is easy to see. Despite some major interruptions the buy and hold strategy offered excellent rewards over the years. (If one had brought during the peak of 1930, it would have taken over 25 years to recover the initial capital),
How about the Singapore market? Take a look at the Strait Times Index (STI).
Hardly any headway over the last 20 years. Notice that the DJIA is also flat over the 1960s to 1980s.
Can we use the past to predict the future?
Bare in mind that the component of the all index changes over time. A company that existed in one period may crease to exist in another. However the purpose of an index is to capture a fair view of the stock market performance.
Many believe that the long term is getting shorter and shorter – a result of technology, faster information and global market interaction.
Market timing, often discounted by academics and fundamentalist is increasing important. While the long term may be flat, there are shorter periods that present substantial gain. Knowledge and tools such as technical analysis are gaining an edge over time (in investing long term).
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