Buy-and-Hold Brainwashing
N E W Y O R K, Nov. 24, 2000 -- — Buy and hold. Yep, that’s the ticket. You buy Portal Software and you forget about it. You buy Harmonic Lightwaves and you forget about it. You buy Webvan and you forget about it. Buying and holding is always right. Even when it is wrong it is right. Even when you lose everything, it is right. It is right because there is no such thing as wrong!
There. That’s an actual rant, one that I delivered to our trading desk right before I left the office on Wednesday, after I heard the umpteenth investment adviser/mutual fund manager talking about buying and holding on television.
This buy-and-hold stuff is the most amazing justification for losing money I have ever heard. It is simply extraordinary how it trumps any sort of judgment about profits going up in smoke. People offer it as the palliative to all of their giant losses. It makes me sick to my stomach. When this era is over, the buy-and-hold brainwashing will take its place (along with portfolio insurance, from the 1987 period) as the silliest reason yet to lose hundreds of millions of dollars in the market.
Use Your Brain
Do I agree with the concept of buy and hold? Indeed I do, if nothing is wrong with the merchandise. But if the merchandise turns out to be faulty, do you buy and hold it? No way. During this era, a lot of faulty merchandise got bought with no intention to sell. And it is killing people.
Please, please don’t use this simplistic justification for owning things that aren’t any good through a difficult period. Ask yourself whether everything is fine at the company. Ask yourself whether the industry the stock is in has fundamental problems. Ask yourself whether management is good enough to fight through a downturn, whether there is enough cash to last through a downturn and whether the balance sheet is strong enough.
If you can’t answer those questions, perhaps you shouldn’t be buying and holding. Maybe you should be evaluating and selling. Buying and holding is not a good excuse for losing a lot of money. Use your brain! Don’t sit on something that’s not worth sitting on because of the collective buy and hold theology that prevails these days. Often it is just plain wrong.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.