THE PROBLEM WITH BUY & HOLD

The Basis of WBI’s Unique Investment Approach

At WBI, we believe preserving capital to unleash the powerful benefits of compounding is the most important element of a successful investment approach. Yet for many years, investors have been led to believe conventional buy and hold wisdom featuring a well-diversified, low-cost passive index approach is the key. While this works well in a bull market when investing looks easy, it can cause people to bail and fail as bear markets expose their savings to more risk and loss than they are willing to tolerate. 

Since 1900, significant market declines occur more frequently than people think. Every four years, the market declines 20% and every six years 40% on average.1 From the 2007 market high to the 2009 low, the Dow Jones Industrial Average declined 53.78%. 

Buy and hold theory was founded on a 1970’s study suggesting if you try to avoid large losses, you will miss the 10 most powerful positive days of return. Without those days, the 40-year-old theory says, investing is not a worthwhile endeavor. WBI believes investors continue to be harmed by a flawed buy-and-hold philosophy that focuses on returns instead of preserving capital and the power of compounding.

Source: Bloomberg, 2018. Indices are not managed and may not be invested in directly. Past performance is not indicative of future results.

Over 30 years ago, in search of a better way to invest, WBI rationalized the flawed “best 10 days” buy and hold study to see how the 10 best or worst quarters affect an investor over a lifetime of investing. We assumed a hypothetical investment of $100,000 in the Dow Jones Industrial Average from 1950 through 2018. Here is what the illustration indicates:

  • A buy and hold approach would have grown capital to  $11,656,154.
  • If you missed the 10 best quarters of return, your investment would have greatly suffered with an ending capital balance of $2,286,627.
  • Missing the 10 worst quarters turned out to be 7 times more powerful than a buy and hold approach turning $100,000 into nearly $83 million.
  • As it turns out, even if you had to give up the 10 best quarters to miss the 10 worst quarters, you would have built 40% more capital than a buy and hold investment in the Dow, ending with $16,278,855.

The results from WBI’s original best and worst quarters study formed the basis for our unique investment approach. WBI’s active risk-managed investment process seeks to reduce loss and increase compounding efficiency in both good and bad market cycles. We offer investors an alternative to the typical bail and fail experience they can have when trying to buy and hold during bear markets. 


Past performance does not guarantee future results.

All economic and performance information is historical and not indicative of future results. This is not an offer to buy or sell any security. No security or strategy, including those referred to directly or indirectly in this document, is suitable for all accounts or profitable all of the time and there is always the possibility of loss. Moreover, you should not assume that any discussion or information provided here serves as the receipt of, or as a substitute for, personalized investment advice from WBI or from any other investment professional. To the extent that you have any questions regarding the applicability of any specific issue discussed to your individual situation, please consult with WBI or the professional advisor of your choosing. This information is compiled from sources believed to be reliable, accuracy cannot be guaranteed. Information pertaining to WBI’s advisory operations, services, and fees is set forth in WBI’s disclosure statement in Part 2A of Form ADV, a copy of which is available upon request.

Dow Jones Industrial Index: comprised of 30 large, publicly owned, U.S. based companies.

You are not permitted to publish, transmit, or otherwise reproduce this information, in whole or in part, in any format to any third party without the express written consent of WBI Investments, Inc.

1 Schreiber, Don, Jr. “The Ugly Truth About Buy & Hold.” WBI Investments, 2018.