For nearly half a century, stalwart financial advisors have had a love affair with the buy-and-hold strategy, touting it to investors looking to maximize growth and minimize risk. But as anyone on the verge of retirement in the midst of the current global economic downturn can attest, this passive investing approach has proven anything but foolproof. The stock market meltdown has jeopardized both the largest and smallest of investment portfolios, and they could take decades to recover—years that the average investor does not have.
“While the academic and financial planning definitions of risk is changing at light speed, the notion of what constitutes ‘risky’ investment strategy for informed investors is stuck in the dark ages,” asserts Kenneth R. Solow in his groundbreaking book, BUY AND HOLD IS DEAD (AGAIN): The Case for Active Portfolio Management in Dangerous Markets (Morgan James Publishing; May 2009). “The old way of investing is a higher risk strategy than most classically trained investors believe it to be….Buy-and-hold is dead, at least for the moment, although it may take the investment industry a little while longer to figure it out.” Solow, the Chief Investment Officer of the Pinnacle Advisory Group, breaks the code of silence about the investment industry’s status quo reliance on the archaic investing model; highlighting buy and hold as a flawed and dangerous investment strategy to follow in secular bear markets.
As we weather perhaps the most ferocious bear market in financial history, BUY AND HOLD IS DEAD (AGAIN) outlines an innovative new portfolio management strategy for a new age. His “Tactical Asset Allocation” strategy combines unbreakable rules of investing—diversify and don’t buy overvalued assets—with a nuanced and common sense approach to portfolio construction. It is an investment strategy in which asset allocation is not fixed by passive long-term buy-and-hold methodology, but is instead actively managed to own asset classes that have the best value characteristics at any point in time. It countermands the faulty assumption that the stock market will continue to yield historical average returns during those times when the stock market is expensive and experiencing a long-term secular bear market.
“Solow’s one-two punch book delivers a compelling account that the old conventional wisdom of buy-and-hold should be a relic of history. Ken highlights that valuation significantly impacts potential investment returns. The modern understanding of secular stock market cycles drives his compelling knockout that active portfolio management is essential for today’s investor.” – Ed Easterling, Unexpected Returns: Understanding Secular Stock Market Cycles
Interpreting cutting edge economic theories for the average investor, Solow, who has over 25-years of financial planning experience and is responsible for managing more than half a billion dollars in investments, argues that anyone, regardless of prior training or experience, can convert from a buy-and-hold mentality to active portfolio management. In BUY AND HOLD IS DEAD (AGAIN) he offers a step-by-step blueprint for implementing a tactical investment strategy. The key lies in gaining expertise that allows the investor to develop a point of view about the markets, develop a high conviction about that point of view, and apply research to obtain new and interesting investment ideas.
Solow offers a detailed insider’s look at how active portfolio management can be implemented, and gives many practical examples of how to tactically invest your money to profit in difficult market environments. Solow leads investors through new ways of valuing assets, developing a point of view, and utilizing top-down portfolio analysis and bottom-up security analysis so that investors can take control of their own portfolios and enjoy gains even in secular bear markets.
“If the government fails to mop up the recent flood of liquidity, active asset allocation, as Solow advocates, will be required to adjust for a dangerous new inflation environment. This is an excellent book for financial advisors.” – Steve Leuthold, Founder and CIO, The Leuthold GroupWritten with a professor’s flair and an industry whistleblowers cry, Solow presents the new rules for investing in our challenging times. In BUY AND HOLD IS DEAD (AGAIN) Ken warns:
- There are two unbreakable rules for managing portfolio risk: You should diversify and you should seek undervalued assets
- Tactical asset allocation marries the best of diversification and valuation, but to take advantage of the strategy you must make forecasts about the investment markets in order to generate excess returns.
- Beating the consensus by making better forecasts is possible, as long as investors do the hard work of learning about market valuation, market cycles and technical analysis
- Tactical investors should use both qualitative and quantitative methods in making decisions about portfolio construction
BUY AND HOLD IS DEAD (AGAIN) is a provocative and thoughtful critique of the current state of the money management industry. If properly implemented, the tactical investment strategy Solow outlines is a far lower risk strategy than traditional approaches when markets are expensive. “The difference between tactical investors and buy and hold investors is that the buy and hold crowd doesn’t realize it is making a forecast and the forecast they are making is almost certain to be wrong in bear markets,” he says. Built on solid research, yet geared toward the average knowledgeable investor, BUY AND HOLD IS DEAD (AGAIN) is an invaluable investment guide for our financially challenging times.