Been hearing this a ton lately. Problem with the statement is it taking a blanket approach and doing that in anything, is wrong. Those who typically espouse it say that the S&P 500 has done a round trip over the past decade so those who “bought it” have made no money. But, do most of us “buy the S&P”? No one I know does.
I’m going to take a look at the longest holding I ever had…Altria (sold last December).
I bought it in late 1999 in the midst of the “Master Settlement” and Chapter 11 fears for them. The buying thesis was simple:
1- Addicts will buy their products
2- They can’t go Chapter 11 because those suing them (States) need the money they provide
3- Because of that, their long term health was assured.
The purchase price for Alria was $21.65 a share and when I sold it was $16.75. In addition to that I received $21 a share in the Kraft (KFT) spin-off (sold immediately), $48 a share in Phillip Morris International (PM) shares (still held and today worth $42).
Oh, and over the 9 years I held it I received $23.25 a share in dividends.
Here is a 10-yr. chart of Altria.
Now the temptation would have been to dump it in 2003 as it fell and then even again in 2004 as it dipped. But why? Just because the price fell?
Questions to have asked yourself then:
- Were the fundamentals of the tobacco business impaired?
- Did the legal environment deteriorate?
- Did management do something that changed the earnings profile of the company in a negative way?
The answer to all of those questions was no and in reality the legal environment improved steadily in those years to the point then CEO Camilleri said prior to the PM spin, “the current legal environment is the best we have seen it in years”.
So in 9 years here is the tally:
That is a 18% annual return over those 9 years for doing…….nothing…
A very similar scenario has unfolded with McDonalds (MCD) since I first bought during the “Mad Cow” scare. While not as extreme, and I did make the HUGE mistake of selling Chipolte (CMG) shares when I received them in the spin, it has been a fantastic investment.
Has the market done a round trip the past decade? Yes. Are there plenty of companies whom over that time have gone up/down and then back to start? Yes. BUT, if you buy it low enough and pay attention to its business environment/prospects to determine your selling time, you can avoid many of the losses.
Altria’s business environment never deteriorated over the 9 years and in fact dramatically improved over where it was at purchase. I sold it in December because I felt that changed and PM International has a superior one. The same can be said of McDonalds, it environment is still improving with its very successful move into coffee and consumer trade to value.
Have it missed any? Sure. Dow Chemical (DOW) comes to mind. I got caught up in the Rohm & Hass/Kuwait deals and their potential benefits while the surrounding business climate deteriorated. The stock fell to a low of $6 from $50’s in 2005 (my original cost was $26 in 2002). While I lost a bunch of unrealized profits, between $8 and $9 in March of this year I was able to lower my cost basis to $14 with several purchases. Again, when we add in $9.32 in dividends received since 2002, we are still up nicely, although not nearly as much as before..not nearly.
Am I selling Dow now? No. The Rohm deal is done and the business environment, while I missed the downside, looks to improve going forward. This will still turn out just fine eventually IMO, it will just take some time. We’ll see…
Beware of “X investing theory is dead” proclamations. There are plenty of value folks who do great, plenty of day traders who do great and plenty of swing/momentum ones that do. There are also plenty of all three that do awful.
Find good ones in the style that fits you and get to know them. Blogs & twitter allow unprescedented communications between investors, take advantage of it.
Disclosure (“none” means no position):Long PM, MCD, DOW, none
18 replies on “Buy and Hold Dead? Um…No”
Thanks for the illustration Todd. You do great work. If I gave you money could you make me money:).
Congrats on the newbie!
Hey Todd,
Just wondering if your dividends are reinvested?
Micheal … sure…
Jpeas…on Altria I actually did when I first bought it because the dividend yield at the time was double digits. I did not include that in the post because it would have made the math very difficult to explain clearly..
Good job, you came up with a flimsy vehicle for bragging about your home run…
"Hey guys, buy-and-hold isn't dead. For example, look how awesome I am."
thanks anon….appreciate the kind words…
would you have rather i chosen a bad example to make a point?
just curious..
That's a flawed question. The real question is whether you should have written the post at all…
Anon,
Todds trying to teach you how to become a better investor. You'd be wise to listen to what he has to say after all hes not doing this for his health.
Also, Todd isnt the only one cranking balls out of the park… there is a whole number of people doing the same thing. If you don't believe that value investing works then read here. I suggest an attitude change.
I for one owe Todd a lot of gratitude. Not because I trade lockstep with him (cuz I don't) but because he really first showed me how to become a better investor(most of that in a sh*tty "bear" market…whatever that means).
so…dont give people an example of when buy and hold works??
let them believe they have to trade actively?
or just make an example up??
I think it's more a question of knowing your audience. I firmly believe your audience is better-informed than the foolish masses and will, for the most part, roll their eyes at an observation like this. If you believe your blog's audience is the foolish masses, the post was perfect, but I really think you're going to have much better, lasting readership if you operate under the assumption that we already believe in value investing and would like to peel back the onion further.
Value investing works… we don't need convincing.
Any other readers, please feel free to chime in. I could be fully wrong about the audience here.
Ill chime in…
I'm new to investing and Todd has tought me many things. Yes value investing works, but Todd goes into how and why it works and explains the logic behind it by providing fundamentals and numbers.
FYI..I dont invest in everything Todd invests in either. Example: SIXF 🙂
Furthermore, your "knowing your audience" comment is naive because his audience is the WORLD WIDE WEB. Not everyone reads his blog but the exposure is to anyone that has access to the internet and or maybe interested in investing.
FYI I made money on SIXF stock performance 🙂
Todd,
It appears your stock spin-off's were paid 1-to-1 as your profit calculation indicates.
Did you receive 1 share of Kraft and 1 share of PMI for each share of Altria initially purchased?
Thanks
miz…
the kft was i believe .68 kft for each mo
pm was 1 for 1
anon,
the audience here runs the full range of investing knowledge and i write what i am thinking about any given day…
i make no assumption on my or anyone else's mental/investing superiority
micheal,
nice job on SIXF.. never had a position w/them..
god i hate that place 🙂
I guess I've just been giving myself false hope… I've had a really hard time finding blogs, journals, or news sources out there dedicated to really hardcore value investors who have been at it for a long time.
Do you have any suggestions for places to look for this kind of thing? I'm not a huge internet user but I'm dead set on finding some good sites out there. I imagine you follow some blogs that are more focused on really in-depth, ongoing analysis. I've found Noise Free Investing to be pretty promising, but it's too early to tell.
Any suggestions would be awesome…
It is pretty much outright disingenuous to offer an example of an investment that yields 43% annualized and follow with some half-ass, barely literate explanation of how it was achieved.
Earning 43% annually over nearly a decade is way beyond many of the best investments made by Warren Buffett, Bruce Berkowitz, Eddie Lampert, and basically every other top professional investor.
The fact of the matter is that Todd Sullivan is a provincial individual of limited abilities, means and intellect, and who is writing a blog for the income it generates.
It is not possible to be a serious investor and write a blog at the same time. Thus, you must take it all with a grain of salt. The information is worth what it costs you: nothing.
if PM and KFT are spin offs then you should adjust (reduce) your cost base and not add their proceeds as profit, only add the appreciation from the spin off date.
if you count Kft and PM as dividends then add them to your total dividends as income and do not adjust MO cost base when calculating your MO apporeciation.
either way you made money but way less than what you calculated.
Janis
anon,
"how it was achieved"…. easy…me buy stock…me hold…me sell stock later….
BTW folks…no more anon comments. if u want to comment, get a name…