In Defense of BUY and HOLD

If you read the heading you would not really believe that I can be writing this. I mean I am a trader and therefore BUY and HOLD by definition has to be anathema to me. If I recommend BUY and HOLD then I will be just about signing on my own death warrant as a trader. But, I do recommend it and I hope that by the end of this note you will too.

In the last ten years i.e from June 2001, Nifty is up from 1107 to current 5520 a gain of almost 400 percent. That is a pretty large number and a good enough reason to recommend a BUY and HOLD. But then when one looks at other developed market indices like the S&P one gets a different picture. This index has moved up only 3-4% in the last 10 yrs. Nasdaq is up around 25%. The less said about Nikkei the better. Despite falling since 1991, it has fallen another 25% in the last 10 years. The Equity markets as a whole therefore are sending mixed signals when it comes to BUY and HOLD. To top that, I cannot think of any single factor which should turn things around for equities in the next 10yrs. If anything even the emerging markets might go the way of the US and other developed markets over a period of time

 

But one asset beats everything including Nifty and other emerging market indices and that is Gold and Silver. Gold is up more than 450% and Silver a jaw dropping 800% in the same period. Clearly a BUY and HOLD in precious metals would have been very very rewarding.

 

You might scoff and say that this is all very well since it is actually backward looking. That Gold and Silver have given the best return amongst many assets in the last 10 years does not say anything about their potential for the next 10yrs. What could be the one fundamental factor driving a BUY and HOLD in precious metals. You ask for a reason and I give you just one- BIG BEN. I submit that you  underestimate the ability of that man, the man who lives in an "Alternate Reality" at your own peril. He is determined to keep using "The Invention that Changed the World" and when he does that the one thing that is going to get crushed is the value of most paper currencies. The only thing that can then be a store house of value will be The Metal with That Color Yellow or the other one with That Color Silver. So despite the fact that even I am vulnerable to "The First Law of Human Nature" I will confidently state that a BUY and HOLD in GOLD will not be value destructive in the next 10 years.

 

Meanwhile, since BUY and HOLD in equities is not something that I can justify, I TRADE the Nifty. Currently I am short and I will cut the short positions and go long my maximum allowed exposure at the trigger of 5610.10