"Buy and hold" is a myth and dangerous lie

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by Trivirus

Arguably the greatest piece of propaganda perpetrated upon retail investors (such as you and me).
The first is that if “buy and hold” were so great, why do institutional investors, who have been working in finance their whole careers, choose to sell assets when the market is near or recently surpassed its peak? Words mean nothing, actions say everything.
You MUST realize, contrary to what your broker/advisor says, that if the big money is selling, the price plummets, and you’re left holding the bag. Why would you VOLUNTARILY soak up the damage to your portfolio while they bag the money? You’d have to wait years to recover the original price you paid.
The fact is bubble economies are becoming more and not less dangerous and prone to severe corrections. We had the stock market crash of 1987 (23% decline in one-two days), the Nikkei decline (almost 80% over 5 years, which it still hasn’t recovered fully), the Nasdaq bubble, the housing bubble, the Shanghai Stock market crash in 2015 (lost 47% in half a hear, still hasn’t recovered fully), etc.
To understand why this is happening, you need to look at the underlying causes – debt deflation, the erosion of the middle class, the jobs crisis, record inequality, and quantitative easing/ZIRP on a scale never seen before in thousands of years (which inflates bubble economies all the more so).
From WW2 to roughly 1975, the middle class in Western countries saw unprecedented increases in their standards of living. They were also saving a decent amount of their income to weather economic recessions. Since then, the combination of offshoring, deregulation, public sector cuts, the rise of finance (FIRE) sector as a % of overall growth, automation, increased healthcare costs, and increased amounts of household debt to fund “lifestyle payments” hollowed out the working class. They can no longer buy the things they want (only what they need) without jeopardizing their budgets.
If the bulk of the population is living near poverty, then the real economy lags behind. This is where central banks come into the rescue with cheap credit. Borrow more! Of course, this cannot go on forever, and sooner or later the entire system crashes as asset prices fall back in line with the “real” economy.
Keep an eye out on the yield curve + economic data and act accordingly.
I have 2 hypotheses why the market hasn’t corrected yet, but will soon.
The first is that while greed and fear traditionally play the biggest role in short-term market movements, the rise of ETFs and indexing simply means retail investors throw money regardless of future returns. They think the stock market is a money printing machine and 2017 returns (21%) are the norm.
The second is that people who were still haunted by 2008-2009 are just now getting into the stock market. My dad is a perfect example – knows almost nothing about investing/reading a balance sheet, and decided to buy an ETF recently. He didn’t invest during the best years (2009 bottom to 2015) and chose to flip houses instead.
People like him are getting into the stock market right NOW, and they’re unlikely to sell even though volatility is going to arrive with full force in 2018. People shorting the VIX will be obliterated, and those people who were told to “just buy every dip” are going to suffer massively when the real crash comes.

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