Wednesday, July 22, 2009

* Should You Still Buy-And-Hold Stocks?

The buy-and-hold investment strategy has taken a lot of abuse since the market turned down. But this isn't the first time it has happened. It seems that each time the market cycles down, the same group of naysayers come out proclaim buy-and-hold as dead and attack it most visible proponents like Warren Buffett, John Bogle and Jeremy Siegel. Eventually, the market turns, the naysayers disappear and the buy-and-hold investors make a lot of money.

In yesterday's article, I noted that Jason Zweig had called into question the validity of data used in Jeremy Siegel's book "Stocks for the Long Run". Given the recent market declines and credibility questions, has Mr. Siegel abandoned his long-held beliefs in "buy-and-hold" and "stocks for the long run?"

To the contrary, Mr. Siegel in a recent MSN Money article was very adamant about his position. Below are some of the relevant points he made:
  • Over the 10 years that ended in May, stocks have returned a dismal -1.7% per year
  • There have been other 10-year periods during which stocks have recorded even bigger losses
  • Stocks are still the best long-term investments
  • Over periods of 20 years or longer, stocks have never lost money, even after inflation
  • After reaching such a low, stocks' average return for the next five years has been almost 9.5% annually after inflation
  • Research has shown that investors would have done better if they had tilted their portfolios toward value stocks
  • Dividend-weighted indexes have outperformed value indexes over the past 10, 20 and 30 years
I have long been an advocate of selecting Dividend stocks using a Value based approach (hence the name of my site Over time, low priced, quality stocks that pay an increasing dividend will out-perform their competition. Here are several of those stocks pulled from my Dashboard:

Automatic Data Processing Inc. (ADP) - Analysis
Automatic Data Processing Inc. is one of the world's largest independent computing services companies, provides a broad range of data processing services.
  • Buy Price: $40.86
  • Recent Price: $35.11
Dover Corp. (DOV) (ADP) - Analysis
Dover Corp. manufactures a broad range of specialized industrial products and sophisticated manufacturing equipment.
  • Buy Price: $37.06
  • Recent Price: $33.25
Emerson Electric Co. (EMR) (ADP) - Analysis
Emerson Electric Co. primarily makes backup power equipment for telecom and Internet providers and users, climate control components, and electric motors.
  • Buy Price: $38.34
  • Recent Price: $33.20
Johnson & Johnson (JNJ) - Analysis
Johnson & Johnson engages in the manufacture and sale of various products in the health care field worldwide.
  • Buy Price: $62.17
  • Recent Price: $58.96
United Technologies Corp. (UTX) - Analysis
United Technologies Corp. is an aerospace-industrial conglomerate with a portfolio including Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators and Carrier air conditioners, among other products.
  • Buy Price: $73.14
  • Recent Price: $53.75
Even in investing, fads come and go, but quality will always endure. When the chips are down, go for the blue ones.

Full Disclosure: Long EMR, JNJ, UTX. See a list of all my income holdings here.

Tags: [ADP] [DOV] [EMR] [JNJ] [UTX]