This blog demonstrates how the current resilience of equity markets has been giving “buy-and-hold” investors confidence in the wisdom of a passive investing strategy. However, if you put the S&P’s recent performance onto a larger playing field, that confidence might easily be shaken.

[Click on the graph to enlarge]

In the graph above, the S&P’s current five-year, 2,039-day run (from points C to D) looks very impressive, with a total growth of 147%. However, there is a great deal of “wasted time”—i.e., the first 1,440 days (C to B), or 70% of the current run—which was spent recovering from the prior 52% loss (A to C).  The desire to follow a buy-and-hold strategy, despite the realities shown above, stem either from one's “faith” in that strategy or “fear” of making poor buy and sell decisions within the market’s periodic cycles.

Buy-and-hold investors can certainly convince themselves that their faith, at least this time around, has allowed them to enjoy a great five-year run. But they (as well as anyone else with a planning horizon of more than five years) are best advised to recognize that during the last 7½ years (A to D) the S&P has actually netted a total return of only 30%, an average of less than 3% a year over that span.

Subscribers to Compass Investors HORIZON™ get the benefit of a more frequent reallocation cycle that allows them to minimize their losses in down markets and increase their gains during up markets. For example, during the five-year period (from points A to B) in which the S&P had zero net gain, HORIZON™ subscribers saw their portfolios grow on average almost 31%. And, for the last 7½ years (A to D), while S&P investors were netting 30%, Compass Investors' subscribers netted just shy of 62%—twice as much growth.

Market anomalies can lead any investor to find themselves out-of-sync with the market. However, our active approach allows you to more quickly adjust to actual market conditions, unlike any passive approach. Thus, our strategy—guided by objective, regular analysis activated on a strict periodic basis—helps you avoid the “wasted” volumes of investment time (such as points A to C above) yielding much more successful results over the longer term.

If the HORIZON™ service is not yet available at your company, or if there is someone you know who could benefit from consistent and effective investment analysis, contact us to investigate the possibilities.