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By Dan Culloton | 05-28-2009 02:31 AM

Three Takes on the So-Called Death of Buy and Hold

Jack Bogle, Chris Davis, and Dodge & Cox's Diana Strandberg offer their take on the supposed demise of a buy-and-hold investment philosophy.

Jack Bogle (Founder and Former Chairman, The Vanguard Group): Buy and hold is eternal. There is no way around it. ... But I do think a very important point is what do you mean when you say buy and hold? I am a buy and holder, but that doesn't mean I buy and hold the stock market.

I buy and hold the stock market and the bond market in whatever proportions appeal to me. And for me, I don't change my allocation very much, but for me, holding roughly by age the percentage in bonds that my age is, which is getting a little bit on the old side, means I am very conservative, buying and holding approximately 80% of my assets in bonds and buying and holding approximately 80% in stocks.

That is a sensible theory. It is an explainable theory, but we don't know what people mean when they say buy and hold.

Chris Davis (Portfolio Manager, Davis Funds): We've been in a world where very high volatility has made it very likely that businesses will trade above or below what you assess the range of fair value to be. And therefore you would expect somewhat higher turnover or shorter holding periods in that sort of environment.

So I would say that there were a lot of investment tactics that people thought were investment philosophies. Buy the dips. Buy and hold. Now, having said all that, of course we are long-term investors in the sense that we think over time, we want our returns to approximate the returns of the underlying business.

And we feel generally businesses trade roughly within their range of intrinsic value. We try to buy when they're below, we try to sell when they're above, but most of the time, they're somewhere in that gray zone.

So our turnover will tend to be lower. Turnover has a certain cost and an uncertain benefit. And the certain cost in terms of taxes and transaction costs, false precision, all of these things tend to be something that you need to realize are real deductions from returns.

So putting that all together, the last thing I would say is that the chorus that cries out that buy and hold is dead will reach its crescendo at exactly the time that buy and hold should work going forward. In other words, when it looks worst in the rearview mirror is when it will be best in prospect.

Diana Strandberg (Portfolio Manager, Dodge & Cox Funds): We think--and one of the lessons we hope investors take to heart watching the current year unfold--is that persistence matters greatly to your long-term returns. To the extent that we continue to look bottom-up at individual companies and where we feel the valuations are attractive on a 3-5 year basis, we want to be able to persist as an owner of these businesses. And what the current market has taught us--and we've seen this in other instances as well--is that things can turn on a dime, and it's notoriously difficult to pick the moment.

So as an example--I went back because I was so curious to learn--what happened on March 10th? I went back and looked at headlines during that week, and maybe I missed it, but I didn't see a headline that said: "This is it! Get in!"

So that points to, you really need to be there and have that patience and persistence.

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