The case against buying and holding stocks for the long term

By Joseph Adinolfi

The number of stocks outperforming the index over time is shrinking, increasing the need for active managers to be nimble

Holding stocks for the long term isn't a surefire winner.

For decades, Wall Street's golden rule has been to buy winning stocks and hold them forever. But according to Adam Parker, founder of Trivariate Research, that strategy may be reaching its expiration date.

The rise of short-dated options and leveraged ETFs has helped to supercharge the gap between the winners and losers in the stock market. As a result, the percentage of stocks outperforming the S&P 500 SPX over the long term has fallen.

Over a 10-year holding period, only 23.2% of S&P 500 stocks actually beat the index, Parker found in a report shared with MarketWatch. Shrink the time frame to three years, and the hit rate is barely better than 27%.

Blame the era of the megacap: Heavyweights like Nvidia (NVDA) have concentrated market gains into a select few hands. If you weren't holding memory companies, semiconductor makers or the "Magnificent Seven" at the right moment, you got left behind, Parker told MarketWatch.

Investors have gotten a taste of this dynamic this year, as the number of "negative beta" stocks in the S&P 500 - that is, stocks trading inversely to the broader index - has risen to the highest level in recent memory.

Even skilled stock pickers are finding that time is working against them, Parker found.

According to Trivariate's analysis, an investor who consistently ranks in the 70th percentile of stock picking outperforms the S&P 500 when rebalancing annually. But extend that same stock picker's holding period to three or 10 years, and those excess returns vanish.

"The number of stocks that have beaten the market is really small, but the ones that have beaten the market have beaten it by a lot," Parker said.

That means that instead of holding stocks for a decade, or five years, or three years, investors should be constantly alert for reasons to make changes in their portfolios.

As for what the best time frame might be, that is a more difficult call, Parker noted. Investors should remain on their toes and always attuned to near-term risks to their specific portfolio holdings. At the same time, they should always be weighing new opportunities.

-Joseph Adinolfi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

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09-24-26 1506ET