This 'Can't-Lose' Investing Strategy Has Never Lost Money

Jimmy Butts's picture

Friday, May 12, 2017 - 12:00am

by Jimmy Butts

Believe it or not, there’s a simple investment strategy that has never lost money in the stock market.

I’m not kidding: a six-decade-long study by Oppenheimer actually proves it. The strategy is not flashy, it’s regularly ignored, and it’s often belittled by “active” fund managers (who coincidentally seem to underperform the market year after year).

But the truth is, you don't have to trade every day, every week, or even every year to beat the market. In fact, your odds for success actually increase with the fewer trades you make and the longer you hold.

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Buy-and-Hold Stock Investing For Better Returns
The proof comes from Oppenheimer, who looked at the S&P 500 going all the way back to 1950. Over that time, the S&P 500 has NEVER suffered a loss over a 20-year period.

The same can’t be said for investors who hold stocks for just a year or two. The research shows that when you hold stocks for a short period of time, your odds of losing money are much higher. And you can lose a boatload of money in a hurry. In fact, in its worst one-year period, the S&P 500 dropped and hold, forever stocks, long investing

Just look at the chart, which is based on this research. On a rolling annual basis, the S&P 500 has dropped 16 times over a one-year period since 1950, but zero times in any 20-year period.

Sadly, while all the evidence points to longer holding periods being better for your portfolio, most investors are doing the exact opposite. Investors once held stocks for an average of eight years in 1950 according to Ned Davis Research. Today, Ned Davis says the average holding period is just eight months.

You could choose to join the average investor in ignoring these facts, but the trend is clear. The longer you hold an investment, the better your chances of making money.

How To Find Stocks Worth Owning Forever
While it’s true that the longer you hold stocks, the better your chance for success, you can't just buy any stock and expect to come out ahead. The market is littered with Enrons, WorldComs, even General Motors. Holding forever didn't matter a lick with them.

Here’s how to start. Find a handful of companies that enjoy huge (and lasting) advantages over the competition. Find companies that pay their investors each and every year by dishing out fat dividends And find companies buying back massive amounts of their own stock.

My research team and I have put more than $1 million into research on the impact of holding stocks "Forever," and simply put, we’ve found that these are the kinds of companies that make you money over the long haul – through good times and bad.

The Takeaway
Warren Buffett has long said his favorite holding period is "forever,” and for good reason. A long-term, buy-and-hold stock strategy takes patience, but it is simple and has been proven over long periods of time. So if you want to make money in the market, skip the day trading and focus on a timeless strategy that will help you sleep better at night and collect reliable returns over the long haul.

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Jimmy Butts does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.