The death of buy-and-hold investing has been greatly exaggerated

RELATED QUOTES

SymbolPriceChange
CCL.AX9.41+0.090
CSL.AX67.68+0.150
^AXJO5,454.20+33.90
WES.AX42.98+0.250
WDC.AX10.65+0.110

The saying goes that it’s impossible to time the markets, and rather “time in the market” is a better way to generate out-performance from your share portfolio.

The last two years is proof of that.

At the end of 2011, after the ASX 200 index (^AXJO) (XJO.AX) had experienced a 15% fall, many investors may have become disillusioned with the stock market and bailed out. 2011 was just the second time in 30 years the Australian sharemarket delivered consecutive calendar years of negative returns. Ouch.

Not surprisingly, investors responded by pulling money out of the market.

Fears over sovereign debt issues in Europe, including the exit of Greece from the European Union and a slow recovery in the US were front and centre in many investors’ minds at the beginning of 2012.

But, despite the myriad issues during the 2012 calendar year, with the European crisis dragging on, and new issues arising such as the US fiscal cliff, implications of the carbon and mining tax locally and the apparent end of the mining boom, the local market managed to reverse the loss of 2011, swinging to a rise of around 14% (19% including dividends).

Those investors who bailed out in late 2011 or early 2012 have now missed out on significant capital gains, as well as dividends. And now we have plenty of newspaper reports suggesting that investors are pouring back into the market, most likely spurred on by last year’s performance.

For all I know, the market could reverse course again this year, and we could see a 20% or more drop in the market, as new threats arise. What those investors will think if that scenario unfolds is unknown, but I imagine it could scar them for life.

For those investors who were part owners in quality companies at the beginning of 2011, and have stayed invested, positive gains plus dividends are likely their results. As an example, CSL Limited (CSL.AX) is up over 44% since January 2011, while Coca-Cola Amatil (CCL.AX), Wesfarmers Limited (WES.AX) and Westfield Group (WDC.AX) are all up more than 12%, not including dividends over the past 24 months.

Those results speak volumes.

Jumping in and out of the market is a mug’s game. Time in the market is much more likely to lead you to impressive portfolio returns.

Foolish takeaway

While we could see a better year ahead, 12 months should be viewed as a short-term period. Foolish investors, who buy and hold shares in top-quality, dividend-paying Australian companies at a cheap price, will reap the dividends (both literally and figuratively) over the long-term.

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Motley Fool writer/analyst Mike King owns shares in CSL. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Market Data

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