The Waiting Game

How long will “buy and hold” investors hold on to their stock market holdings before they get fed up and sell?

Here’s what I’m talking about:

— A recent survey of over 10,000 mutual funds (yes, there are that many) shows an average 12-month gain of only 0.6%.

— Despite the lowest interest rates in 46 years, the popular stock market averages like the DOW, S&P and NASDAQ are still lower than they were almost five years ago.

— GE stock sold for $60 in 2000; today it sells for $32.50. GM stock sold for $95 in 2000; today it can be had for $47.50. Boeing stock once flew at $70 a share, today it sells for $50. Even mighty Wal-Mart, which sold for $70 in 2000, only sells for $55 today.

— The meltdown in big-cap stocks has also encompassed high- tech stocks. You can buy Microsoft stock for $5 cheaper today than you could almost six years ago.

I’m not sure who was the inventor of the “buy and hold” strategy, but it’s not working. The key for me, in respect to any market or individual stock, has always been to get in and out at the right time.

Many investors have placed their retirement funds in big-cap mutual funds that have gone nowhere in the past five years. Unfortunately, with interest rates set to rise, we may not see the high stock prices we saw in 2000 for some time to come, maybe even years.

Anyway you look at it, the longest bull market in big-cap stocks in years looks like it is being followed by a long bear market.

I think the investing public is finally waking up to the poor stock market returns of the past five years. And I believe this explains the light volume we’ve seen recently on the NYSE. But at the same time, however, there is no urgency by investors to sell the big-caps.

The waiting game will be over when investors’ mood changes from one of holding big-cap stocks and big-cap mutual funds, with zero or negative five-year returns, to opting out of these equities for higher returns (maybe even safety of capital) elsewhere. This is when you’ll see the current market trading range break out on the downside.