On the issue of Buy-n-Hold, I agree with Gadda. I see why he mentioned the 401(K) exception now. True, in 401(K) accounts and IRA's investors may tend to get more complacent (and hence that effectively results in a buy-n-hold strategy).
The managed mutual funds mostly recommend this strategy to reduce turnover and redemptions. They are just trying to lock in customers for a long long period. They go one step further and lock you in for a few years when you buy class A or class B funds (i think).
The "advisers" recommend it because they have already made their sale once and will be earning on that sale for years to come (read mutual fund load). This means they have no incentive to refer their client to switch to another mutual fund or stock. Besides "advisers" are mostly dumb - at least the ones I met in Utah. They are just a little more than glamorous "car salesmen" peddling insurance, stocks and funds to unsuspecting "investors". We are far more smarter than to trust a fin. adviser.
My rants and cynicism aside, buy-n-hold truly has no evidence of beating the market. At least not to the extent that it is purported to be. Diversification does. But as soon as you mention Diversification - people jump to mutual funds! Managed mutual funds are a scam. Under the name of diversification they turn into these behemoths - its a lot like putting your chips on every number on the Roulette table in case you were to miss the winner. Many of them are simply pointless. Picking a good managed mutual fund is just as (or maybe more) difficult than a stock. Its almost like trying to hire a good stock picker (very few of these around, Peter Lynch, Bill Nygren, Buffet, ?Tom Gardner?, etc.).
Finally, the strategy recommended by the author, of owning just four sector funds in which sectors are picked on intermediate-to-long term demographic trends, economic activity, etc (macro stuff) does seem appealing. I actually think the strategy used with ETF's would actually have some merit (he recommends 4 matching ETFs in his article at the end). It would be interesting to find out if this has been previously employed by a money manager on a large scale and what the returns have been. The Macro trends are not easy to pick either. Besides, its yet another buy-n-hold variant.
IMO, the individual investor, i.e. people like us, can never be a successful buy-n-hold investor. There are a couple of reasons for that:
1) One person alone cannot track more than a handful of stocks, not consistently over years and years. Its just not our job - we are busy with our "paying" jobs, our lives, etc. So Diversification goes out of the window. Even with just a handful of stocks (say 8 stocks) it is a lot of hard work to keep up with the research, competetion, etc.
2) The individual investor does not have the resources available to him/her that fund managers have. This is a slightly falacious argument. The internet is perhaps the biggest resource and if you are willing to shell out the money you can read almost any report that is also available to a fund manager. The true resource shortage though is time. The fund manager has assistants and interns and employees at his/her disposal to read stock reports, industry competetion, etc. It may be possible for an individual investor to perform these activities for a limited time until he/she has enthusiasm or anxiety about a stock they own, but to keep up with the research over years and years and not have your judgement be affected by market volatility is a very hard feat to accomplish.
Market volatility, media noise and impetuous decision making are more likely to affect the judgement of the individual investor. There are few of us who have that detached, scientific almost surgical attitude towards what we own. This results in more than average failed attempts at buy and hold by mom-n-pop individual investors. What do they do when they realize this is just not working? They buy and hold a managed mutual fund!! After all, the experts know what they are doing, right?
What does this say about investment clubs? I think a lot. For investment clubs run by amateurs, like us, we are a lot like the impetuous individual investor that gives up after some failed attempts. The difference is that we hope to level out our anxiety by relying on each other's judgements from time to time. Its a very effective model - but it has nothing to do with buy-n-hold!? There is nothing about an investment club that makes them a better buy and hold investor than the managed mutual fund. And we know that the managed mutual funds aren't doing great anyway. So from a performance point of view, we are just slightly better than the mom-n-pop impetuous individual investor. Thats hardly a worthy goal to achieve.
Should we really put so much emphasis on buy and hold in our club?? What do you guys think?