At Wanderer we recognize there is no one-size-fits-all investing solution for every person. Depending on where you are in life, or in your current wanderings, what you need out of your investments will change. Someone who is twenty-four, has $15,000 saved, and is working on a five-year plan to get out sailing for a year will want to be quite aggressive with his trading. The forty-five year old who is setting off to RV all of the National Parks over the next two years might want a focus on dividend income much of the time, with some more active trading when they settle into a campground for a couple of weeks. The sixty-five year old who owns his boat, and is setting off to spend a few years cruising the Great Loop and hanging out in the Bahamas will likely be happy with more of a buy-and-hold portfolio with a smaller bit of dividend income, and just occasional trading. Because of these differing circumstances, we've created model portfolios to cover all the bases.
Traditional buy-and-hold theory would have you buy a stock and never look at it again. Wanderer buy-and-hold is a bit different. We believe there is a place for buy-and-hold, but that it should be managed. Not managed to the point where you are constantly buying and selling, but managed in a way that causes you to at least consider that there may be better uses for your money.
What do we mean by that?
Well, let's look at an example. Pretend it's January 1999 and you're looking for a hot stock that isn't tech related. You're at the mall, and of course the first place you go is Old Navy to see what's new. Old Navy (owned by Gap Inc.) has exploded in popularity, becoming the first retail chain to do a billion dollars in sales in just its first four years. The Gap was no slouch at the malls either.
The stock (GPS) is trading at $42 when you buy it with your $1,000 Christmas bonus money. You're going to tuck this one away and not look at it for twenty years when it will surely have grown to ten times that amount.
You peek at it periodically, and the next January it's trading for $44 and you're happy with the 5% return because you're in it for the long haul, and even 5%/yr is going to add up to some hefty gains.
But then the Great Recession sets in. Economic activity grinds to a halt. Mall traffic drops sharply, and so does GPS stock, tumbling to $14 after just three years. You shrug your shoulders, and resign yourself to the fact that this is a buy-and-hold stock and you will just wait patiently.
Another decade passes. It's January 2013 and the world has changed dramatically. Malls are a lot less cool, as is Old Navy, though it still does a brisk business in cheap t-shirts. Everyone has a phone in their pocket, and people do a lot of shopping online. In fact, a website you used to use to buy used books now sells just about anything you can possibly imagine.
Your GPS stock is now trading for $32, down about $10/share, but with the small quarterly dividend you're probably only down $100 or so. Not bad, right? Fourteen years invested and you've got about a 10% loss to show for it. Well, if you stick with it until retirement in six more years you should be back to break-even if all goes well.
That's the typical buy-and-hold mentality. It's like a small-town pawn shop with signs everywhere stating, "All sales are final. No returns!"
What if you used a different approach? What if, when the writing was on the wall, you cut your losses and searched for better uses for your money?
Remember, it's 2013. You could dump your GPS stock for about $800. Cut your losses. Meanwhile, Amazon is all the rage. You shop it, your friends shop it, and more and more you don't bother going to the mall. You know this is the state of things, so why not act on it? Your GPS stock money buys you three shares of AMZN stock.
For the next seven years the stock basically goes straight up. You retire after 20 years and receive a gold-ish watch from your company, and consult your portfolio again. Your three shares of AMZN have grown from being worth $800 to $5,100. GPS stock is now at $25, down 40% in twenty years.
Now obviously not every investment is going to look anything like this example, but you get the idea. Periodically, it is important to go through your buy-and-hold portfolio and reevaluate. That's what Wanderer will do. We'll invest in stocks and sectors that we believe will outperform in the medium to long-term, and will do so with stops in place, though generally wider stops than our trading accounts. The idea being to stay with winners long-term, while cutting off losers and redistributing that money to better opportunities along the way.
We look forward to helping all of our Wanderers reach their financial goals, no matter what age or what the state of your starting finances. To that end we will now invest in three different portfolios—trading, dividend, and buy-and-hold. The percent of your overall portfolio that you invest in each of these will depend on your personal circumstances. Unfortunately, we can't give you specific advice on this distribution. If you feel you need help with that you will want to consult with your financial advisor.