In a Buy and Hold strategy, I have always understood that you hold unless the fundamentals have changed. In a recent interview with Aswath Damodaran, he mentioned that AAPL wasn't a buy-hold stock and why he keeps on selling and buying but he didn't elaborate further why (this was on the Meb Faber podcast in case some of you are interested in the whole interview). This made me wonder whether most retail investors including myself have a very simplified interpretation of Buy-Hold aka Buffett's style and are naively having costly assumptions.
For example, imagine Bob and Alice both own 40 shares of ACME at an average price of $50. ACME is now trading at $90 but per Bob and Alice's FCF DCF ACME is really worth $80.
Bob decides that ACME is overstretched and sell his shares at $90, pays capital gain taxes and is now waiting for a dip to re-renter the stock. Alice decides to hold ACME regardless of present valuations and is waiting for a dip to add to the stock.
Now Bob would be the clear winner if he could really sell at the top and buy at another steep discount which isn't easy (cf. Market Timing argument). Alice would be a clear looser if the stock never dips to her entry price and never recover to the new highs.
In hindsight I think in today's market we have a lot of those examples, NVDA for instance comes to mind. I am curious how do you guys/gals approach this problem? what is your interpretation of buy-hold?
Submitted May 28, 2019 at 02:07AM by gymaliz http://bit.ly/2wrXfOs
