Investing Advice: A Great Year for Buy and Hold

Posted On December 21, 2017 12:12 pm

By almost every measure, 2017 will go down as the stock market’s least volatile year since 1944. The Dow and S&P S&P 500 Index have now not only gone without a 3% pullback –let alone a 5% decline—but intraday volatility has also collapsed. Today’s investing advice will explore how this has benefited those following a buy and hold strategy.

Both 2017 and 1944 have also had the most days in which intraday range has been confined to less than a 1% range.

All of this has caused option volatility on both individual stocks and the market in general as measured by the VIX, to drop towards historic lows.

This led me to take a more active role in earnings reports, as they create the type of changes in both price and implied volatility levels that options traders (and purveyors of investing advice) feast on.

Outside of these events, there has been pretty slim pickings for day-to-day trading activity.

I’ve pointed out how the rise of passive investing, especially through the use of ETFs, the low interest policy of Central Bankers, and program trading have helped dampen volatility and instill a Buy the Dip (BTFD) mentality in investors and conventional investing advice.

As Pension Partners adds these reasons for the steady gains:

  • The story stocks (FANGs) are posting enormous gains and beating all expectations.
  • Earnings are at a record high and profit margins remain near their highest level in history.
  • The Unemployment Rate (4.2%) is at a 16-year low.
  • Jobless claims are at their lowest level since 1973.
  • The U.S. economic expansion, at 99 months, is the 3rdlongest in history.
  • Manufacturing (ISM) sentiment is at a 13-year high.
  • Consumer Confidence is at a 17-year high.
  • Housing prices nationally continue to hit record highs, gaining 6% in the past year.
  • Average hourly earnings are up 2.9% in the past year, their highest level of the cycle.
  • Inflation remains low with core CPI below 2%.
  • The Fed and remains extraordinarily easy (1-1.25%) as do central banks globally (negative policy rates across Europe and Japan). One of their primary objectives continues to include asset price inflation (“wealth effect”).
  • On the policy front, investors have been promised massive tax cuts, unending deregulation, and a boom in infrastructure projects.

The upshot is that for active traders, especially those of us focused on options, it’s been a very challenging environment.

For buy and hold investors it’s been the most wonderful year.

 Related: This Trick Can Help You Time the Market Just Right


About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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