Echoing Buffet’s “buy and hold” theme for successful investing, Bloomberg’s Michael P. Regan argues that active buying and selling of equities remains an immensely complex and time-sensitive undertaking, and that most investors—even those who manage large funds for a living—have proven largely ineffectual at it.
The most complex component is not in the buying; it is in knowing when to sell, Regan writes.
Citing a new 2019 study, “Selling Fast and Buying Slow” released by SSRN, Regan reports that an assessment of over four million trades in 783 portfolios from 2000 to 2016 “found that stockpickers actually showed skill when buying.”
“However,” Regan writes, “the sales by these institutional investors cost them as much as 100 basis points, or a full percentage point, of yearly returns compared with a no-skill strategy of simply selling holdings at random. “
This fact points to two conclusions. First, not nearly enough research has been conducted on the still largely unmastered science of knowing when to sell a stock (though there exist abundant successful formulas for knowing when to buy).
Second, in the absence of that research, active traders are not faring well. In fact, the old adage that blindfolded monkeys throwing darts at the newspaper‘s stock pages would ultimately build a portfolio that performed more successfully than the average institutional investor has proven true, Regan reports.