Many people like to think they are buy and hold investors. They believe in buying good quality companies at reasonable prices and then sitting back and collecting the resulting dividends for the next several decades. Many of these investors point to the famous investor Warren Buffett as a role model for their buy and hold strategy. The Oracle of Omaha famously proclaimed that his “favorite holding period (for investments) is forever.” Unfortunately, buy and hold investing doesn’t work as well as it used to.
My grandparents were true believers in the buy and hold mantra. They started regularly buying common stock a few shares at a time in the 1950s and 1960s. They purchased shares in some of the biggest, most well-known companies of the time, like PepsiCo, General Motors and AT&T, as well as shares of local utilities and banks. And they held them for half a century, never selling or swapping out companies. When my grandfather passed away in 2000, my grandmother retained their existing stock portfolio. It was only in late 2007, when my grandmother’s health was failing at age 94, that she finally sold.
It was a good thing she sold too. Her portfolio had become overly concentrated in financials just as the Great Financial Crisis of 2008-2009 was about to hit. Out of curiosity, I updated her 2007 portfolio for bankruptcies, acquisitions and stock splits to see where it would stand today in 2016. The results were not encouraging. In spite of the massive rally in the broad market indices since the crash of 2008-2009, her portfolio still drifted 5.70% lower over the last 9 years. That isn’t the worst of it though. The income produced by her dividend-oriented account declined by an astonishing 25% during the same period.
A decade is a long time for an investor to sit on dead money. Worse yet, there is every indication that my grandmother’s portfolio, like so many other people’s out there, will continue to have abysmal long term returns. There may have been a time when buy and hold stock investing worked. In fact, I firmly believe that when my grandparents began putting money into stocks over 50 years ago this was the case. But the world has changed. Buy and hold doesn’t work in stocks anymore. However, that doesn’t mean the hallowed investment method doesn’t work anywhere.
There is one asset class where buy and hold investing still gives generous returns – fine art and antiques. These often overlooked luxury goods have been coveted and hoarded by society’s elite for centuries. Neither art nor antiques ever declare bankruptcy. They are never beholden to the whims of an incompetent CEO or a venal board of directors. They are always in demand. Time and again, discerning connoisseurs seek out fine art and antiques and willingly pay premium prices for them. They are physical wealth that you can hold in your hands in an age dominated by virtual “money”.
A well chosen collection of Gorham sterling silver tableware, ancient Greek electrum coins or vintage Montblanc fountain pens will easily grant safe, predictable returns for decades to come. And it will do so without the risk of bankruptcy or the roller coaster boom-bust cycles that have continually plagued holders of common stock in recent years. The old stock market buy and hold method of investing may be dead, but the new art and antiques buy and hold strategy is still alive and well.
