Tuesday, December 15, 2009

Is Buy and Hold Dead?

Copyright 2009. By Paul Mladjenovic

In today’s turbulent, volatile, roller-coaster market, is the age-old adage about “Buy and Hold” bad advice? In recent months I have heard or read comments such as…

“The “Buy and hold strategy” is an archaic idea and would be financial suicide in today’s market.”

“People are better off with short-term strategies so that they can try to buy before the market goes up and sell before the market goes down. Then…when the market goes down, that is a buying opportunity. Use the volatility in your strategies”

“The “Buy and Hold Strategy” was fine a long time ago when markets were different. It is not a good strategy for today’s roller-coaster markets”

I am sure that you have read or heard similar remarks. Certainly, as you have read my essays you would know that I have written much about the “sea change” in recent years for our economy and the financial markets. There are many strategies that were fine years ago but would indeed be dangerous today.

But does a “sea change” mean that fairly reliable strategies are in danger of becoming obsolete? It certainly depends on the strategy and it definitely depends on who you are, what your financial profile is, what you are trying to accomplish and what type of assets you are investing in. Let’s take a look at “Buy and hold”.

I am sure that if you “buy and hold” bad investments then you will eventually be in trouble. However, if you “buy and hold” good investments, it would be a different story. We all know that the decade of 2000-2009 had lots of wild rides and the market had many nail-biting moments, but how did the “buy and hold” strategy do?

How did “buy and hold” as a strategy fair for different assets since the beginning of the decade?

Asset class January 2000 Recent price Gain/Loss
(high price) (Nov. 30, 2009) After 9 ½ years…)

The “Dow” (DJIA) 11,722 10,345 DOWN 12%

Nasdaq Composite 4,235 2,145 DOWN 49%

S&P 500 1,465 1,096 DOWN 25%

The value of the dollar 99.87 85.64 DOWN 14%
(based on dollar index)

Oil 21 71 UP 238%

Gold 288 1180 UP 310%

Silver 5 18 UP 260%


As you can see from the above table, “Buy and Hold” was dumb for some things and very smart for others. There was nothing wrong with the strategy…it depended on the particular investment vehicle.

Very recently, I was asked how I did during the recent market mayhem. I answered quite honestly that a batch of my favorite stocks and ETFs were hit very hard during late 2008-early 2009. Some of the positions were down a bone-jarring 50-70%. Did it bother me? Sure…why wouldn’t it? But these were quality securities that were intended as long-term core holdings and not capricious vehicles to jump in and out of. “Buy and Hold” means that you “measure twice, cut once”. Those stocks and ETFs were bought early in the decade and they are almost all up by triple-digit percentages…Yes!…in spite of the chaos of 2008-2009.

“Buy and Hold” as a strategy is fine. It has served me and many other patient investors well. It is still an important feature of patient, successful, long-term investing. The point is to understand that particular investment and what are the economy, financial & political mega-trends that unfold over a long period of time. Good investments will zig-zag upward over the long term while bad investments will zig-zag downward during the same time frame.

If you would like a good course on how to invest, you can check out my national seminar entitled “The $50 Wealth-Builder” at www.ProsperityNetwork.net (see Bronze package). I cover stocks, mutual funds, ETFs, precious metals and real estate.

What mega-trends do I see coming? For the coming years, I expect the commodities bull market to continue and I tell my students that investments tied to “human need” will excel. To learn how to invest in today’s economy, the audio financial seminar mentioned above will provide you with the guidance you will need. In spite of the recent stock market rally, I believe that my twin-forecast will come to pass in the next few years; We will see both rising inflation and a depressed economy unless they radically change course in Washington (Don’t hold your breath!).

Paul Mladjenovic, CFP is the instructor of the national financial seminar “The $50 Wealth-Builder” and the author of “Stock Investing for Dummies” and “Precious Metals Investing for Dummies. His website is www.ProsperityNetwork.net.

Thursday, December 10, 2009

How Government hurts Job Creation

From a prior post, I discussed how jobs are created. To summarize, here is a quick list...

1. Someone starts a business (the entrepreneur)
2. He/She struggles to get it established and grow it.
3. If the enterprise succeeds and does indeed grow, he/she hires someone
to help with running and managing the enterprise.
4. As the enterprise grows, more help is needed to run it so the business owner hires more people.

In a nutshell, that is how it works. So it is important to remember that business start-up is the "seed" while products, services and...yes!...JOBS are the "fruit".

Therefore, our society (especially the government) needs to encourage business development and make it as easy as possible for business to flourish. In addition, we need to make it easy for businesses to hire. However, this is not reality.

government makes it very difficult for a business to flourish and to hire more employees. Think for a moment, what it takes a business to hire even a single person.

Make believe that you are a businessperson. Here is what you should expect:

1. You must be aware of federal labor laws that are voluminous and constantly changing. This includes (but is not limited to) federal immigration statutes,diversity mandates, special rules for hiring women, minorities, etc.

2. You must be aware of state labor laws that are voluminous and constantly changing. This includes (but is not limited to) state federal immigration statutes,diversity mandates, special rules for hiring women, minorities, etc.

3. Federal minimum wage laws must be complied with even if you think that the market value of the labor provided is not worth it.

4. Most states also have separate minimum wage laws that must be complied with.

5. You must file monthly/quarterly/annual payroll reports for federal & state agencies. Penalties for filing late or erroneously may apply.

6. The government mandates that you meet (where necessary) rules, reporting and fees related to workmen's compensation issues and insurance.

7. There are federal mandated payroll taxes that must be paid by the employer.
Example: The employer must pay his/her share of the FICA and Medicare payroll taxes which amounts to 7.65% on top of and in addition to any wages paid. Don't forget the state!

8. For some job categories, government mandates that your business must provide and or pay for certain conditions and special services depending on the employee and job function.

9. You must seek or have (pay for) legal services just in case your employee decides to sue you for anything that falls short of expectations and other potential issues related to health, disability, bias, workload, lack of recognition, unfair compensation, etc.

10. If your employee decides to take "family leave" you will have to pay them directly for non-work during a period that could exceed 12 weeks or indirectly to a temporary worker to cover job duties in the absence of the worker.

11. If you decide to fire that employee, the burden falls on you to prove your case. Depending on the reason and or the state or industry this includes (but is not limited to) properly filing the paperwork, providing substantiation for your case, expensive legal assistance to help you process the termination.

I remind you...THIS IS A PARTIAL LIST.

We can't ask small business to hire more folks and then make it much more difficult to justify doing so.

All of us need to understand that "wages" paid to a worker is not the same as the "cost" (and risk) of hiring and keeping that worker.

When you add up all the costs (direct and indirect) of hiring someone, it can easily be 40% higher than the wages or salary that the worker sees.


Please share these thoughts with others...especially if you want to see more jobs in America...not less.

Paul Mladjenovic

P.S. This is a major reason why I think that everyone should start their own home-based business as a solo entrepreneur. Part-time or full-time, it should be part of your money-earning strategies. Learn more starting a home business (click here).

Wednesday, December 2, 2009

How to Create a Real Job...

Recent times have shown us the worst job market since the Great Depression. Right now, politicians, economists and other public commentators are discussing and debating the question...

"How do we create jobs?"

The odd thing is that the leading decision makers in Washington have NEVER personally created a job. That's right...the top economic decision makers in the Obama administration and the congressional leadership have NEVER run a business or have ever met a payroll. That is incredible to me. We have people trying to make policy that allegedly would lead to "job creation" that are basically clueless about how a real job is actually created. That has got to make your jaw drop.

That would be like getting a bunch of bureaucrats together to figure out the rules for brain surgery (well...that's not really so far-fetched since that is happening right now in the healthcare debate but that's a different topic). Anyway...

I think that it is important for us to realize how a job is actually made. And I mean a "private job". You have heard a lot about "government jobs" and how the government is expanding lately and "adding jobs" as they expand government agencies.

Please don't confuse "government jobs" with "real jobs" as there is a crucial difference. Also if a reader of this post works for the government please do not take offense as you need to know the difference as well.

Important point:


If a government agency "hires" a person and then pays that person..say...$50,000, it must first take by force $50,000 from the private economy. Doing so then removes the money necessary to create a job in the private economy. The more the government grows, the more resources it takes...by FORCE...from the private economy wheich subsequently deprives the private economy from using those resources more productively as a private job.

Remember that a private job is involved in the production of goods and services. From this, taxes are paid to fund the government's activities. In this sense we can see that government jobs are basically funded by private jobs.

Some may point out that some government jobs are not funded by taxes but instead are funded by government borrowing. This does not change the dynamic; it may only change the timing. Jobs created by government debt today must be ultimately paid for by destroying future private jobs.

A healthy economy needs private job creation if it is to grow and ultimately pay for current and future goods and services and for government activity (which of course includes government jobs).

The bottom line is that private job growth is vital for both the private and the public sector. This leads us to the main question..."How do we create a real job?"

Keep in mind that real jobs are created as a by-product of business formation, growth and expansion. This is why entrepreneurs and business start-ups are an EXTREMELY important part of the job creation process. Entrepreneurs are the "seeds" while jobs are the "fruits".

If we really want to get our economy back on a healthy growth track, we MUST encourage business start-up, business formation and business expansion. We must embrace and enact policies that ignite and encourage entrepreneurial activities.
That includes low taxes, sensible regulations and making it as easy as possible for anyone and everyone to turn their talents, skills and efforts into a new business.

I have taught thousands of people on how to start a home business in a seminar that I have done for over two decades and I am also a full-time entrepreneur as well so I practice what I preach. I even tell those that already have a job to do a business part-time from home. All of us have hobbies, talents, skills, experience and expertise...why not convert this is into a business in your spare time?
Right now, starting a home business should be considered an economic necessity. After all, the first "job" that gets created is that of the entrepreneur.

For more information about my home business seminar, go to www.SuperMoneyLinks.com or click here. For 2010, don't just wait for prosperity...make it happen.