From the August 01, 2010 issue of Futures Magazine • Subscribe!

Buy and Hold Is Dead

Buy and Hold Is Dead:
How to Make Money and
Control Risk in Any Market

By Thomas H. Kee, Jr.
John Wiley & Sons, Inc.
$34.95; 303 pages

Based on the stock market’s performance, it is not surprising that a few books have recently been published about the futility of buy-and-hold. “Buy and Hold is Dead” is clearly in the camp that considers buy-and-hold a failed strategy. Thomas Kee is a founder of his own firm, Stock Traders Daily, which sells stock market reports and economic analysis to clients.

In his book, Kee provides a comprehensive look at a pro-active investing approach using his self-developed Investment Rate Model, a leading indicator of long-term stock market and economic trends. He reveals rule-based strategies that can help investors manage risk and take advantage of stock market opportunities -- in both up and down markets -- without sacrificing time or lifestyle, whether they day trade, swing trade or use a longer timeframe. He emphasizes that the book should be used as a catalyst to financial independence. Basically, the author’s goal is to help investors reach their own investment comfort zone without the need for a money manager or mutual fund manager.

Kee kicks off his book with a chapter explaining his Investment Rate Model by defining its origin and properties. Kee, an economist and independent strategist, describes the model as follows: “Éit includes variables, growth analysis, and quantum theories; its foundation is a simple study of human behavior. It measures consumer demand for investments.”

Since investment behavior is predictable, Kee has exploited that nugget of information to pinpoint longer-term economic cycles ahead of time. Since almost all individuals become investors during a similar time in their lives, this aggregate demand for investments drives the economy. When overall demand for investments rises, the economy grows and vice versa. This is the essence of his model.

Kee believes that investors are reluctant to change money managers or sell their mutual funds due to financial institutions and brokerage firms pushing the buy-and-hold mantra. In the mean time those firms continue to build up their assets under management to collect more in fees. He stresses that investors need to identify the hazards of investing when others manage their money and make sure that wealth preservation, not growth of capital, is the priority.

In a number of chapters, Kee provides his view of investing by reviewing recent events focusing on the importance of being pro-active, staying physically healthy and controlling investment risk. He discusses portfolio diversification’s failure to protect principal during the 2008 stock market debacle. Moreover, he forcefully states the rationale for using a pro-active strategy. He notes taking the first step is the hardest and that we must admit to ourselves that we have no control over the market, and that we are not smarter than the market. Investors need to change their investment mindset because the market has forced us to change our buy-and-hold approach.

The author presents a detailed step-by-step review of his investing process using many explicit examples that were extracted from his advisory services. Technical analysis is the key to his strategies, but he mostly focuses on simple trend lines, initial and secondary support and resistance levels of the major market indexes.

Each day he analyzes three market charts -- Nasdaq Composite, Dow Jones Industrials and S&P 500 -- on a near-, mid- and long-term basis to formulate his strategy and to determine specific market entry and exit points. Two specific buy and sell rules are used on a particular index chart. For example, a buy signal occurs when support is tested or when resistance levels are breached to the upside. Likewise, a sell signal occurs when resistance is tested or support breaks down.

One chapter is devoted to reviewing details of six proactive trading strategies using real world examples and charts. Readers can follow one or more of these strategies depending on their individual risk tolerance and investment timeframe. For traders that cannot spend the one hour or more a day on each strategy, Kee does offer a service to automatically track the stocks and execute the trades.

Overall, Kee has written a well-researched, comprehensive book on his investing and trading principles. He has woven in the market conditions over the past few years, the collapse of the buy-and-hold approach and the need for investors to be pro-active, disciplined and unemotional while using a specific trading plan. Whether or not the reader implements Kee’s suggested approach, there is an abundance of useful market insights to be learned from this experienced stock market professional.

Leslie N. Masonson is author of “Buy--Don’t Hold” and “All About Market Timing.” Reach him at lesmasonson@yahoo.com

Comments
comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome