Buy and Hold: Wall Street’s Misleading Advice

Jan 23, 2018 Investing Strategies

Buy and Hold. I want to debunk a common piece of Wall Street advice that is dangerous to the health of your portfolio. It has to do with trying to capture the “best days” of the market.

The buy and hold mantra of Wall Street tells you that it’s in your best interest to be in the market all the time.

If you’re not in the market all the time, the mantra says, you’ll miss the best trading days (and they won’t collect their fees).


The mantra is not new. Our education specialist, Tom Meyer, was telling me that when he started with one of the Wall Street brokerage firms in 1993, they were indoctrinating their new brokers the same way.

“If you miss the ten best days….”

Twenty-five years later and Wall Street hasn’t changed.

But there is a fatal flaw in this “best days” advice. Read on and I’ll explain…

The Question

The topic came up when John from California emailed this question:

I recently heard a quote from a JP Morgan study indicating that 6 of the best 10 trading days occurred within two weeks of the worst days of a bear market for the past 20 years.

Does your buy signal usually occur within a short time of renewed buying capturing some of these “best days?” I’m concerned about missing some of these best days to be in the market after following your sell or “red” zone signal.

There are really several questions here.

  1. Do the best trading days follow closely on the heels of the worst trading days?
  2. Did TradeStops get back in fast enough to capture the gains from these best trading days?
  3. Is an investor better off getting back in the market fast enough to capture these big up days. (JP Morgan is implying that it is important in their claim but we like to look beyond mere implied suggestions.)

Let’s tackle the first two questions to start.

Here’s a table that shows the largest daily gains of the Dow Jones Industrial Average (DJIA) from the 21st century. The table is sorted by the largest point move in the DJIA showing if it was two weeks or less away from a large bear market move.

The Data

Date DIJA Point Move DIJA % Move DIJA Close 2 Weeks from Bear Market? Bear Market Move TradeStops Condition
10/13/2008 936.42 11.08 9387.61 Yes -678.91 Red Zone
10/28/2008 889.35 10.88 9065.12 Yes -733.08 Red Zone
08/26/2015 619.07 3.95 16285.51 Yes -588.40 Red Zone
11/13/2008 552.59 6.67 8835.25 Yes -514.45 Red Zone
3/16/2000 499.19 4.93 10630.60 No N/A Red Zone
3/23/2009 497.48 6.84 7775.86 No N/A Red Zone
11/21/2008 494.13 6.54 8046.42 Yes -486.01 Red Zone
11/30/2011 490.05 4.24 12045.68 No N/A Green Zone
7/24/2002 488.05 6.35 8191.29 No N/A Red Zone
9/30/2008 485.21 4.68 10850.66 Yes -777.68 Red Zone

What we see in this table is that:

  1. Yes, 6 out of 10 of the biggest up days did occur within 2 weeks of the biggest down days. (So far so good, JP Morgan.)
  2. No, TradeStops was NOT in the market for 9 out of these 10 big up days

Now, for the third and most important question, should John be concerned that TradeStops was out of the market for 9 out of 10 of these big up days?

The answer to that question is a resounding, “No!” In fact, John should be incredibly pleased that TradeStops was out of the market for these big up moves. I’ll explain why.

Our next table highlights something that JP Morgan conveniently forgot to mention when bringing their claim to the media. Seven out of 10 of these big up moves all were followed by big drops in the DJIA that wiped out the big up moves before the market finally turned higher.

Take a look:

Date DIJA Move DIJA Close TradeStops Condition Next Big DIJA Move
10/13/2008 936.42 9387.61 Red Zone Dropped 30%
10/13/2008 889.35 9065.12 Red Zone Dropped 27%
8/26/2015 619.07 16285.51 Red Zone Still Rising
11/13/2008 552.59 8835.25 Red Zone Dropped 25%
3/16/2000 499.19 10630.60 Red Zone Dropped 29%
3/23/2009 497.48 7775.86 Red Zone Rose until 2015
11/21/2008 494.13 8046.42 Red Zone Dropped 18%
11/30/2011 490.05 12045.68 Green Zone Rose until 2015
7/24/2002 488.05 8191.29 Red Zone Dropped 8%
9/30/2008 485.21 10850.66 Red Zone Dropped 39%

Put another way, most of these big up moves were dead-cat bounces in the middle of brutal bear markets.

TradeStops was right 8 out of 10 times! TradeStops was in the Red Zone for 7 of the big up days that were followed by further drops. TradeStops was in the Green Zone for one of the big up moves.

You can see what I mean here from the “best up days” that occurred during the brutal 2008 bear market.

The red arrows show the worst down days and the “best” up days that followed within 2 weeks of the big down days.

Chart displaying Bear Market between 2007 and 2009

The Takeaway

Would you have really wanted to be in the market for these “best up days”?

I didn’t think so.

We can hopefully see how misleading JP Morgan’s little market statistic really is. JPM is clearly just plugging it’s “buy and hold” mantra and hoping that the people that read its press releases don’t bother to look behind the curtain.

As they say, there’s lies, damn lies and there’s statistics. I might add to that, “and there’s JP Morgan.”

Missing the best days of the market was the smartest thing you could have done. In only two cases was TradeStops out of the market when it was rising.

The TradeStops signals would have had you back in the market shortly thereafter to take advantage of the long-term uptrends.

Wall Street won’t tell you this because they want you in the markets all the time… including during harsh bear market periods. They collect the most fees that way.

But we’ll show you what really works (and back it up with data)…

That’s why so many people are taking control of their own portfolios and using the TradeStops tools to become successful investors.

They’ve figured out that Wall Street doesn’t work for them. “Buy and hold” is really nothing more than buy and hope.

At TradeStops, our mantra is different.

Make more, risk less


Richard Smith, PhD
CEO & Founder, TradeStops

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