Tags: stock | investing

Birinyi: Buy, Hold Doesn't Work Anymore

Wednesday, 16 Jul 2008 02:31 PM

The old buy-and-hold strategy for stock investing, which has made Warren Buffett the richest man in the world, is dead for now, according to investment guru Laszlo Birinyi.

Birinyi, one of the country's pre-eminent stock strategists for the past 20 years, told Bloomberg Television recently that the market's extreme volatility has put the kibosh on the buy-and-hold paradigm.

As of June 26, the S&P 500 stock index had alternated between gains and declines for the past six sessions. The Chicago Board Options Exchange Volatility Index, which measures expectations of volatility in the S&P 500, has jumped 30 percent so far in June.

"I'm concerned about the structure of the market," says Birinyi, who now heads Birinyi Associates, a money management firm.

"At some point, investors will get fed up with the volatility. For example, during the first 18 trading days of June, the energy sector has been the best performer for seven or eight days, and the worst performer for seven or eight other days."

Obviously this scenario makes long-term investing very difficult, Birinyi points out. "I don't put money in any place now with a view toward keeping it there," he says.

"This is a market in which you have to trade. We've been fairly successful trading. To make long-term investment decisions here is treacherous when you have this day-to-day volatility and the market has major shifts."

Bottom line, Birinyi says: "This is not a market where you can just buy and hold." And that fact makes this a very difficult market for individual investors, he maintains.

Despite the U.S. stock market's volatility, Birinyi says it's presently the best place in the world for investors to seek value.

"I would probably look at the U.S. now, not just because of prejudice, but because the information process is a little better in the U.S., the timing is better," he says.

"We certainly understand the rules. It surprises me how many investors don't really understand accounting and structural differences in marketplaces."

For example, Birinyi says, the Italian stock market index is based on the average price of a basket of stocks during the last 15 minutes of trading. "Most people don't realize that," he says

"They think it's based on the closing price. So I think I'd stay in this place [the U.S.]."

While the Dow Jones Industrial Average has slipped 13 percent so far this year, Europe is even worse off. "Sadly enough, we've done better than most European markets, which are down 15-20 percent," Birinyi says.

He is bearish on Europe because he thinks corporate earnings will weaken there.

While analysts forecast earnings gains of 10 percent to12 percent for European companies outside the financial sector this year, "I think that's fairly optimistic," he says. And in the European financial sector, "I don't think people have prepared for the worst."

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The old buy-and-hold strategy for stock investing, which has made Warren Buffett the richest man in the world, is dead for now, according to investment guru Laszlo Birinyi.Birinyi, one of the country's pre-eminent stock strategists for the past 20 years, told Bloomberg...
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2008-31-16
 

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