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However the difference between speculation and investing is hard to define. Generally, it is said that speculators take unusually high risks in the hope of unusually high rewards. Of course that is an extremely subjective definition, since it is difficult to quantify risk. Part of the risk is in the stock, and part of the risk is in your method for knowing when to sell.

I use the following definitions:
“An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting this requirement are speculative.”
- Benjamin Graham (Security Analysis, 1934 edition, p. 54)

Justice Stewart had difficulty devising a test for obscenity, but asserted "I know it when I see it." In a similar way, I think it is possible to know the difference between investing and speculating.

I am not opposed to buy and hold in the sense that I would hold a stock forever so long as the chart looks good. Deciding that you will hold it forever when you buy it is simply folly.

Few people who believe in the buy-and-hold philosophy believe that you should buy a stock and hold it forever no matter what, so when you generalize as you do and criticize people who buy and hold and call them idiots, you are being unfair.

Investing in index funds, however, is a different matter. *Most* people who buy and hold an index fund no matter what will outperform those who actively manage their money in the long run. This *doesn't* mean that *all* people who actively manage their money will underperform, but making a blanket recommendation that people manage their own money is, IMHO, rather foolish.

Things can change. Note, for example, that BRKa has underperformed SPY for the last 3 years, and in fact is more or less a flat line from the first quarter 2004 until about 4 weeks ago.

So what? You can have excellent investment results without having gains in every short-term period of your life.

Warren Buffett wrote:
“In our opinion, the real risk that an investor must assess is whether his aggregate after-tax receipts from an investment (including those he receives on sale) will, over his prospective holding period, give him at least as much purchasing power as he had to begin with, plus a modest rate of interest on that initial stake.”
1993 Letter to Berkshire Hathaway shareholders

The important phrase here is "prospective holding period." You repeatedly talk about the "drawdown" of the S&P 500 starting in 2000, but the reality is that it isn't much of an issue if you have a very long holding period. As I've shown before, you can very satisfactory results from a "dumb money" buy-and-hold philosophy.

OT: The Know-Nothing Investor
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