By Ben Esget
I love grilling steaks. My favorite cut is the New York Strip, but any good cut of meat will do just fine.
For years, I had trouble getting my steaks the right consistency; you know, the one with the steakhouse crust on the outside and perfect medium rare in the
middle. I didn’t get it. I used the steakhouse oil and butter mix, had the perfect seasoning and watched carefully as I grilled, but my steaks always came out tough and lacked juice.
Doing some online grilling research, I discovered the secret to great steak is a leaving them alone. A good griller will flip a steak one time and one time
only, and when they are done they will once again leave the steak alone to allow the juices to settle.
I, like many rookie grillers, flipped my steak over and over and as soon as it was done, I would cut into it. All the juice would flow onto the plate and my steak was tough.
Investments are a lot like steaks. If you have a good sound investment strategy you are best served by leaving it alone.
In a recent article, titled “Is the Buy and Hold Stock Strategy Officially Dead?”, the author points to research showing that from 1926 to 1999, the average holding period of a stock was about 4 years. But it sat around 3.2 months by the end of 2009.
Jeff Kleintop of LPL Financial has shown that today the holding period has fallen to about five days (see chart below). Perhaps all the low trading costs, liquidity and technology that let you trade quickly are not benefiting you.
Researchers have shown that the human brain has evolved to predict future rewards based on past payoffs linked to action. Your brain is prone to trading quickly in search for the next serotonin or adrenalin hit.
Your brain chemistry coupled with low trading costs and massive liquidity has created an investment environment that exploits your human flaws. In essence, the stock market becomes the house and you become a slot-machine puller receiving cheap drinks (or trades).
If you have a sound investment strategy with limited turnover, you should take a tip from grilling masters and just let it sit, and then—let it sit some more.
Warren Buffet is quoted as saying, “My favorite holding time is forever.” He is also known to have chosen the online bridge player name “T-bone“.
Perhaps there is a connection.
Ben Esget is the president of WealthMark LLC, an investment firm in Bellingham. His columns appear on BBJToday.com every other Wednesday. Esget also runs the finance blog Outsider-Trading.com, in an effort to level the playing field between Wall Street and Main Street. Contact him at 360-734-1323 or firstname.lastname@example.org.
Author’s note: The information in this column should not be construed as investment advice. Everyone’s goals and investment portfolios are unique. Please contact a financial adviser or an accountant for your particular needs.
(Click chart to open)