Foreword

In these tumultuous times in the global financial markets and the 24/7 flow of information and misinformation, the individual investor is not well served by following the buy-and-hold mantra promulgated by financial institutions, mutual funds, and brokerages over the past 50 years. As of November 30, 2009, the inflation-adjusted total return of the S&P 500 for the past 10 years is still negative and has been for over a year. That means that those who retired in 1999 and put their hard-earned retirement money in a market index such as the S&P 500 (because it always goes up, right?) have not earned a penny in the past ten years. If they pay an annual fee for account maintenance, do not reinvest the dividends, or have a systematic withdrawal to live on, they are truly hurting. During the past decade, younger investors have also not performed any better, and their children’s 529 plans have also taken a hit, depending on when the funds were invested.

The “world of finance” and “Wall Street” have set the stage for investing for the long term in their onslaught of tactics to market themselves and sell investing ideas to an unsuspecting and financially uneducated public. A huge emphasis is put on diversification and how it will protect you for the long term. They have confused buy-and-hold with buy-and-hope. Commissions and fees are the fuel for most of their effort. I could go on and on about the misinformation that pours out of the financial institutions.

Corporate pension plans are being dumped, Social Security is in the tank, and our financial system is in the midst of a giant restructuring, because the stability of the past 25 years has caused prudence and what used to be called “common sense” to be set aside for greater leverage and higher risk. Retirees as well as younger investors are learning the hard way that “investing for the long term” has periods when the performance is poor and that those periods can last a decade or longer.

So, have I scared you yet? If I have, that was my intention. If you have not yet begun to invest for wealth creation, you need to start immediately, no matter what your age. If you are already investing, you need a better way to protect your money during the downturns. Now is the time to read and consider the guidance provided by Les Masonson in Buy—DON’T Hold. Masonson, a stock market researcher, investor, and author, has thoroughly covered all the essential bases of smart investing, and he has done so with the critical detail that is often lacking in hyped investing books written by so-called “gurus.” The insights provided in this book are extremely helpful. The advice and methodology that Masonson offers throughout are useful for anyone (whether you are an investment newcomer or a longtime investor) who is interested in learning how to manage his or her investments.

My decades of experience have taught me that there are times when one should not be in the markets and are better off preserving your capital in cash equivalents because bear markets can set you back for very long periods. That is why buy-and-hold is a misguided, and often costly, investment approach. While writing and researching my book The Complete Guide to Market Breadth Indicators, I found that specific technical indicators are helpful in determining the changing market environment.

Additionally, the firm that I work for, Stadion Money Management, uses a proprietary technical rules-based, data-driven model to oversee the management of over $3 billion in assets in two mutual funds, separate accounts, and 401(k) plans. There are periods when these accounts are moved more into cash to protect principal. For example, in 2008 when the S&P 500 declined 37%, our Stadion Managed Fund (ETFFX with the sales load included) declined 11.22% because of our defensive approach. This fund can be invested 100% in cash if conditions dictate. Interestingly, Masonson provides an investing plan for all types of investors, with specific rules for buying and selling exchange-traded funds using a momentum-investing model based on relative strength. He first provides guidance on determining the market’s overall condition using eight technical indicators so that investors are on the right side of the market. Although we use different indicators, methodologies, and ETFs, his investing approach and ours are similar in that we both strive to reduce risk and minimize losses while investing when conditions are deemed appropriate. Also, we both will exit the market and go fully into cash when the “weight of the evidence” indicates that a sell decision is warranted.

Keep in mind that the closer you get to needing your money for retirement, your children’s education, or other joys of life, the worse the effect a severe bear market can have on your assets. It is critical to understand the concept of avoiding the bad markets and participating in the good markets. Masonson has offered a relatively simple approach to acquiring wealth with adequate attention to risk, and he provides the much-needed discipline to reach it. By taking the prudent advice provided in this book, you won’t need luck to become a consistently profitable investor. It’s never too early, or too late, to invest intelligently for your future. You have already taken the first step by reading this information-packed book. I sincerely hope that you prosper from your newly gained knowledge.

Gregory L. Morris

Gregory L. Morris is Chief Technical Analyst of Stadion Money Management, and author of The Complete Guide to Market Breadth Indicators and Candlestick Charting Explained. Previously, he served as a Trustee and advisor to the MurphyMorris ETF Fund. Greg was featured in a BusinessWeek article in July 2008 and was interviewed in Technical Analysis of Stocks & Commodities in September 2009 in an article titled “The Danger Zone with Greg Morris.”