Should an Investor Buy and Hold the S&P 500?

By the Curmudgeon with Victor Sperandeo

Market Week in Review:

The S&P 500 and NASDAQ closed at all-time highs (DJI missed by a fraction) on Friday.  So far in 2024, those indexes have generated positive results in seven out of nine weeks. The Nikkei and DAX also closed at new highs, yet the Japan and German economies are assumed to be in a recession.

U.S. crude oil topped $80 per barrel on Friday, rising to the highest level in about four months. For the week, oil rose more than 4% amid concern that a consortium of oil-producing countries could extend the duration of recent production cuts.

Gold rose to over $2,080 per ounce on Friday, marking an all-time high and heading for its second consecutive weekly gain, fueled by the weakening of the dollar and lower Treasury yields, amid softening US economic data. 

Gold Mining Shares have severely underperformed Gold:  GLD (the most popular Gold ETF) also set a new closing high Friday at $192.89. Meanwhile, GDX (Van Eck major gold miners ETF) closed at $27.33 on Friday which is $11.22 (or -29.11%) below its all-time high set in September 2011.  Newmont Corp (NEM), the largest gold miner, closed at $31.94 on Friday which was $53.48 (-62.6%) below its April 18, 2022, record high close of $85.42.

Bitcoin’s price jumped about 44% during February and rose 20% over the latest week, as it closed slightly above $62,000 on Friday.  The price of the most widely traded cryptocurrency eclipsed $60,000 for the first time since November 2021 but remained below the record of nearly $69,000 that it set that month.

Buy & Hold vs. Market Timing?

If you invest in the S&P 500 [1.] in a U.S. taxable account, should you buy and hold OR use market timing to sell some or all of your position on the assumption of a bear market [2.]

Note 1. The Standard & Poor's (S&P) 500 index was introduced on March 4, 1957, to track the performance of the stocks of 500 leading U.S. companies. With a total market capitalization of $172 billion, the S&P 500 followed the performance of 425 industrial, 15 rail and 60 utility stocks at that time.

Note 2. Bear markets are defined as sustained periods of downward trending stock prices, triggered by a 20% decline from near-term highs.

Let’s try to answer this big question of buy and hold vs market timing and examine the new mantra of no recessions and no bear markets.

Drawdown Analysis:

·        The S&P 500 maximum drawdown (peak to trough loss) from 1961 to 1992 was -42.63% using month end accounting.  That drawdown would be slightly greater (~2 to 3%) if it was measured inter-month. 

·        The secular bear market from December 1968 to August 1982 was particularly painful to the Curmudgeon, especially the 48.2% decline from January 1973 to December 1974.

·        The dividend-adjusted S&P 500 fell 45% from its September 2000 high till the “triple bottom” on the March 12, 2003.

·        According to the Atlanta Fed, the S&P 500 fell 56.8% from its peak on October 9, 2007, to a low point on March 9, 2009.  Much of that decline occurred in the brief period around the climax of the crisis in the fall of 2008. From its peak of 1,300.68 on August 28, 2008, the S&P 500 fell 48% in a little over six months to its low on March 9, 2009.

·        During the COVID-19 panic in February-March 2020, the S&P 500 declined 34%.  However, the market quickly recovered to new all-time highs just five months later after it became clear the Covid-19 outbreak wasn’t as catastrophic or deadly as initially feared. Stock prices were also supported by more than $5.2 trillion in U.S. government stimulus.

·        The 2022 bear market made fools of most of us, especially the Curmudgeon.  The S&P 500 fell 25% from its January 3rd high of 4,796.56 to its October 12th low of 3,577.03.  Most market professionals and analysts believed a recession was imminent and rising interest rates would crash stock prices.  The Elliott Wave’s Robert Prechter predicted it would be the biggest bear market ever, based on his analysis of market waves and the social mood on the market.

Consider the following table and chart showing bear market declines and subsequent recoveries:

Bear Market Period


Total S&P 500 Decline

August 1956 to October 1957

14 months


December 1961 to June 1962

6 months


February 1966 to October 1966

8 months


December 1968 to May 1970

17 months


January 1973 to October 1974

21 months


November 1980 to August 1982

21 months


August 1987 to December 1987

4 months


July 1990 to October 1990

3 months


March 2000 to October 2002

31 months


October 2007 to March 2009

17 months


February 2020 to March 2020

1 month


January 2022 to October 2022

10 months


Sources:  LPL Research and CFRA

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Trading Costs. Taxes and Opportunity Losses:

If one were to buy and sell stocks, there are trading costs like commissions and bid/ask slippage estimated at 50 bps. More importantly, there are long term or short-term capital gains federal and state taxes, depending on the holding time period and your adjusted gross income.  Capital gains taxes are particularly onerous in California where the maximum state income tax rate is 13.3% and there is NO LOWER RATE FOR CAPITAL GAINS which are taxed as ordinary income.

Depending on the state you live in and whether your buy/sell is a short term or long-term capital gain, you may be paying up to 35% or more to trade in and out of stocks.

The largest opportunity loss comes from an attempt to sell at the peak and buy back at the trough. Victor’s most reasonable and best estimate is an opportunity loss of somewhere between -10% to  +10% from selling at the top and re-buying at the bottom.  The estimates can easily run to 30% based on the skill level of most investors.

The Curmudgeon notes that most investors are very bad market timers as they tend to sell near the bottom and buy back ONLY when prices have risen strongly.  Critics of market timing contend that it is nearly impossible to time the market successfully compared to staying fully invested over the same period. This basic rejection of timing has also been confirmed by various studies reported in the Financial Analyst Journal, Journal of Financial Research, and other respectable sources such as brokers and portfolio rating agencies like Morningstar.


Unless you have superior ability and skill in market timing/trading, you probably would be better off staying 100% long the S&P 500 for the last 63 years.  That’s especially true since 2009, because stock prices have recovered quickly from the two relatively short bear markets that have occurred since then. 

Victor: A New Era where ONLY Bull Markets are Allowed:

How did we get this incredible change that the business cycle and market cycles no longer exist?  A world where no U.S. recessions can occur, and bear markets shall not persist?  Since March of 2009, it seems the powers that be have declared that “only bull markets are allowed!”

“We are five days away from fundamentally transforming the United States of America,” declared Barack Obama in Columbia, Missouri, on Oct. 30, 2008, just before his historic presidential election.  In a victorious speech before an adoring crowd of 125,000 in Grant Park, Chicago, the 47-year-old president-elect said the victory belonged to the American people.          

“We have never been a collection of individuals, a collection of red states and blue states. We are and will always be the United States of America. Because of what we did on this day, CHANGE HAS COME TO AMERICA.  This before a huge crowd in Chicago.”

Obama was not exaggerating! He was not only talking about a change in “politics” and government spending.  He was also hinting at an easy Fed Monetary Policy which has supplied tremendous amounts of liquidity to the markets. 

We’ve explained that in many previous Curmudgeon posts like the “Clandestine Role of the Fed in Increasing Liquidity

End Quote from the King of Keynesian Economists:

“The master-economist must possess a rare combination of gifts. He must reach a high standard in several different directions and must combine talents not often found together. He must be mathematician, historian, statesman, philosopher - in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought.  He must study the present in the light of the past for the purposes of the future.”     ……...John Maynard Keynes

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Success, good luck and stay healthy.  Till next time……………..

The Curmudgeon

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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