When comparing different types of investments, we like to look at the numbers. We asked the question, "How do we compare buy and hold statistics to automated trading system statistics?"
I made this video last week and then after I made the video I nearly fell out of my chair when Leon Cooperman of Omega Advisors admitted that "Billionaire investors didn't get rich by using index funds". He did a great job of making my point below that active management or short term trading is a better approach in the long term. Here is the link to the interview.
We look at the trading system performance summary of buy and hold by applying a trading system that will buy at the open of one day and then sell at the open of the next day but then also, re-enter at the open. This way we can treat each day like an individual trade. We do not include slippage and commission because we are not actually trading in and out but only comparing the day to day results of the stock market as a trading system. The results do not include dividends or dividend re-investment. It does not include dollar cost averaging or any sort of active management. It only includes the results of buying the Dow Jones Industrials in 1927 and holding until the present. I don't find the results that impressive. What do you think?
We include the code in the video.
One of the main reasons we did this research was to compare the results to that of our VIX Swing Trading System, which is a low frequency way to actively manage a long only position in the stock market. Even with an open trade drawdown of $15,000, the risk is still smaller than buy and hold.
Code for the Buy and Hold Trading System
(This is not a recommended strategy but is used to provide daily statistics)
Buy and Hold Trading System E-mini S&P back to 1997