Buying and holding stocks may not be the fashionable strategy, but it is working

For stocks, “buy and hold” has stood the test of time for wise investors, but the idea has been kicked around. It’s time to re-examine this venerable maxim. Now that we are in a new year and past the year-end sell off, buy and hold returns as a powerful principle.

During the pandemic and its immediate aftermath, the stock market followed a predictable roller coaster path. How did the buy-and-hold concept play out? On Dec. 30, 2020, the Dow stood at 30,415. On Jan. 1, 2024, it was 37,689. That makes a 24% gain, or, an 8% average annual gain. The average is derived from the beginning to the end; the middle months were painful. And market aficionados will claim that taking money out of stocks and bonds and returning it strategically might beat these numbers.

Consider the three-year performance of several leading funds and other investment alternatives:

• The Dow Jones Industrial Average — 24%
• Fidelity 500 Index Fund — 9.74%
• BlackRock IShares Core S&P 500 ETF — 33.53%
• Vanguard Total Bond Market Index Fund — -4.47%
• Gold/ounce — 12.3%
• Oil/Barrel — 49%

The stock market – finally – looks pretty good following a bad 2022. The attractive gain shown above came about entirely during 2023. The BlackRock Fund clearly beat the overall market. Congratulations!

Taking the three stock/bond funds together – BlackRock, Vanguard and Fidelity – their average return for the last three years is just under 13%. Gold rose about at the same level as the three funds averaged. Oil had the most attractive rise. What reasonable conclusions can we draw?

Lesson One: Buying and holding stocks makes pretty good sense

The three investment funds did well for the three year period 2020 – 2023. However, in 2022, Vanguard Total Bond Market Index Fund fell 13%. Bonds do not move in lock step with stocks, but this remains a major investment alternative. Holding through 2022 was painful, but 2023 brought a pleasant reward. The three funds were selected because they are large, prominent and they indicate the kind of portfolio most investors would put together.

Lesson Two: Oil rose very attractively looking at the outcome

Consumers may have a different reaction. The recent actions of OPEC+ and the unrelenting world demand for oil have kept the “black gold” attractive and relatively scarce. ExxonMobil XOM saw its revenue leap 90% from 2020 to 2023.

As a general investment lesson, success in oil requires sharp industry awareness and a bit of luck. Let’s be honest, it would have been difficult to predict that OPEC+ with all its squabbling would work together, lower production and boost the price of oil.

Lesson Three: Gold is, of course, prone to pretty sharp ups and downs

However, during the three year period under consideration, it did pretty well. This indicates that its prized role as a hedge lives on.

Lesson Four: Active investing pays off

Market watchers who shift money from fund to fund, or, more accurately, from investment alternative to investment alternative can avoid the big drops and protect their precious cash. Further analysis shows that Blackrock’s success came in part from holding the expected blue bloods: Apple Inc. AAPL , Microsoft Corp. MSFT , Exxon Mobil Corp. and Walt Disney DIS .

During the pandemic, the big-tech group had some severe setbacks. It was not an uncommon thought to pick up shares of these moguls with the expectation that when the market came back, which it did in 2023, the fallen idols would rise again. In addition, the BlackRock team included smaller companies they saw as attractive.

OK, this formula sounds pretty straightforward. Clearly, like the funds that increased their holdings of online retailers before the pandemic, some luck was with them to beat the market so effectively. Their approach might be called buy and hold with the ability to take risk with strong companies that are not among the giants.

Beating the market was long a goal of investment organizations. BlackRock has done that with a touch of panache. With buy and hold, though, even passively holding onto a portfolio has shown itself to be a reasonable alternative. Read more: The stock market is getting stronger, and it’s not just tech that is rallying.

Michael McTague, Ph.D. is executive vice president at Able Global Partners in New York, a private equity firm.