The slide of the S&P 500 10-year return into negative territory in 2008 (to -1.4 per cent annualised) will have shocked investors who believe in the “buy and hold” approach to stocks. It has also unleashed a flood of commentary proclaiming the superiority of “active trading” strategies, as we read on these pages last week. Nothing could be further from the truth. Buying and keeping stocks is now more likely to produce good results than at any time in the last 35 years. It is irresponsible to suggest that investors could do better with “real time” trading. The evidence to the contrary is overwhelming.

In 1950, mutual funds owned stocks for about five years; today that holding period is less than one year. Fund results exhibit no noticeable improvement and are even less impressive after trading costs and taxes are considered. The records of organisations known to favour rapid turnover do not inspire confidence: for example, half of hedge funds are expected to fold this year due to poor results and client withdrawals. Individual cases of trading and timing success, and the current frustration with the buy-and-hold orthodoxy, makes approaches that appear to help users avoid the big declines of the recent past more appealing. But very few market operators eluded the collapse that followed the October 2007 peak. For most people, active trading and asset allocation will disappoint.

Granted, the psychological impact of recent experience affects public sentiment about equity investment. The present situation is not unlike the early 1980s, when 15 years of stagnation caused equities to fall out of favour. Like their counterparts of today, promoters seeking to capitalise on the public's frustration with stocks pushed “opportunistic” trading strategies, usually involving options and futures contracts. But the pervasive pessimism of 1982 preceded one of the greatest equity bull markets in history.