Steady as she goes

Some thoughts on the current TSX market pullback.

Much as it's jarring to see my Canadian holdings down significantly across the board over the last two days (once again, thank God for diversification) for some reason I can't stop thinking today about an awesome Raconteurs song, the lyrics of which seem to be an apt reminder of why it's important not to panic when things like this happen:

[This particular allegory makes more sense if you replace "girl" with "dividend-producing equity" :) ]

Find yourself a girl, and settle down
Live a simple life in a quiet town
Steady as she goes (steady as she goes)
Steady as she goes (steady as she goes)
So steady as she goes

A propos of nothing, there's a fantastic discussion going on at Canadian Capitalist today on the relative merits of reinvesting dividends through a DRIP or putting the funds to work elsewhere.

Not sure there's a wrong answer to this particular "what to do?" question, but I digress.

Buy and hold -- to a point

My investing strategy, in general, is to buy solid companies with long-term growth potential, ideally at reduced prices after the market has temporarily punished them. I'm a long-term investor. But that's not to say I'm afraid of locking in some short-term gains if and when they present themselves.

Since I've become a more serious investor, I've amassed a portfolio that now holds a handful of different equities, and I have plans of adding new ones as soon as I can save up enough capital. But in that same time period of stock-buying, I've only actually made one stock sale -- my CanWest MediaWorks Income Fund holding, which I sold a while back because the business's fundamentals no longer looked attractive to me.

I guess that makes me a buy and hold investor. Which I guess is a fair description. Slow and steady, in my experience, is the best way to win the race in the end. But that's not to say I like every aspect of the concept. Taken to the extreme, you end up constantly buying stocks throughout your life, almost regardless of price or what happens to them after you buy, and then selling all your positions to finance your retirement.

Dollar-cost averaging via a DRIP into a solid equity like a Canadian bank would probably work well over the long term. But that's not to say I'd be averse to locking in gains and sitting on the sidelines for a while if I think a holding has had a particularly frothy run. While I'll always stay a long way away from things like day-trading, I don't think it's heretical to say it might be a wise idea to lock in unexpected gains when you come across them.

I know, I know -- this sounds suspiciously like market timing, which is a taboo subject for a lot of long-term investors. But honestly, the whole concept of a stock one should keep buying, no matter the price, seems a little antithetical. If we're supposed to be diligent investors and do our homework before jumping into any given stock, how is that achieved by doing something mindless like constantly pouring money into a holding, regardless of price?

Buying and holding is a sound investing rule in principle. But like any other rule, there are exceptions.