Buy-and-hold stock strategy can be big loser in bear market

Wilma and Dennis Patzkowksi, 68 and 70, knew stock investing was gambling. But they felt good about holding Washington Mutual — also owning it through an original investment in Great Western. They'd been Golden West and Washington Mutual customers for 35 years. They'd even visited employees at their local Washington Mutual branch when the stock was falling to see if there was a problem. They walked away reassured. "You buy what you know," Wilma says. "You figure they'll go back up."

But Washington Mutual crumbled from $17.25 a share in early 2000 to 10 cents now, shredding $21,000 of the Patzkowski's nest egg. Wilma says she'll never have such faith in a stock and, in fact, is all but swearing off the stock market. "I don't trust any stock anymore," she says.

Mutual funds are less risky

Investment professionals worry investors will confuse the prudent strategy of buying and holding a diversified mutual fund, which owns many stocks, with the dangerous practice of buying and holding individual stocks. Individual stocks are much riskier than diversified baskets of stocks because they are subject to company-specific risk, says Mark Hebner of Index Funds Advisors.

The risk of believing too much in an individual stock was a lesson learned by Ken MacGarrigle, a government worker based in the Washington, D.C., area who lost nearly all his investment in Lucent. Lucent was one of the most widely held stocks in the early 2000s, and was considered a symbol of American ingenuity. "I figured, hey, I don't even have to monitor this," says MacGarrigle, who declined to give his age or size of his loss in the stock.

Lucent, though, crashed more than 98% and no longer trades in the U.S., so it doesn't count in the list of 25 stocks in the USA TODAY analysis. Now the stock is Alcatel-Lucent trading for 1.81 euros, down from nearly 90 euros on an adjusted basis in 2000, Capital IQ says.

MacGarrigle still hasn't sold the stock, but rather just looks at it languishing on his brokerage statement waiting to take the tax loss. "It was always, you buy these big stocks and they will always make you money," he says. "That's not true anymore."

That leaves many investors looking at brutal losses and unsure how to get back to even.

Richard Ley, a 52-year-old social worker in Columbia, Tenn., lost nearly $30,000 on his investment in General Motors. He bought the stock thinking it was "a stock that paid a dividend and will be around," he says.

What's Ley's plan to get back to even? Buy and hold. This time, though, he's planning on holding onto shares of software maker Microsoft, figuring that company has staying power.

But the GM experience has renewed his memory of the risk of investing. "Yes, GM was an unusual case," he says. "But this market is an unusual case, too."

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