When you are in the stock market a buy and hold plan with no exit strategy is very risky. To begin with, buying a stock is one of the riskiest things we can do in the market because, without stop losses or using options as protective puts or some other kind of hedge, the risk is you could lose your entire investment. Many very big and strong companies have failed and vanished.
There was a time when many investors would have laughed at the suggestion that the great companies of the past would ever fail. Bankruptcy of General Motors was unthinkable not so long ago but we all saw it happen. The list of once great companies that went under is long today. Those who were buyers and holders of those companies suffered in the worse way possible. American companies have been going into bankruptcy at a rate of hundreds a week! The fact is most of those are not publicly traded, but publicly traded companies like GM definitely are to the great pain of shareholders.
Many stock market investors will remain unconvinced, but buy and forget or buy and hold with no exit strategy is a plan for great risk. What if we bought at a top and have need for our money when there is a big drop in value such as the one we have recently been witnessing or the one following the 2000 high? A suggestion to the buy and hold plan investor is to be aware that there is great risk, sometimes enormous risk, and ask yourself the question: Hold until when or why? Why would you not want to have an exit plan? If you get out of the stock and then the stock goes back up, you can always buy it again. Sure you may have to pay a capital gains tax on the gain, but isn't it better to do that than to see your investment go down the drain completely or suffer a big loss that may take years to recover?
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