Some of you have heard this story before, but it bears repeating because it underscores the effectiveness of buying good companies and letting them ride. This is why I’m so convinced that “buy and hold” is the only way to go when it comes to investing in the stock market. My biggest regret in 14 years of trading wasn’t something I bought, it was something I sold.

I changed jobs in 2011 and my 401k was rolled over into an IRA, and for the first time I had complete control over how my money was invested. I started buying individual stocks in early 2012, and one of the companies I bought was Netflix (NFLX).

  • On March 19, 2012, I bought 30 shares of NFLX for $109.51 per share.
  • It went down, so I “bought the dip” on May 1, 2012, picking up 30 more shares at $80.84 per share.
  • It went down again, so sticking to my guns I bought 60 shares at $65.77 on June 18, 2012.

I then had 120 shares with a cost basis of $9,656.70.

Over the course of the next 5 months the price of Netflix was going up and down like a yo-yo. I was new to investing. A couple of my other buys weren’t doing so well. It was driving me crazy, so I calculated my break-even point and sold all 120 shares via an automatic sell order on November 14, 2012, when NFLX rose to $80.50. Whew! I broke even. My $9,656.70 was safe. I even made $3.30.

Netflix didn’t stop going up on November 14th. It kept right on going.

  • On July 15, 2015, NFLX split 7-for-1 and my 120 shares would have become 840 shares.
  • On November 17, 2025, it split again, this time 10-for-1, and my 840 shares would now be 8,400 shares.
  • NFLX has slumped to $67.60, nearly half its value at the peak in June 2025, and as of July 20, 2026 my $9,656.70 investment would be worth $567,840.00. That’s much, much, much more than the combined losses I’ve taken over the years.

Since then, I’ve read a lot, observed a lot, developed nerves of steel, and recently revisited the data supporting a Buy & Hold investment strategy.

Buy and Hold: The Rational Investor’s Default Strategy

Over long time horizons, a disciplined buy-and-hold strategy — investing in broadly diversified, low-cost index funds and resisting the urge to trade around market movements — outperforms the large majority of actively managed funds after fees, taxes, and behavioral costs are accounted for. This is not primarily a claim about market efficiency in the strong theoretical sense; it is an empirical claim, repeatedly confirmed by decades of data comparing active managers to their benchmarks. For most investors, buy-and-hold is not merely a reasonable strategy — it is the strategy most likely to maximize risk-adjusted, after-cost, after-tax wealth over a lifetime.

The Empirical Case: Active Management Mostly Fails to Beat Its Benchmark

The most rigorous, longest-running dataset on this question is S&P Dow Jones Indices’ SPIVA (S&P Indices Versus Active) Scorecard, which has tracked active fund performance against benchmarks for 25 years. The most recent full-year data (2025) is unusually stark:

  • 79% of actively managed large-cap U.S. equity funds underperformed the S&P 500 in 2025 — worse than the 65% underperformance rate in 2024, and the fourth-worst year in the scorecard’s 25-year history.
  • Fixed income managers fared even worse on average: a 70% cross-category underperformance rate, with 82% of general investment-grade bond funds and 76% of high-yield funds trailing their benchmarks.
  • Looking at longer horizons removes any doubt that this is a short-term fluke. Over the 20-year period ending December 2025, the vast majority of active managers across domestic equity, international equity, and fixed-income categories lagged their benchmarks. Over 15-year periods, S&P has found zero of 22 U.S. equity fund categories where a majority of active managers beat their benchmark.
  • SPIVA’s companion Persistence Scorecard adds a second finding that matters just as much as the headline underperformance rate: even the active managers who do outperform rarely repeat that outperformance. Skill is difficult to distinguish from luck in the data, and today’s top-quartile fund manager is not a reliable predictor of tomorrow’s.
  • A related SPIVA special study modeling realistic multi-asset portfolios found that 96.9% of simulated 60/40 active portfolios underperformed a comparable blend of passive indices — and did so with higher volatility along the way, not lower.

This pattern is not confined to the United States. SPIVA scorecards for Canada, Latin America, Japan, and other markets show the same broad tendency: majorities of active managers underperforming their local benchmarks in most years and most categories, with underperformance rates generally rising — not falling — as the time horizon lengthens.

Why Active Management Struggles: The Structural Reasons

The data above is not a temporary anomaly or a statement about manager competence. It reflects structural, largely permanent features of how active management works:

  • Costs compound against the active investor. Actively managed funds typically charge higher expense ratios than index funds, and they generate more trading activity, which adds transaction costs and, in taxable accounts, realized capital gains taxes. A 1–2 percentage point annual cost disadvantage seems small in any given year but compounds enormously over decades — the single largest, most reliable predictor of a fund’s relative long-term performance is not its manager’s skill, but its cost structure.
  • Beating the market is, by definition, a zero-sum (or negative-sum) game before costs. The aggregate return of all investors in a market is the market return. For every active manager who beats the index, another active participant must underperform it by a corresponding amount. Once costs are subtracted, the average active dollar must underperform the average passive dollar — this is closer to an accounting identity than a debatable hypothesis.
  • Skilled stock-picking is difficult to identify in advance, and rarely persists. The Persistence Scorecard data shows that past outperformance has limited predictive power for future outperformance. Chasing recent “star” managers or funds is closer to chasing noise than identifying durable skill.
  • Market conditions periodically flatter or punish active management, but the long-run pattern reasserts itself. Some years and some categories produce majority outperformance by active managers — usually traceable to a specific, identifiable market condition rather than durable skill. These pockets do not change the long-horizon picture.

Why Buy-and-Hold Wins Even Beyond the Fee Comparison

Beating the average active fund is not the only advantage of buy-and-hold. It also protects investors from costs that are self-inflicted rather than fund-inflicted:

  • Behavioral cost avoidance. Investors who trade in and out of the market in response to volatility systematically buy high and sell low relative to a simple buy-and-hold benchmark. Decades of fund-flow studies show the average investor return trailing even the average fund’s stated return, because of poorly timed entries and exits. Buy-and-hold removes the temptation to time the market at all.
  • Tax efficiency. A low-turnover, buy-and-hold approach in a taxable account defers capital gains taxes far longer than an actively traded portfolio, letting more capital compound before the tax bill comes due.
  • Simplicity and sustainability. A strategy an investor can actually stick with through a bear market is worth more than a theoretically optimal strategy they abandon at the worst possible moment. Buy-and-hold’s simplicity is a feature, not a limitation — it is far easier to hold a diversified index fund through a 30% drawdown than to hold conviction in an active manager’s judgment through the same drawdown.

Addressing the Counterarguments

“Some active managers do outperform, and I can find them.” True in any given period, but the Persistence Scorecard data shows this is very difficult to do in advance, and the required skill is hard to distinguish from luck until well after the fact — often too late to have captured the advantage.

“Active management adds value in less efficient markets.” This is the strongest counterargument, and the SPIVA data partially supports it: underperformance rates are sometimes lower in less liquid, less-researched segments. But “sometimes lower” is not “reliably beats,” and even in these categories, majority underperformance remains the norm over longer horizons.

“Passive investing just free-rides on active price discovery.” True at a market-structure level — some minimum level of active trading is necessary for prices to be informative at all. This is an argument for some active management existing in the market as a whole; it’s not an argument that an individual investor is likely to benefit from choosing an active fund over an index fund for their own portfolio.

“Indexing guarantees mediocrity — you can never beat the market.” Correct, and this is the point: buy-and-hold does not promise to beat the market. It promises to capture the market’s return reliably, at low cost, which the data shows most alternatives fail to do even net of their attempt to beat it.

Conclusion

The evidence assembled by SPIVA over 25 years, across multiple asset classes and multiple countries, converges on a consistent conclusion: the median actively managed fund underperforms its benchmark, underperformance becomes more pervasive as the time horizon lengthens, and outperformance — when it occurs — rarely persists. Layered on top of this cost-and-skill problem is a behavioral problem: investors who try to time markets or chase active outperformance tend to do meaningfully worse than the funds themselves. Buy-and-hold sidesteps both problems. It’s not a guarantee of beating the market, and it’s not the right strategy for every dollar an investor owns — but as a core strategy for the substantial majority of a long-term portfolio, it is the approach best supported by the evidence.

In my defense, back in 2012 I was new to investing. I didn’t know any of this and I hadn’t developed the nerves of steel that comes with time in the market. That’s why it’s important to start getting used to the ups and downs of the stock market as early as you can. Then when you buy shares of your Netflix, you won’t make the same mistake I did. +++