Yesterday, I saw on Bloomberg TV one of the anchors mentioning that Nokia share price was down something like 65% of its high just over 3 years ago. That gave me a shock. 

Buy and hold of even great companies carries great risks

No, I do not own any Nokia shares direct. Probably I do own them, but then as part of an index fund or mutual fund. But this Nokia story reinforced with me the believe to invest my savings in index funds and low-cost mutual funds and not in individual stocks.

Four years ago, Nokia was the absolute darling of the stock market. Its share price almost doubled during 2007. They had over 40% market share of the fast growing mobile market. Its management was admired. They were the gorilla in the mobile world. Nobody came even close.

I bet that lost of financial advisors told people in the second half of 2007 to invest in Nokia. “What a great company, what a great stock”, they would have told you. “Buy and hold; this is a long term investment”.

Buy and Hold Would Have Cost You 65% of Your Savings

Nobody can predict the future. Nokia is still the absolute market leader with a 28% market share measured in number of phones. Also in smart-phones, Nokia still has a 34% market share. But its share price in the market is down almost 70% of its peak. If you had bought Nokia shares mid 2007 for $1000, you would now have only just under $350 dollars left.

Thus this can happen to the “best” companies. I do not risk my savings by investing in these great companies. I would have to invest in too many companies and follow the trends in the share price of too many companies to diversify the risk.

I am happy that I invest in index funds and broad market mutual funds and that I only have to follow the trend in a few indices. But it is still a shock: Nokia… down 65%.

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