The 5 biggest lies on Wall Street - 3 (zt)

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Big Lie No. 3: Buy and hold
Anyone who has followed this advice since the late 1990s now feels deceived. "Buy and hold" once seemed so obvious. Over the long haul, stocks advance 10% to 12% a year, goes the mantra. So you can't ever go wrong adding money to stock funds -- as long as you don't act like a wild day trader.

The problem was that investors and financial advisers use an assessment of risk tolerance to determine exposure to various asset classes like stocks, bonds and cash.

Then the level of risk in the stock market changed violently. But investors -- or their financial advisers -- didn't adjust their portfolios away from stocks toward safer assets like cash, says Axel Merk of Merk Mutual Funds in Palo Alto, Calif. "If the risks in the markets change, your investment allocations must also change," he says.

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But how were we supposed to know that the risks of owning stocks had increased?

One early signal began to emerge in 2007, when market volatility started to increase rapidly, Merk says. Another sign was that excessive debt throughout the system had driven corporate profits to abnormally high levels, setting up investors for a big fall, says money manager John Hussman, the president of the Hussman Investment Trust.

Hussman warned investors of this risk early on. But, he says, because of Big Lie No. 2, many experts and Wall Street professionals "were unwilling to entertain any concern that threatened to stop the gravy train."