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Warren L. in Richmond, Va. is like many investors, torn between two statistics.

“The last two years tell me that buy-and-hold is dead,” he said in an e-mail, “while you said that the last 20 years show that buy-and-hold is alive and well. … Say the last two years is the start of the next 20 years: Do you really expect me to hold funds that long after what I have been through?”

Last week, this column looked at mutual funds over a 20-year time horizon and noted that they had justified long-term buy-and-hold strategies by meeting annualized expectations, even if their actual returns were too hot for one decade (the ’90s) and too cold for the next.

Truth be told, however, Warren and others with similar concerns are questioning the wisdom of hanging on to any fund during a period of underperformance, suggesting that trading funds to stay with top performers is the way to go.

Rick in Dallas said, “I can see myself in mutual funds for the next 20 years, always owning large-caps and small-caps for instance, but I can’t see myself in any one fund for that long.”

There’s a distinct difference between buy-and-hold in stocks and in mutual funds that most investors overlook.

Most funds are built for the long haul, trying to provide professional management, strategy and diversification at a reasonable price. The last two decades show that funds, in general, delivered to average expectations, even if the investor got giddy and then queasy along the way.

But you can hardly say that the average mutual fund itself practices a buy-and-hold strategy. According to Lipper Inc., the average equity mutual fund has turnover of 105 percent, which means the entire portfolio turns over roughly once every year. There’s not a lot of long-term buy-and-hold in a portfolio that finishes the year with completely different securities than it started with.

Investors who argue that buy-and-hold is dead are typically railing against mutual funds when, in fact, it’s not the strategy most funds take. It’s completely possible to hold a fund for years, but have your underlying investments — the holdings of the fund — turn over every couple of months.

Trading in and out of funds is about swapping managers and strategies, more than it is about changing one kind of stocks for another. If you move from a lagging large-cap value fund to a leading one, some of the same securities are likely to be in each portfolio. That’s the folly in chasing performance, because, historically speaking, such moves seldom pay off.

Morningstar Inc. tracks “investor returns,” which is a dollar-weighted measure that determines what shareholders really get out of a fund. Typically, investor returns lag far behind the fund’s long-term performance because investors plow cash in only when an issue has been hot, and they tend to sell once the fund cools.

Trading in and out of funds — outside of a tactical asset allocation or market-timing plan — hardly is a new idea. Typically it sounds great, but signifies nothing.

In 1995, Esquire magazine espoused something it called the “Midas Strategy,” purported to be “a way that everyday investors can beat the pants off nine-tenths of Wall Street by exploiting a totally new mutual fund investment strategy.” Promising “spectacular double-digit returns for years on end,” it was a short-term momentum play.

Step 1. On the first day of the month, divide your money between the 10 top-performing no-load, all-stock mutual funds from the previous month, so that at the start of April you’d be buying March’s hot stuff.

Step 2: At the end of the month, sell those funds.

Step 3. Repeat Steps 1 and 2, month after month ad infinitum.

Alas, the strategy only worked in back-testing, not real life. Moreover, if you simplified the system and used fewer funds, it never worked, proof that it was a statistical anomaly and investment balderdash.

That’s not to say all buy-and-hold strategies are brilliant, either. Around the same time as the Midas Strategy, I wrote that the “ideal mutual fund” would be in the top 10 percent of its peer group over a decade without having ever been in the top 10 or bottom 10 funds in its peer group during any single quarter.

It was a great theory, but when I checked to see which funds passed the test, the handful of survivors all were from miserable fund companies with questionable management (in fact, all of those supposed “winners” were merged out of business). They were ideal only in theory.

Ultimately, the idea with funds is to find a strategy you want to live with, and then let the fund handle the management chores and pass the results through to you. If the underlying investment strategy is sound, and the investor is comfortable with it, the fund can be a long-time holding. If the investor’s thinking changes, altering the portfolio makes sense.

In that context, buy-and-hold can be alive and well in funds, even when the wisdom of “buy-and-hold investing” is questioned.

Chuck Jaffe is senior columnist for MarketWatch. Reach him at cjaffe@marketwatch.com.

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