For many investors, buying stocks and holding them for the long run is the core principle they follow. Even Warren Buffett has said that "our favorite holding period is forever." But if you invest your money as if every stock you ever buy is one you'll hold forever, you're going to get burned -- because you'll often end up watching hard-earned gains dwindle to nothing.

A perfect picture
The most recent example of this phenomenon is Eastman Kodak (NYS: EK) , which plunged last week on rumors that it would have to file for bankruptcy, potentially leaving current shareholders with a complete loss on their investment. From its heyday as a technological innovator, Dow Industrial stock, and member of the elite "Nifty Fifty" of the 1960s, the company failed to keep up with the pace of the transformation in its industry brought on by digital photography.

As a "forever" stock, Kodak has turned out to be a huge disappointment. But plenty of investors made lots of money on the stock. From 1990 to 1998, the stock more than tripled as the company participated in the tech boom. Only after the tech bubble burst did Kodak begin its final slide toward its current predicament.

Forever is a long time
Countless stories like Kodak's have played out over the decades for stock investors. Recent history is full of them:

  • One conglomerate promised to boost its profits by emphasizing its dynamic finance arm over its staid industrial segments. That company was General Electric (NYS: GE) , and it fell into the trap of the financial crisis. The stock has given up all of its gains from the 1980s and 1990s and remains at half its 2006 level.
  • One financial stock built an empire that spanned consumer and investment banking as well as insurance and eventually spawned the spinoff Travelers (NYS: TRV) . Yet heavy losses from mortgage-backed securities during the subprime mortgage crisis pushed the company to the brink of ruin, and now Citigroup (NYS: C) is only a shell of what it once was -- and its stock may never recover to its past levels.

I could go on with other dramatic stories like these, but the point should be clear: Even successful companies can fail to deal well with catastrophic changes, and shareholders who blindly vow to hold on to their shares come hell or high water often join in that failure.

Sticking with the best
But not every argument against buy-and-hold investing involves some huge meltdown. Sometimes, industries simply go through a changing of the guard among their leaders. Smart investors attune themselves to those cycles and avoid owning has-been stocks once they're past their prime.

One example is Wal-Mart (NYS: WMT) . The retail giant's shares haven't plunged recently; in fact, the stock was among the best performers during the 2008 market meltdown. But Wal-Mart hasn't produced anything close to the huge returns that it gave shareholders for the first decades of the company's existence.

The problem Wal-Mart faces is simply the law of large numbers. Having moved beyond simple retail to challenge more specialized players like SUPERVALU (NYS: SVU) in the grocery space, Wal-Mart will struggle to find new ways to grow. Meanwhile, as Internet retail picked up steam as a convenient way to shop, online retailer Amazon.com (NAS: AMZN) emerged from the ashes of the tech bust to put up amazing returns over the past decade.

I'm not saying that Amazon is destined to beat Wal-Mart's stock performance going forward. The key, though, is to understand that a shift in leadership would change the winners and losers in the industry, increasing the likelihood that Wal-Mart would cease to be the best-performing stock in the space.

Stop looking for forever
It's going too far to say that buy-and-hold-forever investing is an excuse for laziness. Many great investors pay plenty of attention to their stocks while still trying to hold on to them for as long as they can. But you'll do much better with your investing if you maintain a critical eye toward all your holdings -- even those you're hoping to hold forever. If you stay on the lookout for potential problems, you won't suffer the surprises that spelled big losses for shareholders of Kodak and countless other stocks.

Learn more about Wal-Mart's story and the companies that are posing the biggest threats to the retail giant in the Fool's free special report "The Death of Wal-Mart."

At the time this article was published Fool contributor Dan Caplinger will probably be humming "Dust in the Wind" all day now. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Citigroup, SUPERVALU, and Wal-Mart. Motley Fool newsletter services have recommended buying shares of Wal-Mart and Amazon.com, as well as buying calls on SUPERVALU and creating a diagonal call position on Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy may not last forever, but it'll serve you well as long as it's around.

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