There are several strategies you can use when you’re investing in stocks and one of them is a buy and
hold strategy. The buy and hold strategy involves buying a stock and holding it for a long period of time, i.
e. several years. In days past, buy and hold meant until you reached retirement or achieved some other
big financial goal. Today, experts disagree whether buy and hold is still a valid strategy. If you do a
search for “buy and hold strategy” you’ll probably see results saying both “Buy and Sell is Alive” and “Buy
and Sell is Dead”. The stance you take largely depends on your investment goals and risk tolerance.
The Argument Against Buy and Hold
Experts who argue against buy and hold strategy say that the market isn’t the same as it was 40 or 50
years ago. They say technology changes much too often for any company to be stable years, much less
decades from now. The dot.com bust and the recent real estate bust are examples of why the buy and
hold strategies might not work. However, certain stocks, like GE for example, have rebounded from the
damage that was done after the most recent stock market crash resulting from the real estate bust.
The Argument For Buy and Hold
Proponents of the buy and hold strategy say that market timing doesn’t work, that you can’t predict when
stocks are going to rise and fall. Of course, there’s at least one theory – the Elliott Wave theory – that
says differently. The Elliott Wave theory says that markets follow certain patters and if you can tell a stock’
s current place in the pattern, then you can estimate its next move, whether that be up or down.
Why They’re Both a Little Right
Of course, buy and hold doesn’t necessarily mean you’ll
stick your money in any investment, put your head in the
sand, and come up only when you’re ready to pull the
money out for retirement or whatever financial goal
you’re working toward (unless you’re a lazy investor).
Instead, you’ll still watch the stock and pull your money
out of a sinking ship before it totally goes under. In other
words, you still want to cut your losses if it looks like a
stock isn’t performing well and you don’t believe it will
turn around before tanking. So maybe the strategy is to
When you’re using a buy and hold strategy, you have to
choose your stocks carefully. If you plan to hold stocks
for a long time, it’s better to choose solid companies that you expect will be successful for a very long
time. Blue chip stocks are a common safe choice, for example. Avoid investment bubbles which you can
often spot when lots of investors are flocking to a certain type of investment. Those bubble stocks are the
exact type that you shouldn’t use a buy and hold strategy for. Companies that pay dividends are even
more attractive. It’s all about making an informed decision. Not every stock should be held for a long
period of time.
Your ability to buy and hold partly depends on how long until you need the money. If you have a short-term
need, even an emergency that you didn’t expect, you won’t be able to hold your investment for as long as
you’d like. You don’t have to use buy and hold for every stock in your portfolio. You may have some
stocks that you plan to trade in the short-term rather than hold on to them for several years.
Buy and hold is a good strategy for investors who don’t want to hire a stock broker or fund manager but
who also don’t want to spend time trading various stocks and watching stock prices. It takes time to
research companies, read their financial statements, do a SWOT analysis of the company, and all the
other tests necessary to decide if a stock is worth buying. Buy and hold lets you do that work less
frequently compared to if you were continually trading stocks.
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advice. Please consult the appropriate professional regarding your personal situation.
Buy and Hold Strategy
There are plausible arguments for and against buy
and hold investing. Here is a look at how using a buy
and hold strategy along with some common sense
can prove beneficial.