What is buy and hold strategy
What is buy and hold strategy?
A buy and hold strategy is a strategy that involves buying stocks then holding on to them with disregard to market fluctuations, market timing or the state of the economy.
Buy and hold investors buy quality stocks then keep them for a certain period of time (usually a number of years) then selling them alter after realizing big gains. Studies doesn't only show that a buy and a hold strategy yields more return than all other strategies but they also show that buying and holding stocks yields more returns than buying most of other fixed income securities.
Why does buy and hold strategy fail to work sometimes?
An investor might buy a stock and then hold on to it for years but in the end he finds himself with a negative return, so does this mean that the buy and hold strategy has draw backs? No, it just means that the investor failed to pick stocks that are suitable for the buy and hold strategy.
Selecting the right quality stocks will enable you to make the most out of the buy and hold strategy and will enable you to make big gains.
How to select stocks for buy and hold strategy?
The following are guidelines for selecting stocks for the buy and hold strategy:
* Select predictable stocks: Who knows what products apple will make next year? Will Google create a phone that beats the Iphone? Can nokia take market share from apple by designing an Iphone? At the time of this post, no one knows!! So how are you going to buy a company then hold on to it for years without being certain about its future? Apple is a great company but hot stocks and most tech stocks aren't suitable for a buy and hold strategy
* Undervalued stocks: Benjamin graham the father of value investing once said "In the short run, the market is a voting machine, but in the long run it is a weighing machine.", this means that over the time value stocks will always yield great returns as the market realizes that they are undervalued.
* Great Management: If a friend of yours asked you for some of your money to run them for you, would he simply give them to him? I think you will first evaluate his money management abilities well before you will take any step, the same should go for the people who will manage your money after buying their stocks, quality management is a very important factor that you should look for before buying a stock for a buy and hold strategy.
* Diversification but not over diversification: Buying one stock is not enough, this stock might perform badly for any reason that's why buying few stocks that you have researched well can protect your buy and hold strategy from modest returns. On the other hand make sure that you don't over diversify because this might reduce your returns significantly.
Benefits of buy and hold strategy
Stress free life!! You won't have to follow stock quotes every day, you wont have to feel bad because your stocks dropped 1% that day and you won't care about market fluctuations.
Those who are against the buy and hold strategy claim that some stocks don't perform well on the long term, this argument doesn't mean that buy and hold strategy is bad but instead it means that they have poor stock selection skills. Select the right stocks buy them then hold them and you will make a great some of money.
A buy and hold strategy is a strategy that involves buying stocks then holding on to them with disregard to market fluctuations, market timing or the state of the economy.
Buy and hold investors buy quality stocks then keep them for a certain period of time (usually a number of years) then selling them alter after realizing big gains. Studies doesn't only show that a buy and a hold strategy yields more return than all other strategies but they also show that buying and holding stocks yields more returns than buying most of other fixed income securities.
Why does buy and hold strategy fail to work sometimes?
An investor might buy a stock and then hold on to it for years but in the end he finds himself with a negative return, so does this mean that the buy and hold strategy has draw backs? No, it just means that the investor failed to pick stocks that are suitable for the buy and hold strategy.
Selecting the right quality stocks will enable you to make the most out of the buy and hold strategy and will enable you to make big gains.
How to select stocks for buy and hold strategy?
The following are guidelines for selecting stocks for the buy and hold strategy:
* Select predictable stocks: Who knows what products apple will make next year? Will Google create a phone that beats the Iphone? Can nokia take market share from apple by designing an Iphone? At the time of this post, no one knows!! So how are you going to buy a company then hold on to it for years without being certain about its future? Apple is a great company but hot stocks and most tech stocks aren't suitable for a buy and hold strategy
* Undervalued stocks: Benjamin graham the father of value investing once said "In the short run, the market is a voting machine, but in the long run it is a weighing machine.", this means that over the time value stocks will always yield great returns as the market realizes that they are undervalued.
* Great Management: If a friend of yours asked you for some of your money to run them for you, would he simply give them to him? I think you will first evaluate his money management abilities well before you will take any step, the same should go for the people who will manage your money after buying their stocks, quality management is a very important factor that you should look for before buying a stock for a buy and hold strategy.
* Diversification but not over diversification: Buying one stock is not enough, this stock might perform badly for any reason that's why buying few stocks that you have researched well can protect your buy and hold strategy from modest returns. On the other hand make sure that you don't over diversify because this might reduce your returns significantly.
Benefits of buy and hold strategy
Stress free life!! You won't have to follow stock quotes every day, you wont have to feel bad because your stocks dropped 1% that day and you won't care about market fluctuations.
Those who are against the buy and hold strategy claim that some stocks don't perform well on the long term, this argument doesn't mean that buy and hold strategy is bad but instead it means that they have poor stock selection skills. Select the right stocks buy them then hold them and you will make a great some of money.
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