Buy and hold
Buy and hold is a strategy in which equities, once purchased, are retained for a long period of time. Short term market fluctuations are ignored. The advantages of this approach are investment costs are kept to a minimum and one is invested when the market appreciates. One study showed missing the 5 best days of a hypothetical $10,000 Invested in the S&P 500 from Jan 1,1980 – Sep 30, 2008 reduced one's return by 24%.
Buy and hold can apply to many investment styles, active or passive. If purchasing individual stocks, the companies selected for this strategy must not be cyclical, since the intention is to hold them for years or decades. This way of thinking is compatible with the Dividend growth investing strategy, with Low beta investing and perhaps with Value investing, but is the opposite of day trading or market timing.
Warren Buffet famously wrote in his 1988 letter to the shareholders of Berkshire Hathaway Inc: “In fact, when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
Here is an example of how one portfolio manager selects his buy-and-hold stocks:
“When we buy a stock for the portfolio, we buy it with the intention of not selling it. We prefer to hold onto it in perpetuity and just have the stock continue to move up,” he says. With buy-and-hold investing, it’s critical to understand the business and the factors that will contribute to its staying power. “We look for competitive advantages, we look for economic moats, we look for barriers to entry. The business model has to be durable,” he says.
— John Heinzl interviewing Robert Gill of Lincluden Investment Management
- Modified from Wikipedia, Buy and hold, viewed March 21, 2009.
- Stock Market, Exit at Your Own Risk, viewed March 21, 2009.
- Warren Buffet, Berkshire Hathaway Inc., Chairman's letter 1988, viewed December 23, 2015
- John Heinzl, Five dividend stocks to buy and hold, The Globe and Mail, November 18, 2014, viewed December 23, 2015