Buy and hold
Buy and hold is a strategy in which equities, once purchased, are retained for a long period of time.[1] Short term market fluctuations are ignored; specifically, buy and hold investors do not sell after a decline in value, and do not try to time the market. The advantages of this approach are that (i) investment costs are kept to a minimum, ((ii) taxes in non-registered accounts are delayed, and (iii) one is always invested when the market appreciates. One study showed that investing in the S&P500 index between 1961 and 2015 yielded an annualized return of 9.9% ($100 grew to $3550), but missing the best 25 days brought this return down to 5.7% ($100 grew to only $831).[2] Missing the best 81 days over this period of over 50 years resulted in an annualized return close to 0%, before transaction costs and taxes.[2]
In the context of strategic asset allocation, a valid reason to sell stocks would be to rebalance one's portfolio: buy-and-hold in this article does not imply a lack of rebalancing over time, as this would result in increasing risk as the equity portion grows larger. Instead, buy and hold strategies should be contrasted with day trading or market timing. Buy and hold can apply to many investment styles, active or passive.
Buy and hold in passive management
Passive investors want to capture the return of the market. So they buy the entire stock market through index funds or index exchange-trade funds, and stay invested at all times. This is a long-term patient strategy.
Buy and hold with active management
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.
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.”[3]
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[4]
See also
References
- ^ Modified from Wikipedia, Buy and hold, viewed March 21, 2009.
- ^ a b Antoons W (2016) Market timing: opportunities and risks. Brandes Institute Research Paper 2016-06, 19 p., available on SSRN, viewed March 11, 2025.
- ^ 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
Further reading
- Financial Wisdom Forum topic: "Is Buy and Hold that Difficult?" from 2006
- Financial Wisdom Forum topic: "The case for buy-and-hold indexing" from 2008
- Financial Wisdom Forum topic: "is buy and hold still a good strategy???" from 2009
- Financial Wisdom Forum topic: "Is Buy and Hold Dead" from 2009
- Financial Wisdom Forum topic: "Buy and Hold" from 2024