Buy and hold is an investment technique that has traders purchasing and then keeping shares of securities for a long time, and ignoring short term price fluctuations. For many traders, this passive trading strategy has advantages, especially when it is employed at the right time. Following is some information about passively investing by using the buy and hold technique.
Buy and Hold Investing Technique
This strategy is only for those interested in long term gains. Essentially, one purchases shares of a security, and then simply tucks them away, hardly looking at them until later. The ultimate purpose of the tactic is to see a significant long term gain, which might outweigh any of the small price increases that might be experienced short term. Often, one who has a bullish perspective of a security will buy into it, and hope that, over time, it will generally work its way up.
Example of the Buy and Hold Stock Trading Tactic
Suppose that an entire industry, the auto industry, has been suffering for the last couple of years. An investor with an optimistic (bullish) view of the industry as a whole, who believes that it will get back on track over the course of the next few years might buy into it while it is low, and hope that after time, it will get back on track, and even progress. So suppose that this bull buys many shares of fictional auto company ABC’s stock at $4 per share. Now, in the past couple of years, shares have averaged closer to $12 per share. Referring to ABC’s moving average also reveals that it has been much higher and seems to be picking up.
The investor will employ the buy and hold passive investing technique, hoping that in years to come, the value of his stock will rise significantly. So, he is not interested when he checks in on his investment, two months later, and finds that it has risen to $5 per share. He is hoping that, if he gives it enough time, it will really move up over a greater period of time, so he does not sell, even if it shows significant improvement each times he checks on it. He is giving it time to really show where it is going, and then he will see if it is time to sell after checking back when the industry and this company get back on track and progresses, which he, bullishly, believes will happen.
Buy and Hold Stock Trading Tactic
The buy and hold investment technique is not for those trying for short term games. Though it can be hard to resist, if serious long term gains are anticipated, traders who successfully employ the investing tactic must not abandon their long term strategies for moderate and appealing short term gains. The point is to, essentially, check back later, and see if a held stock has risen significantly with significant time.
Stocks often do experience volatility, but for the buy and hold strategy, traders will need to ignore short term gains and simply wait to see the future of any security owned. This is especially relevant when a security depends on the success of its industry, which can take some time to progress significantly.
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