- Buy and hold is a passive investment strategy for which an investor buys stocks and holds them for a long period regardless of fluctuations in the market.
- We believe “buy and hold” encourages investors to try and guess how a company will perform over the next decade (an impossible task) and then ignore new information.
- Investors who practiced “buy and hold” with General Electric stock saw their money decline by -65% since the year 2000, trailing the overall market by -231%.
- We provide several strategies you should practice instead of “buy and hold” and thoroughly explain why they will yield better profits.
Please don’t “buy and hold” your stocks.
It’s a common phrase taught to beginner investors, and as with most overly-simplistic advice, there are some useful pieces of truth to it.
However, in general, we think it’s misleading and would recommend a more engaged approach to investing.
Before we explain what’s wrong with “buy and hold” and what we’d recommend instead, let’s start by defining what investors mean when they say you should “buy and hold” your stocks.
According to Investopedia:
Buy and hold is a passive investment strategy for which an investor buys stocks and holds them for a long period regardless of fluctuations in the market.
Now, this approach is actually rooted in some very good concepts. For example, it’s true…
- You do NOT want to get swayed by short-term price movements in your stocks.
- You do NOT want to jump in and out of stocks as you try to time the market.
- You DO want to find high-quality companies you could hold for a long time.
- You DO want to collect steady dividends over time.
So, when investors “buy and hold”, they do get some things right.
Then why do we think “buy and hold” is such a dangerous approach to investing?
Put simply, “buy and hold” encourages investors to…