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Back in the days of yore, I was a buy and hold investor with stocks.
Also, I was a moron.
In this article, I’ll tell you why and cover the following:
- What is the buy and hold strategy
- Why many investors think it’s a great strategy
- Why it’s really dumb AF
- A situation where a buy and hold strategy can work
What Is The Buy and Hold Strategy?
This strategy for investing is just what it sounds like. You buy a stock. And you hold it (ie. don’t sell it) for a very long time.
No matter what happens in the stock market or to the stock(s) you own, you hold the stock. For years. Maybe decades.
It’s a very passive investing strategy. No need to watch your stock(s). No need to research them. You don’t have to keep an eye on technical indicators.
You just sit tight. Which is a big reason why it’s so appealing to many investors.
Why Many Investors Think It’s a Great Strategy
The buy and hold strategy is championed by many investors. This includes some of the all-time greats like Warren Buffett and Jack Bogle.
And there is a lot to like about it…
- It doesn’t involve much work
- Because you don’t sell, you don’t trigger any capital gains taxes
- Costs (ie. commissions, fees) are low
Also, it’s claimed that the buy and hold strategy outperforms most actively managed funds/investment strategies over the long haul.
Maybe.
Why It’s Really Dumb AF
I don’t think most investors who buy individual stocks should just plan to buy and hold them.
Why?
Companies change. Industries change. Competition changes. The market changes.
Railroad stocks soared in the early part of the 1900s. Most then tanked.
Many of the high flying tech companies of the late 1990s/early 2000s racked up amazing gains… before the tide turned against them and they fell to being worth little, if anything.
If you are just buying and holding individual stocks, you’re going to miss out on changes in companies, industries, etc. that should be clear signals to get out of them. And your portfolio’s performance is gonna suffer.
If you buy and sell individual stocks, it’s your duty to keep an eye on them and have clear rules that should trigger the sale of that stock.
But most people don’t have the time or knowledge to do that. And if that describes you, that’s totally fine. Just don’t sink any sizable chunk of your portfolio into individual stocks you think you’re just gonna buy and hold.
How a Buy and Hold Strategy Can Work
Having said all that, for many investors a buy and hold strategy is absolutely the right long term strategy. Just don’t think you should put your money in individual stocks.
Instead, invest in ETFs or index funds that track the market averages over the long haul. You’ll be much better off investing in the overall market than trying to pick the (very few) individual companies that’ll just keep going up over the years and decades to come.
The Bottom Line
If you want to use the buy and hold strategy, invest in ETFs and index funds. If you’re gonna invest in individual stocks, take the time to know what you’re doing, get specific buy/sell rules in place and steer clear of the buy and hold strategy.
