Buy-and-Hold
Buy-and-Hold is an investment strategy where an investor buys an asset and holds it, irrespective of price fluctuations.
Benefits – avoids extra transaction costs & short-term capital gains
Opposite of Market Timing
Not exactly opposite of Active Investing because an investor can “buy-and-hold” specifically selected stocks
Not exactly Passive Investing because an investor can “market time” passive/index ETFs
WARREN BUFFETT’S TAKE
“…when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
“If you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes.”
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”
My Take
As the definition states, the buy-and-hold strategy avoids extra transaction costs and short-term capital gains. In addition, reputable research indicates that over time, buy-and-hold outperforms market timing strategies. Therefore, I generally prefer buy-and-hold vs. market timing. In fact, one of my favorite investment edicts is, “It’s about time in the market, not timing the market.” Instead of trying to find the right time to buy into or sell out of the market, I generally prefer Dollar Cost Averaging.
Although I generally prefer buy-and-hold, I do not turn a blind eye towards “buy-low-sell-high” opportunities. For instance, when a particular sector is trading at record lows, it might be a good time to buy into that sector. Similarly, when interest rates are at record lows, it might be a good time to sell long-term bonds.
