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How Effective Is Buy And Hold Strategy For You

Jul 4, 2008
As an investor in the turbulent world of stock markets you always will be tempted to sell your stock and book profits. That strategy definitely works fine but you may lose out on further upswing in the stock if the market is on an upswing. That is why there are pros and cons to a buy and hold strategy.

If you ask any investor a beginner or a veteran they will have conflicting views and opinion about this strategy. Then there is one famous investor of this generation by the name of Warren Buffett who has made billions on dollars just by using this buy and hold strategy. That is not to say that there are others who have made billions by just buying and selling in a very short period of time.

The risks in general associated with the buy and hold strategy are very less because in the long run say bout ten years or so you will generally tend to make handsome returns on your investment. The longer period allows you to tide over the losses during the lean period.

The down side of this strategy is that you need to have enough patience and good amount of capital to sustain patience for over a period of a few years. That is a tough task to follow because if buy a stock at market upswing time then you would be see immediate profits and would like to sell the stock. Let us assume that you get a 30% return in a matter of a month. That would be more than sufficient return to sway any investor and get him to sell his stock. But if you are a proponent of a buy and hold strategy you would actually buy a stock which is worth many times over in the long run. The 30% return will not be enough for you to sell the stock. A long term investor knows that a particular stock is worth say 800% over and that is why it is not prudent to sell the stock now and wait for bigger profits. So it all depends on the kind of returns you are expecting from the market apart form the fact that you need to have patience to hold through a longer period.

On the flip side there will be times when you are have losses on your books and a short term investor will in general as a rule try to limit his losses ad will exit the stock. Whereas a long term investor will hold out knowing that this a temporary blip in an otherwise uptrend stock.

So think hard and decide which strategy you want to go with and select the stocks appropriately.
About the Author
Amit suggests that as stock market for beginners an investor should go outside help. He has a resource on stock market for beginners lessons for new investors.
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