The most well-known investment strategy in the world is the buy-and-hold strategy. The thought is that if you buy stock in a fundamentally sound company, then overtime that stock should be worth more than what you paid for it to begin with. One of the advantages of the buy-and-hold strategy is that the investor does not have to constantly watch his or her stocks. Investors who bought into companies such as IBM and GE in the early days saw their investments rise dramatically year after year without much effort. Another benefit of this strategy is that you will not be paying a lot in commission cost, because you are not constantly buying and selling stocks. This strategy works very well as long as there are more bull markets than bear markets.
Buy-and-hold investors try to hang on to a stock as long as a company remains fundamentally sound. They do not tend to chase stock charts or news. They simply look at the bottom line of the company itself. One of the most successful buy-and-hold investors in the world is Warren Buffett. If you look at many of his investments they tend to be in boring companies as opposed to high-flying technology stocks.
The main problem with the buy-and-hold strategy is it fails miserably in bear markets. Individual investors who hold onto stocks no matter what may find themselves losing everything they have gained if they can not recognize the signs of a bear market. This is brought on by the belief that eventually all stocks they own will have to return back to their original price. The truth is though that many stocks may never return to their past glory thus leaving the buy-and-hold investors hanging onto a huge loss year after year.
I personally have never been a big fan of this strategy, and feel it holds back potential huge gains that can be made with a little more hands on involvement with your portfolio. If you are someone that prefers the hands off buy-and-hold strategy, I still believe it is a must to use stop-loss orders to protect your investments when bear markets occur.
By: Chad Surges