\u201cHigher the Risk, Higher the Return\u201d<\/em><\/strong><\/p>\n This statement is not new to anyone investing in any of the financial instrument. Be it stock market, bond market, currency or any other financial instrument the term has been the motto of all the business across the globe. Equity Markets<\/strong> has been one of the major sectors which have been the personified version of this motto. In order to gain the maximum profit various strategies have been developed by the investors. One of the well known and globally accepted strategy is the Buy and Hold strategy also known as the Long-term Investment Strategy.<\/p>\n It is very important to choose a fundamentally strong company for the portfolio, as it will make a difference to the profits of the entire portfolio and will also give immense profit if held for decades<\/em>. Warren Buffet, the uncrowned emperor of stock markets, too rely on a Buy and Hold<\/strong> strategy for investments, as its one of the most optimum options one has for increasing the wealth over the long term in every situation.<\/p>\n However as different kind of thinking prevails in the market, many think that Buy and Hold Strategy has taken a fair amount of beating in the recent times. People think that only the high frequency traders can make money from stock market. The average holding period<\/em> of stocks has fallen from four years in the period 1926 \u2013 1999, to 3.2 months<\/strong> in the present day.<\/p>\n Read on GWI Why investing in BRICs Debt is much more Profitable than Equity<\/a>.<\/em><\/strong><\/p>\n In a layman\u2019s term Buy and Hold is a long-term investment strategy<\/strong> based on the view that in the long run financial markets give a good rate of return, irrespective of periods of volatility or decline. It also advocates that short-term market timing i.e. the phenomenon that one can enter the market on the lows and exit on the highs, doesn\u2018t work.<\/p>\n The underlying theory behind the strategy is:<\/p>\n It is impossible to consistently achieve above average returns, on a risk-adjusted basis, according to the efficient market hypothesis (EMH). Investors have access to information that will fairly value a security at all times. Therefore, it is pointless to make decisions that might result in the active trading of a security.<\/em><\/p>\n<\/blockquote>\n Thus the follower of the strategy finds no good reason to trade in stock on a daily basis. The only area of interest is the positive long term trend in the market. Opposite of buy-and-hold is the concept of intra-day trading, where in people make money in the short-term taking advantage of greater volatility.<\/p>\n 1. Easily Comprehendible and Implementable<\/p>\n 2. Supported by Investment Theory<\/p>\n 3. Reinforces the Minimum Emotions and Maximum Discipline approach<\/p>\n 4. Outperformance of the Passive Investing over Active Investing<\/p>\n 5. Cost-Effective as compared to Active Trading<\/p>\n 1. No upper limit to losses<\/p>\n 2. Test of Risk Appetite\u2013Investors may lose if they don\u2018t have sufficient risk appetite<\/p>\n 3. Buy and Hold Approach may not provide Maximum Possible Returns as much as in Minute to Minute approach.<\/p>\nWhat is Buy and Hold <\/em><\/strong><\/h3>\n
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Advantages of Buy and Hold Strategy<\/strong><\/h3>\n
Disadvantages of Buy and Hold Strategy<\/strong><\/h3>\n