Buy & hold

Buy & hold

By Boltvitaps | Trading Course | 10 May 2020


This strategy is one of the simplest, most popular and established that exists: buy and hold shares indefinitely (buy and hold).

It is not valid for other types of instruments, such as raw materials, currencies, etc.

This strategy is not about buying and holding a single stock in the hope that it will be the new Apple, Amazon or Google.
Imagine if when they were young and cheap companies, which were trading for a few dollars, you would have bought them ... yes, today you would be very happy, but it also happened that similar companies never became big or worse, they went bankrupt.
Therefore, buying a single share in the hope that it will grow, is almost a lottery ticket.
No one can know or guess which company that is currently young and cheap is the next Google.

The Buy & Hold strategy is about buying different shares issued by stable companies, which pay dividends such as the famous “bluechips”, as well as sectors or indices such as the Nasdaq 100, S & P500, Russell 2000 or the Dow Jones since it is a strategy of
long term that requires a permanent investment in bullish trends, that is, buy, buy and continue buying.
The idea of ​​buying indices is because it is very difficult for all the companies represented in that index to fail.
On the contrary, if you want to invest in a single share, we do not recommend this strategy since many companies have gone bankrupt, such as Lehman Brothers in 2008 for example, and that will represent losing all investment.

It is also not a suitable strategy for people who get very nervous or anxious: you have to be prepared to withstand drops in the stock market that can sometimes reach more than 50%.
It is very relaxing to see your investments rise in good years, but difficult to see them fall 50% or more in crisis years.
Many people can fall into anxiety and fear and sell their positions at the worst times.
You must have little risk aversion to stay firm in the worst moments, knowing that the market is cyclical (we have already seen market cycles or phases, it is something you should always consider when buying stocks, in addition to the fundamental analysis) and will eventually return to
go up, excepting specific bankruptcy cases.


Main indexes in monthly candles

1) Nasdaq 100 Index: was introduced to the market in 1985

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2) S&P 500 Index: The company dates back to 1860 and introduced its first stock index in 1923. Before 1957 its main stock index was the S&P 90, an index based on 90 companies.
The S&P 500 as it is currently known began in 1957 when it came to include the 500 largest companies in the United States.

 

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3) Dow Jones: Its origin dates back to the 19th century, in the Dow Jones & Company.
The Industrial index initially had 12 companies, then expanded to 20 in 1916 and finally to 30 in 1928.

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As you can see, in general, the trend is bullish in the indices shown, so the Buy & Hold strategy is recommended when there is a rise in the stock market and in indexes (or at least, several stable companies).
It is required to have a well-structured plan that provides information on what companies to buy, prices, when to sell, risks to take to make the investment successful.
That is why it is so important to take into account the phases that the markets go through, since it indicates the most appropriate time to buy.

Of the aforementioned indices, we will zoom them to visualize the most famous market crises and falls, despite the fact that the general trend is bullish, to show you what we mean when we say that we have to endure the falls and stay firm,
instead of panicking and selling at the worst times.
Remember that selling at a bad time letting yourself be carried away by fear is the main reason why you can lose money following the Buy & Hold strategy.

You have to be rational, the stock market is not going to go up forever or go down forever.


Dow Jones crisis of 2008

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Crisis in the S & P500

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Nasdaq 100 crisis

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As you can see, you always have to be prepared for the worst.

Even in a devastating bear market, as it was the crack of the 29 that fell almost 90%, the stock recovered.
The problem with this strategy is that a bear market of this caliber can start at the moment when such a strategy starts to be applied, which would be quite discouraging.

The question to ask yourself is if your nerves could handle something like that and if you like long-term investment.

 



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