'Buy and Hold' is a investment strategy in which investor buys stocks or equivalent and holds them for long period of time (years) regardless of short term market fluctuation.
The believers of 'Buy and Hold' strategy actively select stocks based on 'Fundamental Analysis' (assessment of a company's financial status), searching for undervalued or potential growth stock, and once in position, is unmoved by price movement.
Usually, investors will only sell the stocks if the company's financial strength deteriorated based on financial statement.
All public listed companies were required to submit a financial report consist of Balance sheet, Income Statement and Cash Flow statement every quarter (1 quarter = 3 months)
Does it works?
There are arguments over whether a buy and hold strategy is actually superior to any other strategy, for instance trading using 'Technical Analysis' (charting using lagging indicators such as momentum to predict price movement), anyhow lets take a look at 2 case study below before drawing any conclusion.
Case Study 1 - Exxon Mobil (XOM)
If we invested XOM at 'A' @ year 1970 and hold it until 'B' @ year 2013, the total return is 4900% over 43 years as a result of compounding effect, excluding dividend. Financial freedom for sure after retirement, in this case 'Buy & Hold' strategy clearly demonstrate its worth.
Case Study 2 - Coca Cola (KO)
If we invested KO at 'A' @ year 1962 and hold it until 'C' @ year 2013, the total return is 4000% over 53 years as a result of compounding effect, excluding dividend. However if we made a awful decision to enter at 'B', the stock still worth the same price as 15 years ago, 'Buy & Hold' strategy seems like not fruitful at all.
'Buy & Hold' strategy will only works for who has the right knowledge to discover 'Unpolished Gem' in stock market, in addition to that, great discipline is also important to ensure 'The Golden Goose' is kept alive.
Good new is this is not the only strategy around for wealth accumulation ... So stay tune =)
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