The Key to Buy and Hold Investing

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Key Points

1. Buy and hold is about being in the market when the big moves occur. This is important because big moves are what truly drives returns in the long run. For instance, if we look at the returns of the S&P 500 from 1994 to 2014, we find that if we eliminate the 10 best days we lose over half of our returns. Being in the market for big gains, and allowing those big gains to compound, is at the heart of buy and hold investing.
2. Because big days are so important to the buy and hold philosophy, it should be worth noting that big days frequently come after big declines. As such, investors should have capital ready to buy after big declines.
3. Part of having capital ready for declines is buying in tranches – blocks of orders at key levels. Basic technical analysis, just as support/resistance analysis or Fibonacci levels, can help traders identify what tranches they should buy at. This can also help traders identify when to sell, as selling as long term investing requires not only buying when the market is low, but selling when the market is high.
4. Note that buy and hold investing has its downside — namely that in volatile markets it will result in greater drawdowns, and is potentially more conducive to traders who do not have any sort of a plan. A plan for when to buy and when to sell is still necessary for best results.

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