Buy and hold

Buy -and-hold ( German: Buy and keep ) is an investment strategy that aims to maintain long-term investments. This approach emphasizes both the definition for ( as current understood) speculation as well as for ( short-term but safe ) arbitrage business.

Economic background

Whether one ( eg with the help of chart analysis ) actually can make predictions about the future price development of a security that has not been scientifically proven and controversial. Representatives of the traditional financial market theories ( efficient market hypothesis, random walk ) are in stark contrast. Following its deliberations, so it is not possible to systematically obtain an alpha, so the selection of individual securities to achieve better investment results than the market.

Since every transaction costs money, an attempt to beat the market by buying and selling, to a worse outcome than the market. This is also consistent with the empirical finding that only one-third of the investment fund performs better than the market.

The strategy

The basic idea behind the strategy of "buy and hold" is, therefore, to carry out one hand in terms of portfolio theory a reasonable diversification of investments, but to give up the attempt to achieve by reallocating the portfolio an additional income ( eg stock-picking ).

So you specifies an asset allocation, but within the asset class takes no shifts in the portfolio.

Investment horizon

Due to the transaction costs of asset classes have different investment horizons. This refers to the minimum holding periods, the economic result from the transaction costs. The higher the transaction costs, the longer the investor must hold the investment to still make a profit. Thus, the cost of the acquisition of closed-end funds, real estate or property funds are very high, resulting in a long investment horizon. In these asset classes outweighs the strategy of "buy and hold".

  • Financial Strategy
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