The Wise Know the Whys of Buy-and-Hold

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I am not so foolish as to believe that everyone espouses a buy-and-hold strategy of investment in the stock market. However, I firmly believe that for the average person, buy-and-hold is the wisest strategy. There are different types of people with different purposes for buying, selling, or holding stocks.


The “Whys” Investor

Speculators watch the news and listen to analyst opinions on a daily basis. They buyi or sell frequently, based upon how they believe the stock will perform in the future, particularly in the short term.

Reactors are the busiest shareholders. They have almost an obsessive attitude toward “buy low / sell high” and they probably cause the most volatility in the market. I see brokers as reactors. They are are highly active traders.

True investors are committed to studying the “why” before they make an investment. “Why” includes thorough research into the operations, objectives and strategy of a company for establishing a level of confidence that making a commitment to invest is a wise idea. An investor commits to getting on the bus and riding it all the way to its proposed destination – even if the driver makes an occasional wrong turn.

At the end of the day, every day, he knows why he has chosen to cast his lot with each company in which he is invested, regardless of what happens on any given day.

The Wise Investor

Some have labelled buy-and-hold investors as “passive” investors. I beg to differ. I believe that more appropriate term would be “patient” investors.

Buy-and-hold requires research and deliberation. There is nothing passive about that. To the contrary, it is hard work. Alluding to my previous simile, when a buy-and-hold investor makes an initial purchase in a stock, it is like buying a ticket to get on the bus, whereupon he enjoys the same experience as all the others who are on the bus as well.

The wise investor is more interested in where the bus is going than he is about when it will get there. He’s not a commuter, he’s more like a tourist.

The wise investor acts more like an owner, which he really is. He is just not involved in the day-to-day operations. Part of this schema is that wise owners have exit strategies. The wisest buy-and-hold investors determine their potential exit strategies at the time of their initial investment. That’s not to say that the exit strategy might not change for some reason in the future.

Dividend-paying companies offer and opportunity to keep the investment growing when a buy-and-hold advocate allows the dividends to be used to acquire additional shares. While that may sound passive, it is not. Rather, it is a regular process that follows an initial decision.

Wise Investors Enjoy Life

Buy-and-hold investors don’t have to stress unnecessarily over whether a company’s share price – or the sector in which that company operates – is up or done on a daily basis. Just as the bus ride, it many go up and it may go down, but as long as the wheels go round and round and the destination has not changed, the ride is much better than getting off and switching buses at every stop.

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