What do buy, hold and sell mean on the stock exchange?
Information And Tips For Investors. In order to understand what the buy and hold strategy is all about, the English terms buy, hold and sell must first be explained. They are usually encountered in the trading recommendations that investment houses and financial analysts make on certain stocks. Buy (“Buy”) and Sell (“Sell”) are recommendations to either buy or sell the respective security. Hold is neither a buy nor a sell recommendation – according to this recommendation, anyone who does not yet own the stock should not invest their money in it , and if you have it in your portfolio.
What is a buy and hold strategy?
The principle of the buy-and-hold strategy is already in the name: buy and keep. It’s about putting stocks or ETFs in the depot , for example , and leaving them there for several years or even decades. Buy-and-hold is one of the more passive investment strategieswith a comparatively long investment horizon. In contrast to day or swing trading, buy-and-hold does not try to make profits by exploiting short-term price fluctuations. Even in times of crisis and sharp price drops, stock market professionals advise you to stay calm when buying and holding and not to sell too quickly. Questions of timing, i.e. the right time to get in or out, play just as little role in this investment strategy as short-term market opinion.
In view of the usual volatility on the financial markets, a long investment horizon may offer the opportunity to sit out price fluctuations based on the buy-and-hold principle. It doesn’t matter whether you want to implement the buy-and-hold strategy with a one-time investment or with a savings plan. Investing in real estate based on the buy-and-hold strategy is also conceivable if you specifically buy and hold ETFs on indices that track the performance of equity funds and real estate companies
How complex is the buy and hold strategy?
One advantage is often mentioned that the buy-and-hold strategy is easy to understand and is comparatively easy to implement even by private investors. That is not fundamentally wrong. However, one should not forget that even as a buy-and-hold investor, especially when investing in individual stocks, one cannot do without having to do a thorough fundamental analysis of the most important stock figures in order to assess whether the corresponding stock is in the The stock market could be over- or undervalued. The beginners should be familiar with the basics of stocks. In addition, investors should have the right composition of the portfolio – the so-called asset allocation- consider. Despite the comparatively lower complexity, investors should not lose sight of the general risk of an investment in securities. Unpredictable events and developments can quickly lead to losses in the depot.
How much effort does the buy-and-hold strategy take?
The “support effort” is also considered to be relatively low with the buy-and-hold strategy, since you usually sit out price fluctuations instead of trying to exploit them profitably. But even that does not protect against losses or even total loss. Apart from rebalancing , which may be useful in order to restore the original composition of the portfolio, buy-and-hold can dispense with the time and stress associated with “active” strategies geared towards short-term returns.
Does the buy and hold strategy guarantee a high return?
Just waiting and ignoring the development of the companies whose shares you have in your portfolio is no guarantee of a positive return. After all, there is always the risk that the value of a share or an index will only develop negatively in the long term and that the purchase price will never be reached again and ultimately even lead to a total loss.
In principle, buy-and-hold has proven its worth with stocks or large indices. In principle, every financial investment is associated with risks up to a total loss. This cannot be shaken with the buy-and-hold strategy either.
Is the buy and hold strategy cheaper than other investment strategies?
“Back and forth empties pockets” is a frequently quoted stock market adage. In fact, frequent trading reduces returns because there are transaction costs with every purchase or sale of securities. This frequent shifting of the portfolio should by definition be omitted with buy-and-hold, so that the costs can be lower overall than with other investment strategies.
Perseverance is difficult for some investors
Another disadvantage of the buy-and-hold strategy is mainly psychological. Private investors in particular often do not have the stamina and willingness to take risks not to be unsettled by the daily ups and downs on the stock markets and to sit out inevitable price drops.