How to Buy and Hold Stocks

The stock market is subject to so many variables that timing a stock correctly is very challenging. Granted some can estimate using investment models and are right a majority of the time. However, for the average investor it is less time consuming and requires less effort to simply buy and hold stocks. Nevertheless, an investor has to know which stocks to purchase in the first place.

Difficulty: Moderately Challenging

Instructions

1. Determine the time horizon and risk aversion of the investor. If you are only a few years away from retirement, then the buy and hold strategy will not work for you. Risk aversion is a measurement of just how risky an investor you are. If you like picking unknown stocks hoping they are the next Home Depot, then you have a low risk aversion. Conversely, if you cringe every time your investments go down then your risk aversion is high.

2. Research the potential stock investment based on your personal risk aversion and time horizon. When investigating these stocks be sure to make note of any drastic price drops or rises during a period and the reason why the event happened. If when researching the stock, you notice that its price is leveling off for an extended period, its growth may have hit a growth plateau and is not worth the investment.

3. Select stocks for the buy and hold strategy that are relatively stable and offer a product or service that will stand the test of time. You can choose stocks that are pillars of the market like General Electric. Whichever stocks you choose, time horizon, growth projections and risk aversion are the determinants in the selection.

4. Purchase the stocks for the buy and hold strategy. You can call a stockbroker, visit your local bank, or login to an on-line stock trading account to purchase the stocks. Be sure to place a limit order, which allows you to establish the purchase price of the stock. Otherwise, you're at the mercy of the market conditions which determine the prices you pay for the stocks.

5. Remain patient as the stock prices rise and fall. This is what makes the buy and hold strategy so difficult because a person wants to sell the stock when it is high for a profit or they want to sell it because it is dropping in value. Patience is indeed a virtue when using the buy and hold strategy.

6. Sell the stock when you are near or at retirement. In a strict buy and hold philosophy, an investor does not sell the stock until they need the money for retirement.

Tips & Warnings

• If you are novice investor, please consult an investment professional before purchasing any stock.