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Buy and hold

Buy and hold is an investing philosophy that believes in buying excellent companies and holding those investments for the long term.

Extended Definition

Buy and hold is an investing strategy designed to minimize transaction costs while maximizing the possibility of enjoying the long-term returns generated from a given business.

Since long-term stock appreciation is based on long-term growth of the underlying business, buy and hold investing would, rather than buying based on a stock prices, technical charts or momentum, buy stocks representing strong, stable companies with excellent future prospects. Although criteria for the latter differ, many buy and hold investors agree that a good buy and hold company will have excellent and shareholder-friendly management, little or no debt, significant free cash flow, and a substantial competitive advantage.

Because transaction costs, including trading fees and capital gains taxes, can significantly undermine an investor's long-term returns, the buy and hold strategy has the advantage of minimizing these costs.

Buy and hold investing often overlaps value investing, seeking to buy quality companies at a discount to their intrinsic value. This discount provides a margin of safety that protects the investor on the downside while capitalizing on the market's eventual recognition of the company's fair value.

Although, as famous buy-and-hold investor Warren Buffett has said, "Our favorite holding period is forever," buy and hold does not imply that a stock should never be sold. Rather, stocks should be sold whenever 1) their stock price has significantly exceeded a reasonable calculation of the company's intrinsic value; 2) the investor can no longer trust management to produce the long-term growth buy and hold depends on; or 3) a significantly better opportunity for investment exists.

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