What does 'Hold' mean
Hold is an analyst's recommendation to neither buy nor sell a security. A company with a hold recommendation generally is expected to perform with the market or at the same pace as comparable companies. This rating is better than sell but worse than buy, meaning that investors with existing long positions shouldn't sell, but investors without a position shouldn't purchase either.
BREAKING DOWN 'Hold'
All hold strategies are investment recommendations given by financial institutions and professional financial analysts. The reasoning behind a hold is multifaceted.
Hold is primarily a denotation given to some publicly traded equities. All stocks either have a buy, sell or hold recommendation. Often, a single stock may have two or more conflicting recommendations given by different financial institutions. In these cases, it's important for investors to look at the advice provided and decide which is more accurate for their specific situations.
If an investor decides that a stock is a hold, he has two potential options. If the investor already owns shares of the stock, he should hold onto the equity and see how it performs over the short-, medium- and long-term. If an investor does not own any shares of the equity, he should wait to purchase until future volatility becomes more clear.
A Buy-and-Hold Strategy
Some investors enter into what's known as a "buy-and-hold strategy," where an equity security is purchased with the understanding that it will be held for the long term. The definition of "long-term" depends on the specific investor, but most people entering into a buy-and-hold strategy will own a stock for five years or more. This type of strategy forces investors to stick with investments through market retractions and recessions so they don't sell during a dip; instead, they ride out volatility and sell at a peak.
Benefits of Holding
When an investor holds onto a stock, he is effectively initiating a long position in an equity. Investors who hold a stock for a long period of time can benefit from quarterly dividends and potential price appreciation over time. Even if a stock is given a hold recommendation and remains flat, if it pays a dividend, the investor can still profit. A hold position is not a bad one, and even stocks that are denoted as a hold can appreciate in price over time.
Risks of Holding
However, there are also risks of holding a stock. All long positions are susceptible to market volatility and sharp price declines. Sometimes investors predict a microeconomic or macroeconomic downturn but hold onto a stock because it was recommended by a leading financial institution. If the price of the stock subsequently declines, the investor loses money.