Buy and hold refers to an investing strategy practiced favorably by passive investors. An investor using a buy-and-hold strategy actively selects stocks, but once holding a position, usually ignores the day-to-day and maybe even month-to-month fluctuations in the stock's price and technical indicators. The investor lets his or her money increase with the growth of the overall market. Past performance has shown that a buy-and-hold strategy has historically been successful for achieving consistent portfolio growth.
Buy and Hold vs. Active Investing
In contrast to a buy-and-hold strategy, active investing attempts to profit from shorter-term price movements that typically last less than a year. Keep in mind, however, that even though long-term holding is typically considered to be a period of more than five years, the meaning of "short term" and "long term" is not absolute or fixed. Active investors sell stock mostly according to what's currently happening in the stock market.
It's also important to remember that a buy-and-hold strategy works best when you've done all the proper research to ensure that you buy a high-quality company. It's a gamble to buy stock randomly without doing the proper research.
Active investors would argue that long-term investors miss out on gains by riding out volatility rather than locking in returns by trying to time the market. Short-term trading strategies have been successful for some professionals and investors. It involves a deeper level of analysis and the expertise to know when to get into or out of a particular investment, followed by taking action.
(To learn more about buy-and-hold practices, check out How Portfolio Laziness Pays Off.)