1. Introduction to Stock Trader Types
  2. Stock Traders’ vs. Stock Investors' Roles in the Marketplace
  3. Decision-Making Methods: Informed, Uninformed, Intuitive
  4. Informed Traders: Fundamental Traders, Technical Traders
  5. Swing Traders
  6. Buy and Hold Traders
  7. Value Traders
  8. Trend Traders
  9. KISS Traders
  10. Momentum Traders
  11. Range-bound Traders - Break-out Traders - Channel Traders
  12. Options Traders
  13. Options Seller Traders
  14. Day Traders
  15. Pattern Day Traders
  16. Intra-Day Traders
  17. Intra-Day Scalp Traders
  18. Contrarian Traders
  19. Active and Passive Traders
  20. Futures Traders
  21. Forex Traders
  22. Online Stock Traders
  23. Pivot Traders
  24. News Traders
  25. Noise Traders
  26. Sentiment-Oriented Technical Traders
  27. Intuitive Traders
  28. Price Action Traders
  29. Price Traders
  30. Detrimental Traders
  31. Unsuccessful Types of Stock Traders
  32. Conclusion

Buy-and-hold traders are also known as long-term traders. They tend to buy stocks and hold them for a long period of time before selling them. Compared with other types of trading, it is often the least involved and the easiest, and for that reason it is the most common approach amongst the general investing population.

A central philosophy of many buy-and-hold traders is that the best way to maintain exposure to the market is to select a great company, purchase stock, and then hold onto that stock regardless of market conditions. An investor looking to buy a stock and hold onto it for years is most likely to pick a strong, reputable company over one that might be trendy or up-and-coming.

Benefits of buy-and-hold trading

A key benefit of this style of trading is the amount of time required. The investment of time and energy is minimal, as buy-and-hold traders don’t have to regularly check up on company information, price histories, or even market performance overall.

Other benefits of this approach include:

  • Fewer fees

Fewer trades executed usually means fewer fees and commissions paid out.

  • Low maintenance

Buy-and-hold traders don’t have to track stock market movements, meaning that their overall workload to maintain their portfolio is low.

  • Low anxiety

Buy-and-hold traders usually invest in companies that are not volatile. There is less chance that the stocks these traders invest in will suddenly fluctuate, so the process can be less nerve-wracking.

  • Bonus for dividend growth investors

As the dividend rate rises, a buy-and-hold traders yield on cost will also increase, providing a bonus.

  • Potential for allocation of additional shares

Some companies will convert profit into additional shares which are then allotted to preexisting shareholders. In these cases, a buy-and-hold investor will see his or her portfolio grow automatically over the long term.

  • Tax benefits

Buy-and-hold traders defer capital gains taxes while their investment earns additional money. This deferment allows them to make money off of the money they would have previously paid in taxes.

  • Proven success

Buy-and-hold is a successful strategy when executed properly. As Benjamin Franklin said, “slow and steady diligence is the true way to wealth.”

Disadvantages of buy-and-hold trading

  • While buy-and-hold may seem safer than other investment strategies, it is not without risk.

  • Bear markets have a major impact on buy-and-hold traders. Investors who purchased a stock in advance of the 2008 financial crisis, for example, may have had to wait years for their portfolios to recover from the significant recession activity.

  • Buy-and-hold traders are not able to benefit from shorter term price swings, while shorter-term investors can make additional profit off of these activities. In some cases, the sum of the net price swings will be many times greater than the total movement of the price for the same stock.

  • Buy-and-hold traders have to select their stock moves carefully. It can be difficult for some traders adopting this strategy to not be overactive in the markets.

When is it time to sell?

One crucial aspect of buy-and-hold trading is the eventual sale of the security. Buy-and-hold traders have to know when it’s time to exit a position, even if they planned to hold onto the stock for the very long term. Of course there are exceptions to each rule, and sometimes buy-and-hold traders need to sell prematurely. If a company files for bankruptcy, for example, or an executive at the company is indicted for accounting problems or theft, it may be time to sell. If the company goes through a major adjustment of strategy, it may also be time to reevaluate a holding.

Conclusion

Buy-and-hold is the longest of the long-term investment strategies we’ll outline in this tutorial. It is a great option for small-scale investors who don’t have the time or tools to analyze the market on a daily basis. In these cases, these investors can buy blue chip or emerging blue chip company stocks which enjoy long-term prospects for success. Some buy-and-hold traders plan to hold their stocks indefinitely, selling only if they need the money.


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