Buy and hold

Buy and hold : (German Buy and retain is) an investment strategy that aims investments to keep the long term. This approach emphasizes the demarcation from speculation (understood as short-term) and from (short-term, but secure) arbitrage business .

Economic background

Whether one can actually make predictions about the further course of a security (e.g. with the help of chart analysis ) has not been scientifically proven and is controversial. Representatives of the classic financial market theories ( market efficiency hypothesis , random walk ) are in stark contrast to this. If you follow their considerations, it is not possible to systematically achieve an alpha , i.e. to achieve better investment results than the market by selecting individual securities.

But since every transaction generates costs , an attempt to beat the market by buying and selling leads to an average result that is worse than the market. This also coincides with the empirical finding that only a third of investment funds outperform the market.

The strategy

The basic idea behind the “buy and hold” strategy is to refrain from attempting to generate additional income by reallocating the portfolio (e.g. through stock picking ) after the investments have been diversified in the sense of portfolio theory .

So you set an asset allocation , but do not make any reallocations in the portfolio within the respective asset class .

Investment horizon

Because of the transaction costs , different asset classes have different investment horizons . What is meant are the minimum holding periods that result economically from the transaction costs. The higher the transaction costs, the longer the investor must hold the investment in order to make a profit. The costs of purchasing closed-end funds , real estate and open-ended real estate funds are very high, which results in a long investment horizon. In these asset classes, the “buy and hold” strategy predominates.