How to Buy and Hold Stocks Understanding Buy and Hold Strategy

The buy and hold is a kind of long-term investment strategy which is based on a viewpoint that investors receive a better than average return in the long-term despite periods of volatility and decline. It is based on the assumption that stocks are fairly valued at all times, so there is nothing much to trade.

There are various factors that affect stock prices. These factors make stock prices volatile and difficult to predict. It can be argued that some people can predict stock prices most of the time, and can perform trades to their benefit, but for most of the people it is less frustrating and more rewarding to buy and hold. Nonetheless, it is required to select the right stocks and buy them at the right time.

When you buy a stock, effectively you are buying a piece of a company and therefore you become one of the legal owners. Hence you need to be sure that you buy a stock of a company that you will love to own. You should buy the stocks that are considered pillars of the markets and are leader in their respective industry. The earnings report is the pulse of a company and it will help you determine the company’s stability and its performance. The things that you should look for in earnings reports for good buy and hold stocks are below.

# Above average and stable profit margins

# Consistent and above average return of equity

# Consistent and above average year-on-year (yoy) earnings growth

# Close to zero total debt

# Capable management you are comfortable with

# Has a decent competitive edge

By observing charts showing the historical prices and volume of stocks, trends can be established. These trends indicate the right time to buy a particular stock. There are number of technical indicators that you can use to determine the right time to buy, however the most popular ones are below. A combination of one or more should be used to increase your chances of buying the stock at the right time.

# Moving Average Convergence Divergence (MACD) – Typically, it is a difference between 12-day exponential moving average (EPA) and 26-day EPA plotted against 9-day EPA. If the MACD line crosses above the 9-day EPA it is a buy signal, conversely if it crosses below the 9-day EPA it is a sell signal.

# Bollinger Bands – It is a volume based index used to gauge and analyze periods of consolidations. The stock prices are higher at the upper band and lower at the lower band.

# Relative Strength Index (RSI) – It is an oscillator that ranges from 0 to 100. Closer the oscillator is towards 100 higher is the stock price.

# Stochastic Indicator – It measures the momentum of the stock. High momentum indicates that the stock price will rise. Conversely a low momentum means that stock price is going to fall.

After choosing the right stock, the most important thing is to remain patient. One of the factors that make the buy and hold strategy difficult is an urge to sell the stock at little or no profit or a market scare when the prices start to fall. A market scare is usually seen as a good opportunity to increase your holdings by most investors. Most buy and hold investors will not sell their investments until retirement, or until a need for money arises.