A buy and hold investor is the exact opposite of a day trader. Buy and hold investors purchase stocks and hold it for long periods of time hence coining the name buy and hold. These people may be too busy to monitor the daily movement of the stocks or they simply don’t care about the daily fluctuations because they know that the value of the stocks that they have purchased will appreciate in time. A day trader on the other hand constantly buys and sells stocks on the same day trying to take advantage of the volatile movement.
The risk that buy and hold investors face are far more lesser than those that day and swing traders face. Buy and hold investors are considered as fundamental investors. They believe and invest in the potential of the company, not in what the general sentiment of the market towards a particular stock. What buy and hold investors are looking for are companies that are undervalued or stocks that are being traded lesser than their actual values. They’d rather read and analyze the financial reports of certain companies and compute for its intrinsic value instead of learning the general sentiment of the market which short term traders do.
Though the risks that buy and hold investors face are less, the challenges that they have are equally the same as what traders have but of different kind. If traders face the challenge of finding the right stocks on a daily or short term basis, buy and hold investors may find it difficult to deal with their emotions. Saying that a stock’s value will appreciate in time is easier said than done once monitoring is done. The daily fluctuations can cause doubt on one’s decisions and make hazy and unfounded decisions.
Greed is one obstacle that both traders and investors must deal, master, and control. Making decisions out of greed leads to failure. It makes trading and investing a form of gambling. It makes people change their strategy and go for the quick fix. It is a fact that the stock market can give quick gains even just in seconds. However, the risk involved in such ordeal is enormous that the chances of losing far outweigh the chances of gaining. Several investors pulled their investments out and took the general market sentiment only to find out that they entered a trade that is already too late. They bought a stock that has been rising for days only to find out that when they got in, it started to go down.
Another hurdle that some buy and hold investors face is buying and investing on rumor and/or lack of sufficient information. Big time traders and investors sometimes hype up a particular stock with the intention of pushing its value up. These people immediately pull their money out once they have reached significant gains leaving those who entered late scrambling to cut their losses or with false hopes that such stock will just get back up. The dilemma that most investors face is that if stocks go up in time, it can also go down as well. Stocks can go for a downtrend in years which is never good for an investment.
The key in successful investing is to learn the things that successful investors know and do the things that successful investors do. Gathering and analyzing sufficient data, controlling one’s emotions, and making decisions through facts and figures and not through hearsay and hype are what successful investors do. Buy and hold investors have time on their side and they don’t spend too much on commissions and other transaction fees.