A buy and hold strategy in finance simply means that an investor buys an asset and holds onto it for the long term. The underlying philosophy of this kind of investing is that asset values will generally go up over time. This kind of investment strategy is used in real estate, and the stock market, and in many other kinds of finance.
When financial experts look at a buy and hold strategy or option, they often consider the rate of return. The rate of return is calculated by using the total sale value of an asset against the cost basis, or how much it cost the investor to purchase it. A buy and hold return refers to how much a specific asset value has gone up over the period of time that someone has owned it.
As an example of a buy and hold system, an investor might be encouraged to buy stocks and hold onto them through periods of volatility, hoping that they will be worth more than the results of current market fluctuations at a future time. Buying homes and real estate is also a good example of a buy and hold strategy, when buyers often need to keep their purchases for years before reselling in order to profit from a sale transaction. Even buying items like baseball cards can be a good example of this kind of investment system, where selling the collectible items decades in the future can yield huge returns.
Some investors use a buy and hold strategy believing that asset values will go up over time. Another reason to use buy and hold is something that financial experts called the efficient market hypothesis or EMH. In the efficient market hypothesis, stock traders suppose that the companies that they buy and sell are accurately valued at any given point in time. If this is the case, it rarely makes sense to practice stock trading at a more volatile level.
