With alleged stories of average Joes earning their millions in the stock market, it’s no wonder why so many others have gotten into the bandwagon and tried their hand at investing as well. The get-rich-quick scheme is rarely effective and most often untrue. Regardless, the lure of landing a sudden windfall is too much to resist. One of the many names which are floated with the aim at convincing individuals to invest their savings in the market is Warren Buffett. By being in an advantageous position during the 2007 subprime crisis, Buffett was able to purchase perpetual preferred stocks of Goldman Sachs.
However, while thousands upon thousands of budding investors look up to Buffett as their inspiration for making it big, the truth is that they hardly follow the man’s advice or trading style. This is because in the commotion of new-economy companies and stocks, and small start-ups like Twitter suddenly making it big and becoming a dozen-fold worth more than it started as, Buffett still believes in traditional strategies like “buy and hold”. In a bid to make it big fast, investors are buying stocks of unknown start-ups, keeping their fingers crossed that the start-up becomes the next Facebook, and then enthusiastically sells when the stocks go up before they plummet down.
Buy and hold may not give you high yields in a fast pace, but Warren Buffett was able to make his billions out of it and subsequently keep them, so why aren’t you giving it a try, yourself?
What is the buy and hold strategy?
The buy and hold strategy is a passive market investment strategy which involves buying stocks and holding on to these stocks regardless of the changes in the market conditions. The buy and hold strategy is meant to be a long-term strategy which offsets whichever losses one might incur in the short-term with the idea that the long-term income will prove to be more beneficial. The buy and hold is the opposite of active trading. On top of the idea that the long-term outcome will be better than any short-term return is added advantage of the buy and hold strategy minimizes fees and commissions which one would have to constantly pay for if engaged in active trading. Also, because you don’t have to time the market with regards as when to buy or sell stocks, buy and hold is extremely easy to implement. Moreover, you don’t need to worry about bad timing decisions in relation to selling or buying stocks.
How does Warren Buffett take advantage of the hold and buy strategy?
Of course, Buffett does not invest in just any company. On the other hand, he sizes up the company and even takes a close look at the way that it is being managed. There’s a reason why Mr. Buffett does not invest in technology companies – he simply does not understand it enough to be able to predict how the company will fare in 10 years. This is one tip which, when used alongside the buy and hold strategy, will give anyone investing success. You can, of course, apply this lesson according to how it applies to you. If you are more familiar with the food and beverage industry, then go ahead and buy shares of Coca-Cola (NYSE:KO). On the other hand, if you’re well-versed with the furniture industry, then Nick Scali Ltd (NCK:ASE) may be your cup of tea.
Kent Farell, a registered financial planner, shares the best insights on financial management and investment. He also loves to give wise tips about spending, saving and overcoming debts.