The Buy and Hold Trading Strategy: It’s Like Raising Your Son Part 1

by Guest Contributor · 0 comments

Money Ning is on vacation and has asked Mike from The Financial Blogger to help put together a guest post. I must say that Mike is very creative because he has part 1 over here and the part 2 over at his site!

As we are facing a very unstable market, I thought I would write about the oldest (and probably most reliable!) method of investing: the buy and hold strategy. I noticed that raising a child has very similar points with this investing strategy.

The birth / your most recent stock purchase
When your little angel comes into your house for the first time, everything is just perfect. He is so sweet, he makes little faces and even his pooh-pooh smells like a lavender breeze. You are so worry about him that you check his crib every single minute. Everybody is telling you how cute he is, that he will be so smart, so tall and so handsome.

When you first buy a stock, you are so excited and proud of your investment that all news regarding this company is good news. Even when it goes bad, you think it is a great opportunity for the management team to prove themselves. You check your stock quotes ten times a day to follow every fluctuation. You also look at analysts opinions on your stock to make sure that the consensus still shows a strong buy.

The first 5 years / Enjoying your stock growth
During the first five years of your son’s life, you will go through a lot of different emotions. It will happen that you don’t sleep all night because his teeth are growing. However, when you will take a step back, you will be amazed by the progress he made since he was born. He is learning so fast, you think he is a genius. That’s enough to make you forget about all the bad nights.

Even if we assume that you made the right pick, your stock will still make you smile and make your cry sometimes. You might not sleep well when it is down because two of their VP’s left recently and it causes major incertitude. However, when you look at the overall performance of your stock over the first few years, you will notice that you are averaging a pretty good yield. The company is still growing fast and you think you are a genius. You made enough virtual profit to compensate for the small drops here and there.

Entering school / A new economic cycle begins
Your son is now 5 and starting school. This is a whole new life that is about to start; the morning routines, the homework and the new friends coming home. Your son is gradually evolving along with his environment and changes his way of thinking.

The economic cycle will change after about five years (maybe a little bit more, or a little less). The company habits are more likely to change in order to adapt to the new market’s reality. You will have to make your homework to establish what is related to the company itself and what is not while other players will join the industry. The company you invested in will evolve along with the economic environment and might change its management perspectives.

The stock adventure (as well that the parent’s) does not stop here but I though it was enough for a single post. If you liked this article, you can follow up on part 2 at thefinancialblogger.com. You will find out about the teenager’ stage and much more!

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