Why Buy & Hold can be the most successful share market strategy

Should you buy and hold or trade and run?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Recent surveys indicate the majority of private share market investors make their decisions solely on projecting a continuation of the most recent conditions. Even worse, the average holding period is now a mere 11 months – down from seven years 20 years ago. This isn't an investment strategy, it's speculation and has nothing to do with the only rational purpose of a share market – to provide long-term equity for selected business ventures and earn long-term rewards.

Few people have a good trading performance over five years or more and most investors would be far better off placing a portion of their funds into reliable low cost investment vehicles such as Argo Investments Limited (ASX:ARG), which has outperformed or matched the ASX 200 Accumulation Index over 1, 3, 5, 7, 10 and 15-year periods. Argo is a careful investor whose top holding is Westpac Banking Corp (ASX: WBC) comprising 7.3% of the portfolio. In total the big four banks take up 22% of the portfolio with the remaining 78% spread over a wide selection of stocks. Larger holdings include Wesfarmers, CSL and Woodside.

Argo Investments was founded in 1946 by accountant Alf Adamson whose guiding principle was to invest in undervalued companies and hold them for the long term. This principle has never wavered and the company hasn't missed a dividend in 46 years. Admin and management fees are the lowest in the land at 16 cents for every $100 invested. With highly astute management, Argo Investments is a good buy for those seeking broad exposure to the Australian economy.

If you want to implement your own buy and hold strategy there can be great benefits:

1. More care taken when researching and selecting companies; leading to a much higher 'win rate'
2. More likely to take advantage of bear cycles as your mindset isn't about obtaining quick profits
3. Better balancing of a portfolio and controlled stock weighting as successful investments move into dominance
4. The ability to sell a proportion of a shareholding if overvalued or buy more if undervalued
5. Enjoying the benefits of compounding returns
6. For many, a better quality of life and less anxiety – your part of the business is there for the long term

Obviously the trick is to identify well capitalised growing companies and buy them well. Easier said than done, however, mistakes can be sold and distance winners allowed to run. Over time a portfolio will be reduced to a select group of high performance businesses with the capacity to take advantage of cyclical downturns.

Argo's sister company Australian Foundation Investment Co.Ltd (ASX: AFI) pursues a similar strategy and has done so for 80 years. Although 10% of funds can be used for trading this is rarely exercised.

Foolish takeaway

Although these two investment companies are rarely the top performers in their sector they have both produced good capital and income returns for their investors over many years. Consistency in performance is a real virtue and these two are an excellent starting point for novice or inexperienced investors – in fact they deserve a place in any private portfolio.

Motley Fool contributor Peter Andersen doesn't own shares in the companies mentioned

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »