Buy-and-Hold Strategy on eToro

Warren Buffett once said, “Our favorite holding period is forever.” Despite the ups and downs of financial markets, Buffett’s buy-and-hold investment strategy remains a time-tested approach for building wealth. In this modern guide, we’ll delve into the buy-and-hold strategy and show you how to implement it on the eToro platform for 2023 and beyond.

Understanding the Buy-and-Hold Strategy

The buy-and-hold strategy is simple in essence: investors purchase assets like stocks or ETFs and hold them for an extended period, ignoring short-term market fluctuations. Profits primarily come from asset appreciation over time and dividend income. This approach aims to build wealth gradually, with investors holding assets for months or even years. However, success depends on selecting the right assets and holding them for the optimal duration.

Buy-and-hold is not about fast and big profits and this strategy is certainly not for everyone. It is an investment strategy that aims at building your wealth gradually in the medium or long term, with investors holding onto their assets for months or even years. Whether the stocks you have chosen will indeed increase in price over time depends on the company performance as well as the surrounding market and industry conditions. The value of Apple stock (AAPL) for example has risen from $18 in January 2008 to $143 as of January 2021, and those who invested into it at the right time and held it sufficiently long enough certainly made some noticeable gains. On the other hand, investors that bought Kodak (KODK) in January 2014 and held it for 5 years would have seen a dramatic fall in price from $32 to about $3 per share. Well as you see, it is all about selecting the right asset and holding it for the right amount of time. Because of this problem some investors prefer funds which combine many asssets at once to limit the losses from failure of any single asset in comparison to the overall portfolio while other invest the time and effort to hand pick stocks themselves.

🤹 Active Trading vs. Passive Buy-and-Hold Strategy

The debate between active trading and passive buy-and-hold strategies is ongoing. Many investors argue that the passive buy-and-hold approach outperforms active funds most of success hinges on your ability to choose the right assets for your portfolio.

Choosing Assets for the Buy-and-Hold Strategy

Long-term investors typically focus on stocks, with some opting for individual stock selection based on their analysis, while others prefer funds like ETFs for diversification and broader market exposure. Additionally, investors may include commodities (e.g., gold or silver), cryptoassets, or other assets to adjust overall risks and returns. All these instruments are available on the eToro platform.

Because short-term traders attempt to maximize their returns many times they increase risks of their trades by using leverage and short-selling through CFDs. They attempt to benefit from both increases and decreases in asset prices, profiting from any price movement according to their strategy, protecting their capital using stop-loss and take profit options on the platform. Buy-and-hold investors tend to optimize their long-term risks and ignore short-term price drops they see as temporary.

Because traders focus on quick profits from market volatitilities they employ technical analysis with a variety of trading tools. Investors tend to focus on the long-term intrinsic value of the assets they choose and conduct fundamental analysis instead. Taking stocks as an example, investors could analyze a company’s financial performance, its sales, revenues and costs, change in its profit and profitability indicators overall, as well as its strategy, growth potential in the context of the industry and in comparison to its competitors and so on.

There is quite a lot of information on each asset-issuing company available on the platform which you can access by selecting the asset of your choice. There is a quick introduction on the company on the first page, including its brief history, the industry its operates in and the overall strategy. This section also mentions the kind of factors that affect the stock price most significantly apart from its own performance, in case of Tesla below for example it is the conditions of the oil and gas industry and other macroeconomic risks.

The ‘Stats’ section shows you the financial performance of the 4 latest quarters on its balance sheet, income statement and cash flow statement, an overview of key financial indicators and profitability ratios as well as profile with a description of the industry and an indication of what kind of investors should consider this asset for their portfolio. The chart page finally shows you the price movement of this stock over time.

📊 Fundamental vs. Technical Analysis

Buy-and-hold investors conduct fundamental analysis, focusing on long-term intrinsic asset value, while short-term traders employ technical analysis to exploit market volatility. For example, when analyzing stocks, investors may assess a company’s financial performance, industry context, growth potential, and competitive standing.

Benefits and Risks of the Buy-and-Hold Strategy

🌟 Benefits

• Less time commitment compared to active trading
• Lower trading costs
• Fundamental analysis based on objective data

⚠️ Risks

• Psychological impact: managing emotions during market turbulence
• Asset and time sensitivity: selecting the right assets and holding duration
• Lack of flexibility: limited protection against market crashes or unfavorable price movements
• Costs: potential taxes on dividend income and applicable spreads

eToro’s Social Trading: An Alternative to Buy-and-Hold

If you lack the time, skills, or knowledge for hands-on investing, eToro’s CopyTrader technology allows you to replicate positions of other traders on the platform. Some CopyTraders implement buy-and-hold or other long-term investment strategies. Keep in mind that this doesn’t guarantee success, and trading always involves capital loss risks.

💡 Final Thoughts

This guide aimed to shed light on the buy-and-hold strategy and its implementation on the eToro platform. While it has its risks and drawbacks, buy-and-hold remains a popular strategy for long-term wealth building. Stay vigilant of capital loss risks, and happy trading on eToro!

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• ▸eToro is a multi-asset platform that offers: Stocks, Crypto assets, and CFDs.
• ▸CFDs are complicated and can make you lose money quickly because of leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. Think about if you understand how CFDs work and if you can afford to take the risk of losing your money.
• ▸Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.
• ▸Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.
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• ▸eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity-specific information about eToro.

Be warned!

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Author & Expert Trader - Financial Analyst :

My name is Bart Bregman and I am a full-time professional trader with nine years of experience. I specialize in shorter-term trading using technical analysis, and I have extensive experience with Stocks, CFDs, Options, and Crypto trading. I believe that there is no such thing as a bad trade. I'm currently traveling the world as a digital nomad trader. You can follow my journey on Instagram at https://www.instagram.com/bart_bregman/