Why buy and hold is the best investment strategy?
With Proof
Here’s a short post to show why, in stock investing, buy and hold often makes far more money than trying to be smart and time the market.
Two years ago, I started buying shares of a stock and continued to add gradually over time. Below is the current price of that stock.
Let’s hypothetical say I bought 1 share of PV Gas (GAS) at 62,000 VND.
The stock later rises to 105,000 VND.
What’s my return?
Now let’s project this forward 10 years.
What could the stock be trading at? 120,000 VND? 150,000 VND? 200,000 VND?
PV Gas holds 100% market share for dry gas in Vietnam, so I think the company will stay for long.
Let’s be conservative and say it reaches 120,000 VND.
Strategy 1: Try to Time the Market (buy low, sell high)
Now let’s say I get scared. The stock drops from 105,000 VND to 80,000 VND in the short term.
I sell at 80,000 VND to “protect my capital,” locking in a 18,000 VND profit (80,000 − 62,000).
Now I have 80,000 VND in cash.
Three years later, the stock slowly climbs back to 105,000 VND and is on its way to 120,000 VND.
I decide to get back in, but I now need more money because I already locked in 80,000 VND profit.
I add 25,000 VND to my 80,000 VND, buy back in at 105,000 VND, and the stock eventually reaches 120,000 VND.
Let’s break it down:
Period 1: 62,000 VND → 80,000 VND
Profit: 18,000 VND
Return: 29%
\(\frac{80{,}000 - 62{,}000}{62{,}000} = 29\% \)
Period 2: 105,000 VND → 120,000 VND
Profit: 15,000 VND
Return: 14%
\(\frac{120{,}000 - 105{,}000}{105{,}000} = 14\% \)
My total return on invested capital (buy low, sell high)
Total capital invested: 167,000 VND (62,000 + 105,000)
Total profit: 33,000 VND
Return on invested capital: 19.7%
On paper, this looks great and profitable.
But what if I had just let the stock run?
Strategy 2: Buy and Hold
I keep the stock from 62,000 VND and hold it until it reaches 120,000 VND.
Total capital invested: 62,000 VND
Total profit: 58,000 VND
Return on invested capital:
Simple. No stress. No extra decisions.
The Key Point
If I had simply held the stock from 62,000 VND to 120,000 VND, my return would have been 93% — 4.8× higher than trying to buy and sell.
No selling.
No rebuying.
No extra capital.
No stress.
I just want to leave you with a quote from a legendary investor, Charlie Munger:
Trying to time the market reduced my return and forced me to add more capital.
Buy and hold wins.