Buy-and-hold strategy

The upper part (rows 3 to 11) of Exhibit 27.6 displays descriptive statistics of the cumulative return for the three horizons 3, 5, and 10 years. All values are annualized. They can be used to study the performance of a buy-and-hold strategy. 

Every investor has to develop a portfolio strategy which will best suit his investment objectives. Portfolio strategies can be either active or passive. Passive portfolio strategy (often known as a buy-and-hold strategy) does not require additional inputs, such as return forecasting. Its main investment objective is to follow the performance of the benchmark index [5]. Passive strategy is the purest implementation of the efficient market hypothesis (EMH) as it assumes that markets will be able to reflect all available information in the stock prices. 

It is important to point out that most individual investors do not trade bonds on the secondary market as do institutions— the general strategy is to buy and hold to maturity. However, some knowledge of how bonds are traded in the general marketplace can give a clearer understanding of fixed-income products in general. 

Again, most individual investors don t worry about wild gyrations in interest rates because they generally buy bonds and hold them to maturity. By buying shorter-term bonds, individuals can have the opportunity to move in and out of securities with interest rates they feel are favorable. Many individual investors have adopted this strategy to protect them from interest rate risk. 

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