The “buy and hold” approach to investing in stocks is predicated on the assumption that in the long term stock prices will go up. According, since the average investor does not know what will happen tomorrow the best thing is to buy fundamentally good stocks, ignore short term vacillations in their prices and keep them for many years. This is often the case in emerging markets where the scope for growth is usually faster and in line with risk which is usually higher. Historical data from the Nigeria Stock Exchange supports this claim. The logic behind the idea is that in a capitalist society, the economy will keep expanding, so profits will keep growing and both stock dividends, other corporate actions and consequently stock prices will increase as a result. There may be short term fluctuation, due to business cycles or rising inflation, but in the long term this will be smoothed out and the market as the whole will rise. There are also additional benefits to the trading commissions which will be a lot lower than if transaction occurred more frequently. Under this strategy, the investor after completing in –debt research and analysis buys fundamentally good companies and hold them for several years. One weakness of this strategy is that it assumes that growth is infinite and that historical stock-return data provides valuable guidance for predicting long-term stock returns.
