The best piece of advice to get started in investing doesn’t come from financial planners, superannuation funds or even stockbrokers. It is widely attributed to ancient Greek philosopher Socrates: Know yourself.
The key risk for buy and holders is essentially the same as the broader market, says the University of Sydney’s Akhtar, whose areas of research include behavioural finance and applied economics.“The key to success in buy-and-hold investing lies in selecting assets that have the potential for growth and dividends over time, adapting to economic conditions, and maintaining a diversified portfolio to mitigate risks associated with any single investment or sector,” Akhtar says.
For example, on a macro level, a bargain hunter, also known as a price-driven investor, might look to short-sell banks if they see a mismatch between market expectations for interest rates and their own. On a more micro level, they might look to see why one big iron ore miner seemed to be cheaper than the others – and act accordingly.
It can feel like the safest form of investing because everyone in the herd is doing the same thing, meaning there is plenty of affirmation along the way.That makes it one of the most common types of investing because it appeals to social animals like humans on a psychological level. The measures they might look at include price-earnings ratios, future cash flows or other fair value measures.