What is a Hold?
Hold is an analyst's recommendation to neither buy nor sell a security. A company with a hold recommendation generally is expected to perform with the market or at the same pace as comparable companies. This rating is better than sell but worse than buy, meaning that investors with existing long positions shouldn't sell but investors without a position shouldn't purchase either.
Understanding Hold Recommendations
A hold recommendation can be thought of as hold what you have and hold off buying more of that particular stock. A hold is one of the three basic investment recommendation given by financial institutions and professional financial analysts. All stocks either have a buy, sell or hold recommendation. Often, a single stock may have two or more conflicting recommendations given by different financial institutions. In these cases, it's important for investors to look at the advice provided and decide which is more accurate for their specific situations.
If an investor decides that a stock is a hold, she has two potential options. If the investor already owns shares of the stock, she should hold onto the equity and see how it performs over the short-, medium- and long-term. If an investor does not own any shares of the equity, she should wait to purchase until the future prospects become more clear.
Key Takeaways
- A hold recommendation means that the analyst making it doesn't see the stock in question outperforming or underperforming comparable stocks in the near term.
- A hold is sometimes considered damning with faint praise, but stocks that are hold can still perform long-term.
- A stock can have conflicting recommendations, so investors need to dig into the details before making a decision one way or another.
A Hold Versus a Buy-and-Hold Strategy
A hold is an analyst's call on a stock and distinct from the buy-and-hold strategy, where an equity security is purchased with the understanding that it will be held for the long term. The definition of long-term depends on the specific investor, but most people entering into a buy-and-hold strategy will own a stock for five years or more. This type of strategy forces investors to stick with investments through market retractions and recessions so they don't sell during a dip; instead, they ride out volatility and sell at a peak.
Benefits of Holding a Stock
When an investor holds onto a stock, she is effectively initiating a long position in an equity. Investors who hold a stock for a long period of time can benefit from quarterly dividends and potential price appreciation over time. Even if a stock is given a hold recommendation and remains flat, if it pays a dividend, the investor can still profit. A hold position is not a bad one, and even stocks that are labelled as a hold can appreciate in price over time. They are just not seen as likely to outperform other comparable stocks.
Risks of Holding
However, there are also risks of holding a stock. All long positions are susceptible to market volatility and potential price declines. Sometimes investors predict a microeconomic or macroeconomic downturn but hold onto a stock because it was recommended by a leading financial institution. If the price of the stock subsequently declines with the market, the investor loses money. That said, the paper losses in a broad market dip only matter if the investor needs the money in the near term. If, however, the fundamentals of a stock have degraded, then the investor must reassess whether to continue to hold or not.
FAQs
Hold is an analyst's recommendation to neither buy nor sell a security. A company with a hold recommendation generally is expected to perform with the market or at the same pace as comparable companies.
What does a hold status on a stock mean? ›
A 'hold' is generally an experts suggestion or recommendation to not either sell or purchase securities. A firm making a recommendation to hold is usually anticipated to perform with the market or at a similar pace of peer companies. This rating is considered to be better than sell and not better than purchase.
Why would you recommend buy and hold? ›
The Buy and Hold strategy is preferred for its potential to yield significant long-term returns, lower transaction costs due to fewer trades, reduced tax liabilities on long-term capital gains, and the benefit of compound interest. It's also less time-consuming and requires less market expertise than active trading.
What is stock recommendation? ›
Hold: In general terms, a company with a hold recommendation is expected to perform at the same pace as comparable companies or in line with the market. Underperform: A recommendation that means a stock is expected to do slightly worse than the overall stock market return.
Should I put my stocks on hold? ›
Knowing whether to hold onto a stock or sell it can be a challenging decision. There is no universal, one-size-fits-all strategy for selling a stock. Instead, it's up to the individual investor's investment strategy based on many factors, including their risk tolerance, time horizon, and financial goals.
What does a hold recommendation mean? ›
Hold is an analyst's recommendation to neither buy nor sell a security. A company with a hold recommendation generally is expected to perform with the market or at the same pace as comparable companies.
What is buy sell or hold recommendations? ›
A “buy” rating means analysts like the stock and think it's worth purchasing because its value is likely to increase. A “hold” rating is neutral. It means analysts are unsure which way share prices will move, so they recommend that you neither buy nor sell. A “sell” rating means analysts expect share prices to fall.
Is it better to hold or buy and sell? ›
In most cases (the 8-week hold-rule being an exception), you're better off locking in at least some of your gains to avoid watching your profits disappear as the stock corrects. And you can potentially compound those gains by shifting that money into other stocks just starting a new price run.
Is buying hold a good investment? ›
Throughout history, gold has been seen as a special and valuable commodity. Today, owning gold can act as a hedge against inflation and deflation alike, as well as a good portfolio diversifier. As a global store of value, gold can also provide financial cover during geopolitical and macroeconomic uncertainty.
What are the disadvantages of buy and hold? ›
The biggest drawback of this strategy is the large opportunity cost attached to it. To buy and hold something means you are tied up in that asset for the long haul. Thus, a buy and holder must have the self-discipline to not chase after other investment opportunities during this holding period.
Analyst recommendations typically come in the form of a rating, such as “buy,” “hold,” or “sell.” Each rating reflects the analyst's opinion on the stock's potential performance. A “buy” rating indicates that the analyst believes the stock is undervalued and has the potential to increase in price.
How do you judge if a stock is a good buy? ›
Evaluating Stocks
- How does the company make money?
- Are its products or services in demand, and why?
- How has the company performed in the past?
- Are talented, experienced managers in charge?
- Is the company positioned for growth and profitability?
- How much debt does the company have?
PEG ratio
A high P/E ratio for a fast-growing company may make a lot of sense, so it's important to understand the growth outlook before making a judgment solely based on the P/E ratio. A PEG ratio above 2 is typically considered expensive, while a ratio below 1 may indicate a good deal.
What is the 3 day rule in stocks? ›
The 3-Day Rule in stock trading refers to the settlement rule that requires the finalization of a transaction within three business days after the trade date. This rule impacts how payments and orders are processed, requiring traders to have funds or credit in their accounts to cover purchases by the settlement date.
What is the 3-5-7 rule in trading? ›
The 3–5–7 rule in trading is a risk management principle that suggests allocating a certain percentage of your trading capital to different trades based on their risk levels. Here's how it typically works: 3% Rule: This suggests risking no more than 3% of your trading capital on any single trade.
Who buys stocks when everyone is selling? ›
But there's one group of investors who charge in to buy when stocks are selling off: the corporate insiders. How do they do it? They have 2 key advantages over you and me that provide them the edge during uncertain times. If you follow their lead, you can have that edge too.
How long does a stock hold last? ›
The holding period of an investment is used to determine the taxing of capital gains or losses. A long-term holding period is one year or more with no expiration. Any investments that have a holding of less than one year will be short-term holds. The payment of dividends into an account will also have a holding period.
Why is my stock order on hold? ›
Such a scenario occurs when a trader makes an error in purchasing a security (for whatever reason). A held order, in this case, is placed to reverse the error position immediately in order to limit any foreseen or unforeseen downside risk.
What does listing status hold mean? ›
HOLD: A valid listing contract is in effect. However, because of various reasons (such as repairs, illness, guests, etc.) the Seller has requested that temporarily there be no showings. This is an Off-Market status, and DIM (Days in MLS) does not count.
What does it mean when a listing is on hold? ›
Definitions: Hold. The Seller is still under a Listing Contract with the Brokerage Firm, but the property is off the market temporarily. Cancelled. Listing Contract is cancelled, and the property is off the market.
