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 a similar pace as comparable companies. This rating is better than a sell but worse than a buy, meaning that investors with existing long positions shouldn’t sell, while 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 on buying more’ of that particular stock. A hold is one of the three basic investment recommendations given by financial institutions and professional financial analysts. All stocks typically have a buy, sell, or hold recommendation. Often, a single stock may receive two or more conflicting recommendations from different financial institutions. In such cases, investors must scrutinize the advice and determine which aligns best with their specific circumstances.
If an investor decides that a stock is worth holding, they have two potential options. If the investor already owns shares of the stock, they should hold onto the equity and observe how it performs over the short, medium, and long term. If an investor does not currently own any shares, they should wait to purchase until the future prospects become clearer.
Key Takeaways
- A hold recommendation implies that the analyst does not foresee the stock outperforming or underperforming comparable stocks in the near term.
- A hold can sometimes be perceived as faint praise, but stocks labeled as hold can still perform well in the long term.
- Stocks often have conflicting recommendations, necessitating deeper analysis by investors before deciding.
The Distinction Between a Hold and a Buy-and-Hold Strategy
A hold is an analyst’s specific call on a stock and is distinct from the buy-and-hold strategy, where an equity is purchased with the intention of being held for the long haul. The duration deemed long-term varies among investors, but generally, those pursuing a buy-and-hold strategy will own a stock for five years or more. This approach enables investors to endure market downturns and recessions, avoiding panic selling and riding out volatility to eventually sell at a market peak.
Benefits of Holding a Stock
When an investor holds onto a stock, they are effectively initiating a long position in an equity. Investors holding a stock for the long term can benefit from quarterly dividends and potential price appreciation. Even if a stock is given a hold recommendation and remains flat, dividends can still yield profits. Although stocks designated as a hold may not be expected to outperform other comparable stocks, they can still appreciate in value over time.
Risks of Holding
There are also risks associated with holding a stock. All long positions are susceptible to market volatility and potential price declines. Sometimes investors predict an economic downturn but decide to cling to a stock because it was recommended by a leading financial institution. If the stock’s price subsequently declines along with the market, the investor incurs losses. However, these losses on paper only impact the investor if they require money in the short term. If, however, the fundamental aspects of a stock have deteriorated, then it’s essential for the investor to reassess whether continuing to hold makes sense.
Related Terms: Buy Rating, Sell Rating, Market Performance, Equity Position.
