What does “hold” mean in stocks? The answer varies, depending on who you ask. You can learn what we mean when we call a stock “okay to hold” here

What does “hold” mean in stocks? From time to time, Inner Circle Members ask what we mean when we say a stock is “okay to hold.” Some come right out and ask if we really mean it’s a “sell”?

The short answer here is ‘no’, but it comes with an explanation.

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In addition to looking at stocks members ask about, we also continually sift through the Canadian and U.S. markets for recommended stocks. Even with all our looking, we generally get excited about only a handful of stocks—that is, excited enough to introduce them as buys in our publications.

Many stocks we look at have, in our view, one or more significant flaws. We can’t cover them all in the newsletters, of course. But if you ask about them here, we’ll tell you to sell.

However, a large number of stocks we look at fall within a gray area. Though we don’t see them as buys, they are “okay to hold” in our view. In other words, if you want to hold these stocks, it’s not something we recommend, but we won’t voice any strong objections.

Suppose you say, “Forget “okay to hold”—just tell me if it’s a “buy” or a “sell.” In that case, we tend to err on the side of caution. We would often change “okay to hold” to “sell.”

On the other hand, when we apply the one-word recommendation “hold” to stocks we regularly follow, that’s exactly what we mean. It’s a compliment—not a code word for ‘sell’.

We have a favourable opinion toward our “holds”, in other words, though not favourable enough at the moment to say “buy”. But we do feel you could continue to hold them if this suits your portfolio plan and you can accept the risk. However, we do feel you should take our advice into account.

The market can change quickly, so we recommend paying close attention to your holdings instead of looking for “stocks to hold forever.”

The types of stocks we mentioned above are the kind we put in the portfolios of our Successful Investor Wealth Management clients. Though we think they are worth holding on to indefinitely, we keep an open mind. After all, they’re subject to the usual risks. Competitors can overtake them. Expected contracts can fall through. They can lose key employees, run into union or regulatory problems, and so on.

Of course, nobody can predict the future. We’ll change our view and sell some as time passes. We’ll give up on some way too early, and hang on to others way too long. But if you focus on stocks like these, you improve your odds. The best of the bunch will overwhelm your losses and leave you with highly satisfactory long-term returns.

Rather than a “stocks to hold forever” investing strategy, we prefer a “buy and watch closely” strategy. What that means is we constantly look for reasons to sell. But we rarely find them, because we are careful about what we buy.

A buy-and-watch-closely orientation can be extremely profitable in the long term. Keep in mind, too, your best picks are those that do way better than you ever expected.

What does “hold” mean in stocks, and when to consider selling

If you mostly own stocks we see as “holds,” you should consider selling some of them and replacing them with stocks we see as buys. Of course, before you sell, you need to consider any capital gains tax liability that the sale will involve. You’ll need to weigh that tax cost against the benefit that the transaction will bring to your portfolio. You’ll also need to consider the effect that the sale of one stock and buying of another will have on your portfolio. You’ll need to consider how well the revised portfolio lines up with your resources, goals and temperament.

The complications are endless, but the basic rule is simple. When you own good stocks, it generally pays to hold on until you have a good reason to sell. When you own mediocre or speculative or bad stocks, the reverse is true. It generally pays to sell unless you see a good reason to hang on.

Use our three-part Successful Investor approach for all of your investments

1. Hold mostly high-quality, dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors:

Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.

3. Downplay or stay out of stocks in the broker/media limelight.

What do you look for in stocks to hold, and have those criteria changed over the years?

What is the longest you’ve held a stock before selling it?