Buy and Hold Can Work but Sometimes Buy and Sell is Better

Buy and hold is what we've been taught as long-term growth investors, but with more volatile stocks, a buy-and-sell approach is essential.


A digital image of cart with word BUY

Urban Outfitters (URBN) is a global apparel retailer with a high-profile string of brands—Urban Outfitters, Anthropologie, Terrain, Free People and even a food and beverage division—and a history of rising and falling with the fortunes of the retail sector and its own grip on trends in fashion. And that makes it a good candidate for buy-and-sell investing instead of buy and hold. Let me explain.

Urban Outfitters could have the chops to be a leader in the stock market because URBN has an established brand with positive analyst coverage. The company has posted positive earnings surprises the last few quarters, despite a significantly challenging retail environment and could see continued growth as we begin socializing, going to offices, and just generally reenter daily life.

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Even more important, the company seems to have improved its in-store product selection, getting better attuned to the whims of its young consumers.

If I were just trying to make a case that you should buy and hold URBN, I would probably use a chart that showed the stock’s latest rally, like the one below.

urbn recent trend

I’ve got to admit that that’s one handsome stock chart. A climb from 15 to 34 in ten months isn’t to be sneezed at.

But while URBN could still be a buy target here, my real point is that the company has presented opportunities for investors for many years, as long as they didn’t try to buy and hold it for extended periods of time.

When Buy and Hold Doesn’t Work

Here’s a long-term chart of URBN that goes back to its rocket-shot days of 2003, when retail was still mostly brick-and-mortar and the company’s position in the style hierarchy was untouchable. The company’s mix of casual, outdoor-inspired clothing for young urbanites was right on target.

Unfortunately, as you can see in the chart, the wheels came off in late 2005 and the first half of 2006. Any investor who stuck with the stock during that correction would have found themselves with a severely trimmed profit. Dips from 34 to 13 will do that.

buy and hold performance of URBN

The chart also shows URBN’s up-and-down behavior in the years after that. If you had bought URBN at 34 in November 2005, your position would be flat today.

But during those 18 years, growth investors could have found multiple opportunities to buy and sell URBN: meaning, jump in during its multi-month rallies and jump out again when it rolled over.

With a volatile stock like Urban Outfitters, you need to formulate a method for identifying strong uptrends that are supported by positive revenue and earnings trends and constructive stories. And then you need a way to figure out when to sell and take profits, which is where developing a selling strategy comes into play.

Buy and hold is fine for some stocks. But for growth investors who use their freedom to get into and out of the market as a major advantage, there’s much more to be done if you’ve developed a profitable strategy and stick to it.

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Stock investing is not an exact science, and common mistakes can cost you a lot of money. Avoid these pitfalls—revealed in this FREE report, Five Mistakes to Avoid When Stock Investing.

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