Buy & Hold Comparison
Buy-and-hold is the simplest investing approach: you buy the selected stocks on day one and sell them at the end. Comparing your strategy against buy-and-hold tells you whether the strategy actually added value.
How it works
- All selected stocks are purchased on the first trading day of the test period.
- Capital is split equally across them.
- No stop-loss or profit-target is used.
- Dividends are credited to cash as they occur.
- Positions are sold at the closing price on the last day of the test.
Why it matters
- A strategy that returns 12% may sound good — until you see that simply holding the stock returned 25%.
- A strategy that returns 12% while buy-and-hold fell 5% is genuinely valuable.
- Buy-and-hold typically has a higher maximum drawdown than a well-managed strategy.
How to read the comparison
| Case | What it means |
|---|---|
| Strategy beats Buy & Hold | The strategy's timing decisions added value. |
| Strategy underperforms Buy & Hold | The strategy was too active or exited too early. It may still be useful if its drawdown was much smaller. |
| Strategy ≈ Buy & Hold | The strategy did not add meaningful value. A simpler approach may be better. |
What is compared
| Metric | Strategy | Buy & Hold |
|---|---|---|
| Total Return | Backtest result | Return over same dates |
| Maximum Drawdown | Strategy's worst fall | Buy-and-hold worst fall |
| Transaction Costs | Costs paid | Entry + exit only |
| Time Invested | Time in market | Fully invested |
The comparison uses the same dates, dividends, and cost assumptions so the result is fair. It is historical, not predictive.