Buy and Hold: Underwater Is Normal

Michael Whitman · Trading since 2017, full-time since 2020 · Reviewed 2026-09-06

Buy and hold means purchasing an investment and keeping it through market cycles rather than trading in and out. It avoids every dealing cost and every timing decision, and its difficulty is entirely in holding through declines that feel like the strategy failing.

How it works

A candlestick chart of the site's shared price history. The headline on the chart reads: Buying and not selling, for years. — Buying and not selling, for years. Illustrative chart - not real market data.

The strategy is one decision followed by nothing. Buy, and then do not sell — through falls, through news, and through everything that makes selling feel sensible.

A gently rising stretch of the long price series with an account equity curve beneath it. The headline on the chart reads: It avoids every cost and every timing decision at once. — It avoids every cost and every timing decision at once. Illustrative chart - not real market data.

Its advantages are all subtractions. No dealing costs, no spread, no tax on realised gains, no timing decisions and no opportunity to get any of them wrong.

A calmly advancing stretch of the long price series with a slowly rising equity curve beneath it. The headline on the chart reads: No round trips means no spread and no commission. — No round trips means no spread and no commission. Illustrative chart - not real market data.

Every avoided trade saves a round trip. On this site’s shared history that is 2% of a median bar’s range each time — small individually and substantial across a decade of activity that never happened.

A flat, quiet stretch of the long price series with a gradually rising equity curve beneath it. The headline on the chart reads: And no realised gain means no tax bill until you sell. — And no realised gain means no tax bill until you sell. Illustrative chart - not real market data.

Deferred tax compounds. Money that would have gone to a tax bill stays invested and earns, which is a real advantage over an approach that realises gains regularly.

What holding actually feels like

A strongly rising stretch of the long price series with an account curve breaching its limit. The headline on the chart reads: The hard part is holding through a fall, not buying. — The hard part is holding through a fall, not buying. Illustrative chart - not real market data.

Buying is easy and holding is not. Every part of the difficulty is concentrated in the periods when the position is down and selling would end the discomfort immediately.

A choppy, directionless stretch of the long price series. The headline on the chart reads: On this history 95% of bars sat below an earlier peak. — On this history 95% of bars sat below an earlier peak. Illustrative chart - not real market data.

Measured on this site’s shared 576-bar history, 95% of bars sat below a prior peak. The longest unbroken stretch below one ran 73 bars, on a series that finished 3.61% higher than it started.

A declining stretch of the long price series. The headline on the chart reads: So being underwater is the normal state, not the exception. — So being underwater is the normal state, not the exception. Illustrative chart - not real market data.

Which means being down from a high is the default condition. Not a signal, not a problem, and not evidence of anything — simply what holding an appreciating asset looks like from the inside. Expecting that in advance is most of what makes the strategy survivable.

In practice

A 72-bar candlestick section of the shared price history with an account curve shown with and without fees. The headline on the chart reads: And the only remaining cost is the fund's annual fee. — And the only remaining cost is the fund's annual fee. Illustrative chart - not real market data.

Once trading is removed, the fee is the whole cost. Which is why fund choice carries so much weight here: five basis points removes 1.5% of a thirty-year pot and one and a half per cent removes 36.5%.

A candlestick chart with a volume histogram beneath it, with the volume histogram emphasised. The headline on the chart reads: Participation is somebody else's problem entirely. — Participation is somebody else's problem entirely. Illustrative chart - not real market data.

Volume, spreads and session timing stop mattering. They are costs of trading, and there is no trading.

A long-horizon candlestick view of the same price series. The headline on the chart reads: It needs a decade before it means anything. — It needs a decade before it means anything. Illustrative chart - not real market data.

The horizon has to be genuine. Over one year the approach is indistinguishable from having bought at a random time; over twenty it is a different proposition entirely.

A candlestick series containing several opening gaps, with the largest opening gap marked. The headline on the chart reads: A gap is only a problem if you were going to sell. — A gap is only a problem if you were going to sell. Illustrative chart - not real market data.

A gap matters only to someone transacting. For a holder who was not going to sell that morning, it is a price they did not act on.

A declining stretch of the long price series, with the entry price and the level at which a stop would trigger drawn as horizontal lines. The headline on the chart reads: Which is why a stop and this strategy cannot coexist. — Which is why a stop and this strategy cannot coexist. Illustrative chart - not real market data.

A stop is incompatible with it. The strategy is holding through declines and a stop is an automatic exit from one, and running both means running neither.

And every trade avoided saves a share of a bar. Illustrative chart - not real market data.

The saving is cumulative and invisible. Nobody notices the costs they did not pay, which is why the advantage is easy to underestimate and easy to give away.

What it is not a substitute for

It does not make a bad holding good. Buy and hold applied to a single company that fails produces a complete loss held patiently, and the strategy’s evidence base comes almost entirely from broad indices rather than from individual shares.

The distinction matters more than anything else on this page. A broad, diversified holding has a mechanism for recovery — failing constituents are replaced by growing ones. A single company has no such mechanism, and holding one through a decline is a different decision wearing the same name.

The strategy also has a hidden requirement that has nothing to do with markets: not needing the money. Holding through a long decline is only possible for someone who will not be forced to sell during it, and that depends on having enough cash elsewhere to cover whatever life produces.

Which makes an emergency fund part of the investment strategy rather than separate from it. The investor who has to sell in the worst month is not following this approach, whatever they intended. Size the cash reserve first and invest what is genuinely spare — that ordering is what converts an intention to hold into an ability to.

What buy and hold is not

It is not doing nothing. It is deciding once and then not revisiting.

It is not without risk. It takes the full fall, every time.

It is not for single companies. The evidence is about indices.

And it is not passive selection. What you bought still matters.

When it fails

A sideways, range-bound candlestick series. The headline on the chart reads: In a flat decade it delivers the flat decade, exactly. — In a flat decade it delivers the flat decade, exactly. Illustrative chart - not real market data.

A flat decade produces a flat decade. There is no mechanism in the strategy to improve on what the holding did, which is honest and is the specific case people find hardest to sit through.

The second failure is holding a single company through a permanent decline. Patience does not repair a broken business.

A third is holding without a horizon. Selling in year three of a twenty-year plan was never buy and hold; it was a trade with a long stop.

A fourth is ignoring the fee. With trading removed, the annual charge is the entire remaining cost and it compounds for the whole period.

And a fifth is confusing it with not looking. Reviewing what you own annually is compatible with the strategy; reacting to a price is not.

The original data

On this site’s shared 576-bar history the maximum drawdown was 3.76% against a total return of 3.61%. 95% of bars sat below a prior peak, the median drawdown reading was 1.36%, and the longest unbroken stretch below a peak ran 73 bars. Fee compounding over thirty years removes 1.5% of a pot at five basis points and 36.5% at one hundred and fifty. The figures are in research/series-measurements.json, produced by site/measure_series.py.

A 72-bar window of the shared price history, cut short at the decision bar. The headline on the chart reads: Down 30% and the plan says do nothing. Do nothing? — Down 30% and the plan says do nothing. Do nothing? Illustrative chart - not real market data.

A maximum decline slightly larger than the entire gain is the shape of the problem. The series made 3.61% and gave back 3.76% at its worst point along the way, which means the holder had to tolerate a fall bigger than everything the position eventually earned. Write down, before buying, the decline you would sit through and the number of years you intend to hold — those two figures decide whether this strategy is available to you, and neither of them is about the market.

Index funds is what the evidence for this approach is actually about. Dollar cost averaging is how most people build the position. And drawdown is what holding through a decline actually involves.

What I actually do

The figure that reframed this for me was the share of time spent below a previous high. I had assumed a good investment spends most of its time making new highs and occasionally dips. It is the other way round, and knowing that in advance is most of what makes holding possible.

— Michael Whitman

This page is educational, not financial advice. Test every idea on your own charts before risking money.