A buy and hold strategy is the purchasing of an asset and holding it for a period of time with the expectation that its value will increase. It is one of the simplest and most used strategies in investing.

In this post I will test the success or failure of such a strategy if it was used on equities on the Ghana Stock Exchange (GSE). Now this is a very simple test so I have made a number of simplifying assumptions.

1. It is possible to buy all stocks on the GSE weighted by market cap.
2. Transaction costs (fees, taxes, commissions) are ignored.
3. Inflation is ignored.
4. Dividends are ignored. (This means that the returns presented are significantly understated).

The methodology is to analyse the growth of GH¢1,000.00 invested over a 5-year period on the GSE starting from 1993. So we assume you invest from 1993-1997 or 1994-1998 and so on till the last period of 2014-2018.

Results

Start Year	5-Year Return of GH¢1000	5-Year Return
1993	8,231.25	723.12%
1994	6,535.08	553.51%
1995	2,469.52	146.95%
1996	2,706.81	170.68%
1997	2,649.79	164.98%
1998	2,726.59	172.66%
1999	4,092.16	309.22%
2000	9,235.17	823.52%
2001	5,569.00	456.90%
2002	5,258.46	425.85%
2003	4,727.01	372.70%
2004	2,935.66	193.57%
2005	819.63	-18.04%
2006	1,542.30	54.23%
2007	1,420.58	42.06%
2008	1,238.07	23.81%
2009	1,515.43	51.54%
2010	2,990.11	199.01%
2011	1,994.91	99.49%
2012	1,743.07	74.31%
2013	1,527.28	52.73%
2014	1,199.07	19.91%

As can be seen from the table above, the buy and hold strategy over 5 years on the GSE results in positive returns except if you bought in 2005 (and held till 2009). The average return over each of the 5 year periods is 232.4% but we realize that as the GSE has started to mature, the average returns over the holding period has declined, as you can see in the chart below.

The results of the test suggests that a buy and hold strategy with a 5-year holding period results in a positive return in 21 out of the 22 such periods since 1993. This is 95.45% of the holding periods.

This does not mean that the past periods of success guarantees the trend will continue. The GSE is very young and therefore the sample size is too small for any kind of conclusion. Nevertheless, the results support my belief that buy and hold is one of the best strategies one can employ in investing in stocks.