I generally prefer a buy and hold approach. It is because I view shares of companies as entitlement to profits, and profits of good companies would only increase over time even if their short-term share price fluctuates. Also, capital gain is not recurring income whereas dividend gain is, and the latter is important to me since I am investing to retire.
Of course, the question would be how to differentiate “good” companies from “bad” companies. Here, I would like to hypothesize that in a capitalist economy, a company with strong capital can attract good talent, invest in better technology, etc. would statistically have a better chance of being a “good” company. For any statistics to work, it would need sufficient samples. That is, investing a little in numerous potentially “good” companies is statistically better than investing a lot in a few potentially “good” companies.
Having a portfolio that consists of many companies across many industries in different countries is also great for reducing systematic risk. I use Beta to measure the systematic risk my portfolio has. I try to keep the Beta of my portfolio close to 0. In the short term, a portfolio with Beta close to 0 is less sensitive to market movement and hence has smaller portfolio value fluctuation.
In summary, my strategy is simple. Build a portfolio of Beta close to 0 consisting of well-capitalized companies across industries and countries. I prefer to buy stocks when their RSI indicator is low (close to 35) because it is an indication that they are currently undervalued. I rarely sell stocks after I buy them. I also have a tendency to purchase stocks that are paying good dividends now because that is an indication of good cash flow.
What about you? Care to share your investment approach?