Has nothing to do with the world biggest miner BHP Billiton (ASX:BHP), BHP stands for “Buy, Hold and Pray” – it is the oldest and classic strategy that our grandfather or father or some of us still do when it comes to investing in share.

• As the term reveals, it started with buying some share in the share market. Say we buy 1000 shares of XYZ company for $10 each.
• Then we hold those share for long term: say 1 year, 5 years, 10 years or even more
• In the mean time we don’t do anything except ‘Pray’ (probably not even praying) and hope that the value of the share is going up. Say if after 5 years, the price become $20, then we make 100% of profit.

The money

Using this “BHP strategy”, investor make the money from 2 ways:

• Dividend income: only if the company distribute dividend
• Capital gain: when we sell the share and the share has gone up in value (the price has increased)

The problems

There are 2 big problems with this strategy:

1. What if the price go down ?
   You might argue, this is the risk that we want to accept…. OK, fine if you would. But what if there is a way to ‘insure’ your share…. That’s is: if the price go down, you’re guaranteed to still at least get your money back.
2. How to ‘lock in’ profit ?
   We see it often: the price of a share can be rallying to record high only to drop below buying price after sometimes. Is there any way when we fell like it, we can ‘lock in’ the profit, so we are guaranteed a profit even the price drop, but we don’t need to sell the share ? The answer is a bold Yes.

Better execution/alternative

So, if we can eliminate 2 problem above, would it make share trading far more attrractive? Imagine you buy share, got the dividend and the capital growth, but if the price go down you’re protected… and even more, once the price reach the high value, you can lock in the profit on that price. This is what smart investor does!

To find out more: read ‘Protected BHP: the classic with protection’

Denis Kristanda