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Buy and hold
Posted on 4/2/10 at 1:27 pm
Posted on 4/2/10 at 1:27 pm
Seems to be the general consensus around here that this is stupid, however what about averaging in and holding for a long time period.
The average investor is going to hurt themselves more than they help if they try any other strategy IMO. shite, personally I would have missed this entire rally if I didn't have a bunch of index funds.
The average investor is going to hurt themselves more than they help if they try any other strategy IMO. shite, personally I would have missed this entire rally if I didn't have a bunch of index funds.
7
Posted on 4/2/10 at 1:44 pm to John Merlyn
Invest with a purpose. I generally buy in with a predetermined point I'm going to sell at, of course if something fundamentally changes I alter my strategy. The most important advice I can offer is never sell on negative emotion,especially on a day when stocks are tanking. I've bought on many of these days and made a mint.
Posted on 4/2/10 at 1:56 pm to John Merlyn
I rarely hold a stock for longer than a week. There are a few that I am always accumulating, but the majority of my positions are bought and sold within a week.
Why hold dips? Why take two steps forward and one step backward over and over again? Why not take two steps forward, pause, and then wait until it's time for you to take another two steps forward. Buy and hold investing is a product of the pre-Internet, pre-online trading account investor of the 80s and earlier. When it would cost you 500 to execute a trade and the process required long, drawn out phone calls to guys in New York on the stock exchanges, yeah buy and hold may have been the way to go. But that type of investing is quickly going the way of the dinosaur when it comes to individual investors.
I will say that if you are investing with a huge account and are not an active trader and/or do not have the time to babysit a 30-stock watchlist, then, yes, buy and hold investing may be ideal for you. It's not easy moving 500k into and out of a stock every other week (for most stocks). But if you're not sinking that much into your picks and you do have the time to devote to constantly monitor your stocks, then the only excuse I can think of to adhere to a buy and hold strategy is lack of knowledge about TA or sheer laziness.
Well, how do I know when to buy and when to sell (assuming fundamentals remain the same)? Technical anaysis is the only way. It is often misunderstood by fundamental investors. They like to call it "voodoo" or "hocus pocus" or what have you. What they don't understand is that technical analysis is merely a visual representation of the fundamental drivers and/or psychological behavior that moves a security. Thus, technical analysis IS fundamental investing in a weird, indirect kind of way.
Every security becomes overbought. Every security is then eventually sold off. People invest in the stock market to take profits! Learn how to determine when a stock is overbought (which can really only be done properly through TA) and you will be able to cut out the "one step backward" nonsense I referred to earlier.
Why hold dips? Why take two steps forward and one step backward over and over again? Why not take two steps forward, pause, and then wait until it's time for you to take another two steps forward. Buy and hold investing is a product of the pre-Internet, pre-online trading account investor of the 80s and earlier. When it would cost you 500 to execute a trade and the process required long, drawn out phone calls to guys in New York on the stock exchanges, yeah buy and hold may have been the way to go. But that type of investing is quickly going the way of the dinosaur when it comes to individual investors.
I will say that if you are investing with a huge account and are not an active trader and/or do not have the time to babysit a 30-stock watchlist, then, yes, buy and hold investing may be ideal for you. It's not easy moving 500k into and out of a stock every other week (for most stocks). But if you're not sinking that much into your picks and you do have the time to devote to constantly monitor your stocks, then the only excuse I can think of to adhere to a buy and hold strategy is lack of knowledge about TA or sheer laziness.
Well, how do I know when to buy and when to sell (assuming fundamentals remain the same)? Technical anaysis is the only way. It is often misunderstood by fundamental investors. They like to call it "voodoo" or "hocus pocus" or what have you. What they don't understand is that technical analysis is merely a visual representation of the fundamental drivers and/or psychological behavior that moves a security. Thus, technical analysis IS fundamental investing in a weird, indirect kind of way.
Every security becomes overbought. Every security is then eventually sold off. People invest in the stock market to take profits! Learn how to determine when a stock is overbought (which can really only be done properly through TA) and you will be able to cut out the "one step backward" nonsense I referred to earlier.
This post was edited on 4/2/10 at 2:11 pm
Posted on 4/2/10 at 2:09 pm to John Merlyn
quote:
shite, personally I would have missed this entire rally if I didn't have a bunch of index funds.
And investors who have been holding for the past 2 years are still not back to even, unless they've been averaging down (or are in a bunch of dividend-paying stocks), which the average Joe with an account at Edward Jones has not been doing. And now they've missed out on what is nearing a 100% return on the Dow Jones. I can just hear the financial advisor at Edward Jones or some other joint, "Mr. Smith, I have some great news for you. Your account is almost back to where it was 2 years ago!" In other words, "The market has nearly doubled since last March and you have not made a single penny!"
Whatever your finance professor tells you (most of them) ... do the opposite if you want to become wealthy from the stock market. There are doctors who smoke. There are lawyers who break the law. There are accountants who are in debt. There are finance professors who know a lot about the science but very little about the ins-and-outs of becoming a successful stock market investor.
This post was edited on 4/2/10 at 2:23 pm
Posted on 4/2/10 at 6:06 pm to John Merlyn
quote:
Seems to be the general consensus around here that this is stupid
Nope, I'm a buy and holder myself. I think reliably beating any market (financial or otherwise) depends on being able to exploit some sort of inefficiency, informational or otherwise. In the financial markets, such ineffiencies are fleeting and essentially impossible to follow. This isn't to say it's impossible to make money, in fact one *should* at least stay even with inflation.
The big problem with active trading to me is not that you can't make money, but that you aren't properly compensated for the amount of risk taken and the time you personally spend on it. The price of risk is also very actively traded by the way, albeit by major financial institutions, but I haven't heard of any active individual traders actually compare their returns against that price. I bet the comparison is not favorable.
As it happens I know someone who is an active day trader, and he's been doing it for five years now so he's been reasonably successful at it. And over the five years his returns are slightly higher. However, he has had a couple of moments where he was seriously worried he would lose everything, I have not. Not only that, but his "edge" amounts to less than $10K a year, which means he is getting paid very poorly for his time.
All the above goes out the window in some nonfinancial markets where one might indeed have a real edge. Local businesses and/or real estate come to mind. But in the financial markets I really do think the way to go is to diversify across the larger asset classes and larger countries, and spend the extra time posting on TD.
Posted on 4/3/10 at 7:39 am to John Merlyn
traders vs investors
different mindset
different mindset
Posted on 4/3/10 at 11:19 am to John Merlyn
quote:I'd bet in reality that's less true than you surmise. E.g., despite claims of fortunes being made day-trading penny stock options, most experienced folks would love nothing more than picking a long-term winner, and riding it up. Certainly from a tax strategy that's the ticket esp in higher income scenarios.
Seems to be the general consensus around here that this is stupid
Need to be pragmatic though. The market has changed some over the past 10 years, or so it seems. Volitility of individual securities makes trading more profitable in many cases if you follow things closely. Off-hand that's more the case now than in the 1990's when buying-and-holding quality stocks was singularly a great strategy.
Basically as broad market inclines flatten, buy-and-hold returns will trail off as well. Under those circumstances, dollar cost averaging won't make a huge difference. Buying dips to build a position will. Likewise, selling partial positions during short term run-ups will boost returns and mitigate risk without vacating an intended long term position or giving up tax advantages. That sort of blended long term-short term strategy might be what the reference in the OP cited. Wasn't clear though.
Posted on 4/6/10 at 4:57 pm to John Merlyn
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