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To Trade or Not to Trade...By Jeff ClarkThursday, October 26, 2006 I was surrounded by brilliance last week.
At our annual subscriber Alliance Conference in Aspen, I got to hear from all the other editors employed by my publisher, Stansberry & Associates.
One by one they took the stage – folks like Steve Sjuggerud, Dan Ferris, and Matt Badiali. All of them spoke of their favorite investment ideas and all of them preached the virtue of long-term, value-oriented, “buy and hold” investing.
S&A founder Porter Stansberry delivered the most memorable line from the conference when he quipped, “Most people aren’t equipped with the emotion necessary to deal with fast gains.”
I totally agree with Porter. Most people, when fortunate enough to come into “fast money,” succumb to greed. They want more money and they want it faster. Traders who get on a hot streak are most susceptible to this. They start to feel flawless and indestructible. And just when they should be paring back their positions and taking money off the table, they resist the urge and let it ride. And then...
They blow up. They increase the size of their bets with visions of dollar signs and yachts in their eyes. They suffer the catastrophic loss that wipes out their accounts and forces them to swear off trading forever.
Yep. Most people are better off taking the advice of my fellow editors: Look for well-run companies trading at cheap prices... buy a few shares... and then hang on forever.
But here’s the deal… I love to trade. And I bet you do, too.
There are few hobbies more exciting than trading stocks, and there’s nothing like the thrill of buying a stock in the morning and then selling it in the afternoon for a handsome profit.
If you asked the question, “Would you rather make 50% in one week, or 100% in two years?” I’m confident most people would opt for the short-term gain.
You see, the problem with “buy and hold” investing is that most people aren’t equipped with the patience necessary for it. Most people want their stocks to move up immediately after they purchase them. Most people check the values of their “long term” holdings every week (if not daily), and grow frustrated if the portfolio isn’t increasing.
Quite a quandary, isn’t it? We’re not equipped with the emotions to trade and we don’t have the patience to invest.
So what’s the average person to do? How about a little of both?
Indeed, the most successful traders I know are the ones who take the bulk of their net worth and lock it up in long-term, value-oriented investments, then take a small portion and trade the heck out of it.
Not coincidentally, the most successful investors I know are the ones who satisfy their urge for short term trading by trading a small portion of their account while locking up the bulk of their net worth in long-term, value-oriented investments.
So… if you want to improve your results as a trader, put some money into a few of the long-term, value-oriented investment ideas offered by my fellow editors (I’m partial to the stuff Dan Ferris writes about in Extreme Value).
That’ll keep the bulk of your assets safe and avoid the possibility of blowing up your account. And you’ll enjoy the benefit of long-term compounding in your portfolio.
You can then satisfy your trading urge by trading a small portion of your account with a few of the ideas I write about in The S&A Short Report. That’ll help you resist the urge to trade out of your long-term positions just for the sake of doing something. And you’ll enjoy the possibility of “juicing up” your portfolio returns with a few successful trading ideas.
Not a bad compromise, if you ask me.
Best regards and good trading,
Jeff
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