Two Months on the Market
11:04 PM - April 8th, 2006
—aka What I’ve Learned From Trading Stocks for Two Months.
(Note: what I am about to say applies to trading stocks only. That’s all I’ve been doing and all I can do until E*Trade gets off its lazy ass and processes my account upgrade. With the ability to trade options, I’m sure some of this will change.)
Buy & hold is NOT a safe strategy in today’s market. Holding stocks for long periods of time is incredibly risky because it’s impossible to predict how the market will move—especially in these post-boom years. One bad quarterly report is all it takes to piss away months of gain, e.g. Intel’s fall from $26 to $21 in a couple days in January. I have no idea how such a flawed strategy as “buy & hold” became the mantra for middle-class, wannabe investors.
A much safer strategy is to buy with the intention of selling within a short period of time. The goal of these quick, surgical strikes is to make money off the market’s natural, short-term volatility. Take Novellus (NVLS), for example. Over the past 2 years, it has had its ups and downs, but the overall trend is flat. If you bought and held it, you wouldn’t have made any money. On the other hand, if you repeatedly bought and sold it, you would’ve been able to make a decent sum. Of course, there were some companies whose stock consistently went up over the past couple years, but the beauty of this strategy is that you don’t have to find companies like that. Just pick a mid-sized company (very large companies tend to have stock prices which don’t vary much, e.g. Intel) that isn’t in danger of going under and go at it.
The big caveat here is that this strategy requires you to check the stock market at least once a day. It’s easy to miss good buy/sell opportunities if you check less than that.
April 9th, 2006 at 12:06 am
Uh, just “once a day”?! Quad, don’t make me chuckle. Even I, who knows next to nothing about day-trading, recognize that the reason up-to-the-second stock tickers exist — on Yahoo Finance.com, or Schwab.com, or countless variants of Dashboard widgets, or even on your AIM client’s scrolling banner — is so that you don’t have to check once a day. You’re basically on permanent check. Just keep your eye on the ticker on the corner of your screen, and when a stock is rising, strike! ::chuckle:: Surely you notice this behavior from your colleagues at work now, doncha?
April 9th, 2006 at 12:22 am
Man, I said “at least.” Of course if you’re ready to buy/sell, you’ll check very often to get the best possible price. But then again, I’ve found that you can still do pretty well by setting limit orders at the end of the day to trigger off the initial up/down-spike at the beginning of the next day.
You end up cursing yourself when you see the market going higher (if you sold) or lower (if you bought) during the day. But really, trying to buy/sell at the absolute valley/peak will just drive you nuts. In the end, profit is profit, right?
[ Oh man, I missed the peak of XLNX twice last week. Long story =(. ]
Oh, and Yahoo! Finance is up-to-the-minute.
April 9th, 2006 at 10:27 am
Yes, I noticed the “at least,” and I was fully expecting you to say that. ;p So here’s my rejoinder:
The REAL caveat is this — one risks becoming an obsessive ticker-checker. You can’t check just once a day or a few times or several times a day… you’ll find yourself checking, at first, ever few hours or so. Which will quickly become every hour or so. Then multiple times an hour. And before you know it, you’re on permanent check. ::chuckle::
I’ve known day traders whose real day jobs simply fell by the wayside, because of this eventuality. If you day-trade a handful of stocks, that’s what’ll happen, guaranteed. If you have one or two, you can get away with not having to monitor the ticker constantly. But more than that? Well, you can imagine.
I have another rejoinder in the pipeline, but I’ll wait for what you have to say next. ;-)
April 9th, 2006 at 11:34 am
You’re right, that’s the real caveat. Winning money is a powerful draw for most people.
Personally, I don’t worry about it that much. I’ve already gone through a couple of phases where I got tired of watching the market following a sell—and this is when handling only one stock. I don’t see that changing for me.
Really, as much as I talk about money, I think of money only as an empowerer. Money allows you to do things—explore personal interests, not have to worry about family expenses, buy Odama =), etc. If accumulating money pushes out everything else in your life, what’s the point?
April 9th, 2006 at 12:06 pm
Exactly. See my weblog entry for Saturday, which is about how my brother worked his butt off for a (relatively) short while, then retired (young) and earned the ultimate thing: time.
That wasn’t my rejoinder, however. It’s this: there’s an exception to your good rule of thumb on the inefficacy of the “buy & hold” strategy.
Currently, there are certain stock sectors in which the opposite is overwhelmingly true. I’m talking about the gold and silver commodities. I can’t recall if I talked to you about that a while ago, vis-a-vis my brother’s investments. I might have. At any rate, that was a few years ago, when gold was around $275 and silver $5. Last week, gold hit $600, and silver has been trading at 25-year highs, around $12.
Can you imagine the performance of publicly traded gold and silver mining companies at the moment? ::chuckle:: Can you imagine if you made an investment just 3 years ago, as I had suggested? ::double-chuckle:: That investment would have been presumed to be buy & hold, too. And actually, it still is. The analysts my bro watches say that gold could reach the low 4 figures in a year or two, and silver around $65.
He has been making an absolute killing, using b&h on those commodities, and on stocks of gold and silver mining concerns.
So yes, there definitely are exceptions. And if you’d like to make an exciting investment, now’s the time to get in on that action, even with commodity prices relatively high, compared to a scant few years ago. Why now? They’re still rising. In a year or so, there will be an absolute stampede, mark my words. But by then prices (on commodities and stocks) will be so astronomical as to make the whole deal absurd. Guess what my bro will be doing then. ::chuckle::
April 9th, 2006 at 11:54 pm
just want to mention
intel dropped from $26 to $21 in one day at that time, not a couple.
April 13th, 2006 at 4:28 pm
I can think of a couple things that one would want to buy and hold… or rather one buys and another holds… *ahem!*