Duality

—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.