Quick Lesson: Should I Buy and Hold?

Most financial advisors will advising against contra trading or trading for the short term. They say that one should buy a fundamentally sound company and hold on to it, through thick and thin. However, I'll like to show you the other side of the coin.

The problem with buying and holding is that you might not maximise your returns. Lets say you buy a stock for $1.00. 2 months later, it rises to $1.50. However, a market wide correction occurs or even worse, a economy downturn causes the share to drop to $0.50.

Most of the time when this happens, most daily traders would have cashed in on their loss (if they were late in withdrawing), or made a profit less than what they could have made (if they saw the trend earlier). Institutional investors will stay in it, so long as the company fundamental has not change. If you believed those financial advisors, you would have stayed and suffered a paper loss of 50%. From there, do you realise you need a 100% gain to get back to your break even point?

"A 50% paper loss would require a 100% gain to reach breakeven point"

The difference with institutional investors and small time investors like you and me is the volume of assets we have in Equities. Most of us only have $100,000 or less in the market. The institutional investors have whats more like $100,000,000. They have the ability to move the market single handedly to their advantage. Could you do that? Thats their advantage.

The advantage investors like you and me is the ability to cash in on profits before an impending correction or downturn.

Use the advantage that you as a investor have. You are more agile than large institutional invstors. You can move from trend to trend quickly, mostly within an hour. They can't do that. When you "fight", you fight using the advantages you have. Its the same here in the stock market.

You have the upper hand in withdrawing from a downturning market. Use it.