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Why Do I Need an Advisor?
Long Term Buy and Hold or Day Trade?
By Henry V. Kaelber
President, Chief Investment Officer, Hoffman, White & Kaelber Financial Services, LLC
What's the best way to invest your money? In my parent’s day, conventional wisdom was that the best investment strategies for accumulating wealth were built on safety and security. This usually translated into a belief in “the American Dream” – home ownership – and “squirreling” away money into FDIC-insured passbook accounts, CDs, T-bills and other more secure instruments. Little did they know that I’d enjoy making finance my career.
Fast forward to today.
Since the beginning of this decade, real estate has garnered the attention of both professional and amateur investors alike. What used to be the ultimate long-term buy and hold investment, seems to now have turned into a trader’s game. Haven’t you heard about the latest craze – flipping condo contracts in “hot” markets like the Baltimore suburbs and South Florida? No wonder Mr. Greenspan is concerned about real estate bubbles!
But this article is not going to be about investing in real estate.
Last month, together with some of my office cohorts, I went to the Money Show in Washington, DC. Held over several days, the Money Show was a personal finance and investment education conference for [predominantly] individual investors that featured in-depth education and advice across a broad spectrum. It was reported that the attendance exceeded several thousand. It certainly seemed like there were that many there!
At the show, it was interesting to see that a number of workshops and vendor exhibits featured trading strategies – mostly day trading! What’s more, I observed that many of the day trading workshops were well attended by handsomely groomed folks whom, the majority of, looked like they were at or nearing retirement age!
Wikipedia.com, the free internet encyclopedia, defines day trading as the practice of either buying and then selling or selling then buying a stock within the same day. On the other end of the spectrum, the long term buy and hold practice (also known as the “buy and forget” strategy), suggests that investors rely on the belief that in the long run the investment will be profitable. In certain situations, both strategies work. But not always and not for everyone!
A trader must have the discipline to pull the trigger without wavering – whether it means cutting a loss, snapping up a profit, or entering a new trade after the last three trades have dealt losses. An investor must often do just the opposite – he or she must avoid pulling the trigger just because a position is presently showing a loss or a quick windfall profit.
Some individuals easily adopt one strategy or the other because it simply works best for their own personality and emotional make up. As a result, there are people who are totally immersed in the market day-to-day on an ongoing basis. On the far end of the spectrum, there are people who put money into mutual funds – often ones they don’t understand – and never sell them. They just keep putting money in until they either retire or otherwise need the money. And of course, there is everything in between.
If you listen to the people at one end of the spectrum or the other, they will often tell you that theirs is “the best” way. What you must do to succeed at investing may be completely different. The key is to determine where you fit in.
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