CONFESSIONS OF A BUY AND HOLD INVESTOR
Published on April 16, 2018 @ 12:44pm
Next stop: The Twilight Zone, where what you see is never what it seems. Where what might happen is more revered than what actually happens.
Only on Wall Street does the future carry greater weight than the present. Today's predictions- futures- greatly anticipate tomorrow. Quarterly corporate earnings provide guidance for the next three months and a full year yet to be executed. How often has a company announced revenue and earnings that beat analysts' expectation, yet the stock is taken out behind the woodshed because forward projections fall short of the Street's beliefs. Confusing? Frustrating? Welcome to the Twilight Zone. Welcome to Wall Street, where your money is cloaked into that which is yet to be revealed. So unless you have Merlin's crystal ball or Houdini's ability to escape a bear trap, what's a small investor to do?
First let me define small investor. Anyone investing between $20K and $250K fits into this category. After all, we're all small fish riding in the wake of the whales. Most of you invest online or with a broker; which by the way, we pay for the privilege of either making or losing money. Even options traders embrace the anxiety of investing: getting in and out of a trade in a day, a week, perhaps as long as a month. Buy calls, sell puts, buy puts, sell calls, straddles...at the blink of an eye. Mind boggling.
Then there are the algorithmic machines which can barely keep up with the directions of momentum, often over shooting buy or sell prices. The headwinds and tailwinds of a volatile market can be exasperating. But holding up a finger to the wind will not benefit an investor. Fear will not generate profit. Leave your money in the bank? Hardly a good choice. Savings account, time limit CD's or bonds. Are you kidding? All that achieves is that financial institution invests your money as they choose, make and keep the profits for themselves and in exchange you get a paltry, laughable interest return. To be honest, I've found more money on sidewalks than in my monthly statement.
So is researching good companies with solid cash flow, balance sheets, market share, leading management and perhaps a nice dividend the way to go? On the surface, that appears to be the obvious answer. Well, in this age of instant gratification, buy and hold may feel like watching a snail race. Well, buy and hold does not mean your portfolio must be stagnant.
Watching the pundits on the business channels can provide good information about interest rates, inflation, currencies and the bull or bear states of each sector. A good, informative backdrop for your research. But to be honest, they are not talking to you, the small investor. These folks preach their own book. Secondly, they routinely are managing millions if not billions. So therein lies a flexibility to buy and sell with impunity. Take profit, raise cash, move on to the next sector opportunity. If you, as a small investor, partake of this strategy, the churn fees, however small, will rapidly add up and eat into your profits. However, often their information will display a good company that for various reasons has fallen on hard times. Your due diligence here can and often will be a very good long term investment. For example, LULULEMON (LULU) fell on hard times and then turned it around. Nice investment.
Just listen, research, and be careful you aren't being led into a nice house in a bad neighborhood. One time catalysts often display only a short term advantage. But soon even that will more likely be dragged down. ( I use a 10 week and 40 week interval to identify bull or bear sectors). A strategy I use is trading up. I'll buy an equity that might be considered second or third tier on the food chain in a sector, but offers an innovative service or product. I might give it more leeway if the company has potential as an industry disrupter. But date these, don't marry them. If a 10%-15% profit is realized, take it. Better to achieve frequent 10%-15% profits than waiting for that home run that may never materialize. And which may lose you money. Executing this will always generate you a cash reserve, which you can patiently wait to add to your better holdings or initiate a new one in a best of breed, top tier equity. For example I bought ETSY on the cheap, took profit, created cash, then added to my position in AMAZON. I like buying and selling within the same sector in keeping with a discipline of diversity.
So, be careful, only speculate in an equity an amount you're willing to lose. But if you wish to enjoy the allure of something a little more than watching paint dry, this will more likely keep your attention . After all, while the stock market is always focused on the future, your success as an investor, building a solid, steady portfolio can best be achieved buying good companies and allowing your investment to grow.
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