BUY & HOLD ..... A SCAM

Just did a search on the topic of buy and hold and there is no thread on it and really wanted to start an in depth discussion on what I feel is the biggest scam in wall street. The myth that buy and hold is the most superior investment strategy.

Every day as I watch CNBC I have to listen to these so called experts that basically repeat the same garbage that Buy and hold is the best long term strategy. As the current financial crisis certainly shows that may not be the case.

Before I begin I am not in any way advocating that the polar opposite of buy and hold (daytrading) is the best strategy. I think they are extremes and my thoughts on extremes are that they are rarely optimal.

First off I want to talk about why I think Buy and Hold is so popular among investment professionals. The principle reason I feel is that they are simply using the strategy that allows them to best suit their personal interest which is typically getting more assets under management. The second reason is the emulation of Warren Buffet. They are using the strategy that worked in the past. The irony behind this is that they often mock traders or anyone that tries to use any form of market timing for using "past history as an indicator of future results". If buy and hold worked in the past who says it will continue to work in the future?

I want to examine the major players involved in the markets and why they may be motivated by a buy and hold investment strategy.

The big boys of course are the mutual funds and pension funds, they are the biggest players in the market and have the most impact on prices. They both get paid as a management fee and are compared with how they did compared to a benchmark. It is difficult for a mega fund to employ a shorterm term approach because their sheer size will have impact on the market itself. This leads to mediocrity and complacency.

Financial advisers/planners and the mainstream media are the next group I want to look at. FAs are compensated based on a combination of number of transactions made and the amount of assets under management. They make the most money by having the more assets so they are motivated to build assets opposed to growing the assets of their existing client base. FAs then pawn their accounts off to mutual funds who we have already discussed.

Hedge funds/Banks Prop desks are a lot different than a mutual fund as they are compensated based on pure performance. If they do not continue to make money they do not collect their profit incentive fee. Part of the issue begins to develop when a hedge fund turns into a mega fund and has 10 figures under management and the 2% management fee is making the managers rich even if performance is not what it used to be.

The general public is pitched a scam that is based around allowing the financial institution to increase their asset base which increases their compensation.

Ok thats about all for now lets get the conversation going.

 

You essentially argued why buy and hold is important to various groups of individuals, and not why it is a useless strategy. It is just that, a strategy. Value investing has proved succesful. If you don't think so compare your net worth to Warren's--even in this economic downturn. The point is that every strategy has its day in the sun; it must be determined what is consistently effective in the long run. Additionally, it is not in the best interest of the average investor to try and time the market. CNBC caters to the average investor, and therefore promotes this strategy (as it should).

 

Great topic. You know why fund managers can’t beat the S&P 500? Because they’re sheep!

Good points. Buy/hold is overrated but I don't call it a scam. To be a scam, people would be falsely propping it up for their own gain.

Academic research indicates that individual investors who display the most turnover realize the lowest returns. Active management results in higher trading commissions (more of a problem for the individual investor than institution) and cap gains taxes. To overcome this, you have to significantly outperform your benchmark on a gross basis. If you don’t eat, sleep and breathe the markets, I don’t see this happening.

Buy and hold may be the best move for a dentist or plumber who doesn’t follow the market continually. Buy and hold also fits well into EMH. I personally don’t believe that EMH holds, but I do agree that every Joe Schmoe out there will not beat the market, and thus should not try.

I also have to disagree on one (not all) of your arguments about institutions. Brokers and even some FAs make money based on transactions. They obviously have a huge incentive to knock buy and hold.

That said, I am not a buy and hold guy. I agree that it is easier for mutual funds to get and retain dollars buy stating that they “are in it for the long haul – not the quick buck.” I just believe that b/h has a legitimate rationale for the individual.

 

Trade, I understand your points but dont think you articulated why it is such a poor strategy. Reinvested dividend producing stocks have performed better than other asset classes over the long-term. I assume your issue is with the fact that over the past 10 years we are back where we started and people have lost a significant amount of their paper wealth.

Academic theory has been turned upside down now that we see that diversification has not protected us from a significant downturn. The problem is that most people are not educated enough or inclined enough to manage their own portfolios and the aforementioned groups above manage other people's money with a conflicting bias/motivation.

 

There's a whole lot of reasons why the average investor is better off buying and holding. Tax reasons for one, since long term capital gains are currently being taxed at such a low rate. Then there's the fact that most people have no idea what to do when it comes to the stock market. Try and picture Pete the Plumber (Joe is currently being foreclosed and has far too much credit card debt to be investing right now), short-selling stocks left and right back in September only to get squeezed by one of the occasional rallies. Any average individual who would have tried to time the market a few months ago, would probably have lost more than the market did.

Almost everyone agrees that beating the market takes work. And most people don't have the time, energy or skill to do that work. So for most people, buy and hold that total stock market ETF it is.

 

...Buy and hold worked for many years...for our parents generation it was a panacea that basically erased life mistakes and bad career choices and made everyone rich...just like borrowing to buy a house. This is why your parents probably think its a great idea to buy a house and to hold a diversified portfolio of equities. But when everyone is doing something and it is working it must eventually stop working, that is how arbitrage and markets work. For the last decade buy and hold has been a serious failure. I personally believe the buy and hold success was the product of a 25 year bull run in leverage that is now coming to an end and dont expect buy and hold to work in the near future. But it will take years to know the answer to this question obviously.

 
GoodBread:
Are you saying that in the long run, the market will go sideways because everybody has subscribed to buy and hold? That's retarded. Ultimately, the main driver behind bull markets is economic growth, so buy and hold is less of a strategy than simply believing economies grow over the long run.

No I agree with you 100% that markets move based on economic growth. I also believe that the economy will have cycles. I expect over the long run the market will continue to rise, the problem is it will be at a slower pace than the figures people throw around on TV.

Everyone seems fixated on the 1982-2000 bull run that we experienced and everyone wants it back in the worst way. The past 9 years however we have done absolutely nothing which dilutes the total return. Historically there have been periods where the market moves sideways for a very long period of time.

1966-1982 the market basically moved sideways.... that is a really really long time and will have very ill effects on the power of compounding. If you figure the average american works for 40-50 years before retirement if 15 of that is ate up by a sideways or bear market that will really eat away at your CAGR.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

Ok glad I got everyone thinking. Intent of the original post was to create a conversation and just see where it goes. I want to talk about why I feel its an overrated investment strategy but first wanted to introduce some of the basic beliefs I had on the players that create the market structure around the strategy. Please keep in mind that I am using the past 11 years as a gauge so that will create recency bias. Also I am not advocating super active trading as the answer. Finally apologies if this is not the most articulated as I have never been a great writer.

I would like to discuss the following points. -Are stocks ever truly overvalued? Holding Cash?
-Hanging on to a losing investment, for how long?
-Using Trailing stops?

If you are rarely or never selling to me that asserts that a stock is never over valued. I believe that the market moves in cycles and is rarely in equilibrium. Stocks overshoot to the upside and the downside around a true theoretical value. That is in itself what the market is. I cannot begin to understand in my head how someone that gets long an asset, realizes a several hundred percent gain over say the course of a decade and then watches it go right back to the price they paid for. To me that is simply being a fool. If stocks can be under valued then they can certainly be over valued.

Buy and hold also seems to assert that having if you ever have a large cash position you are only hurting yourself by not maximizing long term returns. I think about the people that were able to see the warning signs of the current financial crisis that sold and went to cash as big winners. Obviously someone decided to start selling because something has to drive prices down.

Take for example Financials, Energy, and the materials sectors which have taken the brunt of impact in the current market. At what point do you say to yourself "ok I was wrong time to look for a better investment". How much money do you have to lose before you Exit.

Using a trailing stop on a position seems like the most viable approach to protecting profits while still being able to participate in the move. Of course this opens a whole new can of worms as people will ask what are you supposed to do with the cash you now have raised. I think the answer is that immediately putting it back to work may not be the smartest approach to begin with....

Thoughts?

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

"buy and hold ... a scam!"

i thought this was going to be someone referencing mark cuban's rant against investing in stocks (sorry if this is too much text pasted here):

"Wall Street has done an AMAZING job of creating conventional wisdom . “Buy andHold “is the 2nd most misleading marketing sloganever, after the brilliant “rinse and repeat” message on every shampoo bottle. Weas a country have fallen for it. Every message from every marketer of stocks tell us.Young or old, if you can hold for the long term, things will work out for you.

That is total bullshit. Its for suckers.

Ive traded stocks for almost twenty years now. IM good at it. When i work at it. And it takes a lot of work. Not just reading all the 10K/Qs and corporate websites and product managers, or talking to people at the outskirts of the company where management doesnt reach. It takes often knowing the market for a company’s product better than the company does. After all just because a company is public doesnt mean a thing other than someone has, and continues to make money buying and selling the stock as their own product." ............. "I've said a lot of this before. The stock market is by definition a ponzi scheme. As long as money keeps on coming in, then there is someone to take the stocks from the sellers. If the amount of money coming in is reduced, the stocks, indexes, et al go down. What if, for who knows whatever reason, the amount of money going into stocks declined significantly ? Who would buy stock from the sellers. I mean goodness gracious, you could see something disastrous happen. Like the Nasdaq dropping from 5000, to under 2000 in just a few years. Its happened before, it can happen again.

Which is exactly why we get all these nonsensical commercials from brokerages. To keep the money coming in . I wish someone would index the amount of money spent on marketing by mutual funds and brokerages to the Nasdaq and Dow and see if it correlates.

Money inflows drives the business. We can get all the economic data we ever dreamed of getting, but if money inflows declined significantly for an extended period of time, then every rule of thumb would go out the window until money started flowing in. Yes it would flow in eventuallyas prices dropped. From big investors like me who wouldnt have gotten hurt by a huge market decline and could come in and buy huge chunks, or companies outright.

You ? You probably would be like Charles Ponzi’s customers. You wouldnt be able to get your money out of the fund when it went down, and by the time you did, it would be too late. You would have been crushed.

Ive said it before,a stock that doesnt pay dividends is valued like a baseball card. Just whatever you can sell it for. The concept that you own “your share” of the company is a joke. You are completely at the whim of the CEO and board who will dilute you on a daily basis with stock options, then try to buy back stock to cover it up and push up the price, rewarding the shareholders who get out, rather than those that continue to hold the shares. Meaning you."

http://blogmaverick.com/2006/01/03/the-stock-market-is-for-suckers/

 

Prospie- WOW! Interesting find I remember hearing something about that a couple years ago and it has its merits, not where I was heading when i originally wrote this thread but maybe its buried in my mind somewhere internally because as I was reading is kept saying YES! I agree with his points to an extent but not everything.

Goodbread - On Taxes people can put their money into a retirement account such as a traditional or roth IRA, 401k etc where earnings are not taxes as they grow but rather when they are taken out. Cant remember the specifics.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

If yours (and the general public's) view of buy and hold means buy stock and never think about it again then of course that's a bad strategy. I tend to think buy and hold is a good strategy for investing if you do it right. I know quoting Cramer is cliche but going to do it anyway, "Buy and Homework."

I tend to think of buy and hold as a means of investing for the long run BUT requires that you are always aware of your positions and prepared to make changes. The key here is to be proactive. Remember, trading and investing are two different things. Many of us who work at banks aren't even allowed to "trade." I know I have a 30 day required holding period which essentially forces me to be an invester, not a trader.

 

You definitely throw out some good improvements to the buy and hold strategy Trade4Size. Trailing stops is a pretty solid idea. If you repeatedly get stopped out of more than a couple unrelated postitions, it might be time to switch to cash because a bear market is starting. Unfortunately, that already seems like too much to ask of most people.

I suspect that once things recover, we'll be in a slow bull market, somewhat like the post-WWII era. PE and event-driven strategies could do well in those conditions, at least until they get overcrowded.

The principles behind buy and hold do predate the latest cycle however. The Intelligent Investor doesn't say buy and hold forever, but it does have a 1-2 year horizon for most investments. The whole bond/stock ratio fiddling it talks about is probably the closest to market timing most people should ever get. It's actually pretty solid. If you'd gone from 75% stocks/25% bonds to 25/75 right when Lehman tanked, you could have saved a lot of money, possibly even made some if you were heavily weighted towards treasuries.

 

In general the public tends to be lazy and naive regarding their investments. My question is why? Most people that use a traditional financial adviser that puts them into mutual funds believe it is the brokers job to take care of everything. That is so incredibly naive and they are sheep waiting to be slaughtered by the big boys.

I find it amazing how people will mull over which $5000 living room set to buy for weeks maybe even months but fail to spend the adequate time on their personal finances where tens of thousands to hundreds of thousands of dollars are on the line.

People are so quick to blame others when the reality is no one but themselves are to blame. Some people even act like selling is a 4 letter word. They will use the excuse "im in it for the long term", only to find themselves capitulating 35% lower and getting out at the bottom. Its the typical failed trader attitude but applied to the masses. They hang on to losers too long... they panic... capitulate... and thats the bottom.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

...economic growth does not necessarily mean stocks will always go up. Stocks are nothing more then claims on the future profits of businesses...if those stocks trade at a price that discounts unrealistic assumptions about the growth of those profits then stocks will not go up. The economy could grow 4% a year in perpetuity and still stocks may not go up if the prices already discount this level of growth and its effect on business. Also we could easily see economic growth without profit growth...the two are different. In the great depression growth rebounded in the mid 30's while stocks re-crashed in '37-'38 because profits got clubbed by unionization and other "wage-positive" government actions. Also, stocks did nothing through the whole decade of the 1970's and all of the last decade despite GDP rising quite a bit over both periods. So stocks are not really a bet on growth they are a bet on stocks.

 

I see what you're saying but economic growth is also an indirect driver of stock market participation. As more and more money is thrown around, a lot of it gets thrown into the stock market and prices rise. And people look at earnings at lot more than profits when it comes time to making an investment decision. Maybe P/E shouldn't be so important, but if it fuels people's 401k growth you might as well use it. (Not sure if that made any sense).

 

I agree with those that believe there is no such thing as "overshooting" or "undershooting" of market equilibrium. e.g. Stock prices are determined broadly by (1) fundamentals forces and (2) market forces.

As I understand it, Classical idea is that fundamental forces is the only thing worth measuring long term and you can easily tell if it is being overshot or undershot with the idea that it will eventually correct itself.

However in reality market forces change valuation of fundamental forces directly (so many ways- to name a few- consumer confidence reducing sales, credit crunches destroying balance sheets, stock market declines reducing wealth effect, etc) or indirectly through changes in valuing fundamentals (a new paradigm- what is fundamentally good? e.g. fundamentally good p/e for financial industry post-2008?).

Consequently I think the best investment strategy is someone ACTIVELY looking at all the moving parts without the assumption that there is an equilibrium that will eventually be reached.

As for "BUY-N-HOLD" I think like some of you that it is far from optimal. And I also agree like some of you, that the average can't be expected to do any better. But the above explanation clearly shoots the strategy out of the water.

 

What I can't stand about the buy-and-hold mantra is that people use it as an excuse disregard common sense. Dow goes from 13000 to 9000 and people are like "But I can't sell now! If I sell now then I lock in my losses!" Of course when they have unrealized gains THOSE are for real, but when there are unrealized losses they don't count until the position is closed out. So inevitably these people sit on their crappy mutual funds as the market sinks ever lower.

 

Yeah thats pretty much what I am getting at. In addition I think its interesting how the puppets come on TV and no matter how bad things are its buy buy buy buy buy buy buy. CNBC is like the home shopping network for stocks.

I often wonder how a lot of these mutual fund managers got themselves into their positions of power to begin with.

In general I feel like the public are sheep and will fall victim to the big boys. They rely on others to think for them, are quick to blame losses, and typically have no plan how investments fit into the bigger context of their portfolio over the long term. In trading most people agree that exiting a winner is the hardest part I think this is even more so for investments because you tend to get married to the positions because you held them for a very long time.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

Pfft! Buy and hold is for retirement funds- and only for people managing their OWN retirement fund. If you consider yourself any type of investor, there is much more money to be made in waves. You don't have to time the market correctly to understand that APPL isn't going below 400 on a terrible report, and to realize the resistance points.

"I'm blessed with an extremely poor memory, which allows me to deal with the future rather than the past." -George Soros
 

Oh boy and how have things changed in the past 5 years... Whats been the best strategy...buy and hold... well atleast for those that had the dry powder.

When I wrote this 5 years ago we were a matter of days after equity markets made their lows. If I had to write about a topic today I would be more likely to write about short term trading being a scam and buy and hold being tested and true but that would only be because the past 5 years the market has nothing but rip higher. Being 5 years wiser now I think there is somewhere of a medium that could be considered optimal.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

I run 2 PAs, short term (days, weeks, months) and LT (cap gains)...I generally agree with your thesis that buy and hold doesnt work (just look at where the major indices are at today relative to 10 years ago) but that is not to say that you cant buy solid companies and take advantage of reinvested dividends and minimal tax consequences over a multi-year period. If you cant spend 30-60 minutes per position per week and you have no inclication to do so you are probably better off owning an ETF, index etc

 

I would agree buy and hold is a sucker's bet, but churn and burn is not necessarily better. If you have some unsophisticated grandma, it doesn't matter what technology she has access to, she is probably better off holding a stock than trying her hand at daytrading. Of course, if she is not sophisticated enough to daytrade, she probably doesn't belong in equities in the first place, and should just be holding a long maturity bond.

For a value based hedge fund that sees a stock as undervalued, and buys in at 10, are you saying they should get out at 9? The stock is still undervalued, and as long as they are confident in their analysis, they should stay in. Blaming our current problems on short holding periods is ridiculous though - I have no idea how the two are logically related.

 

[quote=Edmundo Braverman]Imagine owning Lehman Brothers for the past couple decades. How would you look right now? Now imagine trading in and out of LEH a few times over the past few years.

And what if you bought MCD 5 years ago and took a nap? WHat if you had been long LEH and long puts on LEH? WHat about a concentrated pure buy and hold trtategy with downside protection provided by relatively cheap options?

Look, its not the strategy that counts, its your proficciency within the strategy. Many people have made money doing buy and hold, and many people have lost everything doing short term trading.

In a flat, or especially an oscillating market, obviously buy/hold will underperform. Yeah, the last 10 years have been bad. WHat about 1982-2000? Hell, even 1982-1009? 1954-1965?

 

Buy and hold does not mean buy and hold forever. A value investor would sell once the stock approaches the intrinsic value, therefore (ideally) such an investor would sell companies like Lehman, WAMU, etc long before their valuation reaches such high levels. Of course, doing this is in practice is quite difficult and is what separates the greats like Buffet from the rest.

 

An extremely successful floor trader back in the day (now retired) once told me that the best traders started out in futures markets because futures forces you to play in short time horizons.

What do I think? I think the general buy-and-hold for x years is not optimal. The two optimal strategies is extremely long-term "buy as if you'd never sell it back" value investing and very short term intraday/weekly trading. So the extreme time horizons.

 

I completely disagree with this statement "Buy & Hold Is a Sucker's Bet".

If you are investing in good companies that are undervalued then you can still buy and hold and pay lower taxes. The only time day trading can be beneficial is if you:

-Can time the market (good luck); -develop/discover an outstanding/proprietary trading strategy that no one knows about (requires a lot of knowledge, hard work and research) and be very disciplined in following your rules; -are an expert in behavioral studies associated with stock markets and investing; -etc.

As you can see there are very few people that will succeed in day-trading, and even if you do then will need to earn about 30% more (if you are in the highest tax bracket) than the guy who pays l-t cap gains tax just to break even. Now if you trade in a Roth IRA, that is a different story, but you cannot contribute to a roth if you make more than like 160K for married couples.

Let's use Edmundo as an example he lost nearly 12% on FAS in 45 minutes, which will take over a year to make up if he is lucky (no one can argue that a 12% annual return wouldn't be great). Now if he actually held on to the stock - today it is up like 6% at the moment and Edmundo would have regained half his loss.

In the end I think it doesn't matter if you buy and hold or day trade, it is a wash, but the taxes make it more advantages to hold gains for more than a year.

People are just talking crap like "buy and hold is dead", because they are frightened and panicking because of the market volatility and can't take the pressure associated with losing 10% in just a few days. If you really think(know) that something is undervalued than buy and hold.

You have to be able to see the big picture and spot trends in the economy before the market does and then you will truly succeed with buy and hold - Warren Buffett style. If you don't believe me than look at the idiot OP ripping Buffett in his post about his "shitty investment in Goldman"

//www.wallstreetoasis.com/forums/the-beginning-to-the-end-of-goldman-sachs

Well just six months later Buffett's investment looks pure genius, while people like that OP get crushed in the market because they don't know how to go against the grain and make good long-term value investments.

 
stk123:
I completely disagree with this statement "Buy & Hold Is a Sucker's Bet".

If you are investing in good companies that are undervalued then you can still buy and hold and pay lower taxes. The only time day trading can be beneficial is if you:

-Can time the market (good luck); -develop/discover an outstanding/proprietary trading strategy that no one knows about (requires a lot of knowledge, hard work and research) and be very disciplined in following your rules; -are an expert in behavioral studies associated with stock markets and investing; -etc.

As you can see there are very few people that will succeed in day-trading, and even if you do then will need to earn about 30% more (if you are in the highest tax bracket) than the guy who pays l-t cap gains tax just to break even. Now if you trade in a Roth IRA, that is a different story, but you cannot contribute to a roth if you make more than like 160K for married couples.

Let's use Edmundo as an example he lost nearly 12% on FAS in 45 minutes, which will take over a year to make up if he is lucky (no one can argue that a 12% annual return wouldn't be great). Now if he actually held on to the stock - today it is up like 6% at the moment and Edmundo would have regained half his loss.

In the end I think it doesn't matter if you buy and hold or day trade, it is a wash, but the taxes make it more advantages to hold gains for more than a year.

People are just talking crap like "buy and hold is dead", because they are frightened and panicking because of the market volatility and can't take the pressure associated with losing 10% in just a few days. If you really think(know) that something is undervalued than buy and hold.

You have to be able to see the big picture and spot trends in the economy before the market does and then you will truly succeed with buy and hold - Warren Buffett style. If you don't believe me than look at the idiot OP ripping Buffett in his post about his "shitty investment in Goldman"

//www.wallstreetoasis.com/forums/the-beginning-to-the-end-of-goldman-sachs

Well just six months later Buffett's investment looks pure genius, while people like that OP get crushed in the market because they don't know how to go against the grain and make good long-term value investments.

  1. Most people can't get a favorable deal like WB did on Goldman
  2. I'm too lazy right now to go at most of your post, maybe Edmundo will get to it later
  3. WB got crushed this year, and he is the best investor ever. What he knows about finding the best undervalued company could probably be used to find the worst over valued company and then he wouldn't have had an issue this year
 
stk123:

You have to be able to see the big picture and spot trends in the economy before the market does and then you will truly succeed with buy and hold - Warren Buffett style. If you don't believe me than look at the idiot OP ripping Buffett in his post about his "shitty investment in Goldman"

//www.wallstreetoasis.com/forums/the-beginning-to-the-end-of-goldman-sachs

Well just six months later Buffett's investment looks pure genius, while people like that OP get crushed in the market because they don't know how to go against the grain and make good long-term value investments.

Buffett cites holding on to Berkshire Hathaway as the biggest mistake of his life. There are numerous other companies he has held on to long past they should have died. No doubt Buffett is a great investor and good at identifying undervalued companies, but straight buy-and-hold is not always the optimal strategy. Plus, Buffett is playing with an advantage, because 1) he has enough capital to unlock value himself and 2) his name value is such that he gets deals simply so companies can say he bought in, as in your retarded GS point, which everyone knew was golden the second he bought in.

A pure "hold until death do us part" is obviously not useful; if you are a value investor, once a stock is fairly valued, you should sell it.

 

Time frame is only one part of a strategy. A huge part of the problem is that no one in America is allowed to be smarter than anyone else. Therefore, long term buy and hold a diversified basket bs makes investing sound easy and everyone can do it. Using more complex strategies involving derivatives and multiple time frames are just for the greedy people on wall st who are no smarter than normal people, just too greedy to buy into a company for the long haul. they also got their job because their parents are connected and they got them into an ivy league school, etc.

 

I am not saying that day-trading is a bad strategy, but that there are tens of millions of investors that do not have the aptitude to day-trade and therefore buy and hold is the their only option.

Now if the dow is still at 10,000 twenty years from now, then I will say that I was wrong and buy and hold was a sucker's bet. But that will most likely not happen, and I will bet anyone here that the dow will reach 50,000 at some point before 2030. And if that does happen then it will mean that buy and hold wasn't a bad strategy after all.

What I was trying to say (I may not have been clear) is that people panic too much and think that buy and hold is a terrible strategy, because they lost 50% since last year. But when the market goes up 50% next year they will jump right back onto the buy and hold bandwagon. There are too many fair weather investors (especially in the media). Your job is to go against the mob and buy now (or whenever you think the market is close to bottoming out) and hold to make a sizable profit while paying only 15% capital gains tax on it.

But if you are good at day-trading, then go for it. I agree that it could be more profitable than buy and hold, but the problem is that most investors don't have enough time for it. Ironically, I have made all my money day trading when I first started investing 5 years ago, and then switched to a buy and hold strategy due to a lack of time and have only lost money since; but that could simply be do to bad market timing.

BTW, Buffett got creamed because of investments he made in the past. His Berkshire Hathaway is basically a very illiquid conglomerate that is still exposed to systematic risk. And BRK.A actually went down slightly less than the market did as a whole.

 

Why is it that if you dont do buy and hold that your a daytrader. What cant you be an active investor that tries to time the market. They are aiming for intermediate sized moves. They know when to go into cash when to short etc.

on the whole taxes part.... basically if you arent daytrading professionally you do not have a shot because its a skill that takes a long time to learn. As for the taxes...... 2 words..... TRADER STATUS.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

I was using buy and hold and day trading loosely (and possibly incorrectly).

By buy and hold I meant at least one year (not 10-20 years).

If you are holding a gain for more than 6 months but less than a year, than you would be dumb to sell now, unless you have to, know something, or are in a lower tax bracket any way.

By day trading, I meant anyone who buys and sells stocks on a daily/weekly basis, e.g. if you cash out a gain within a couple days/weeks/months of your purchase.

Correct me if I am wrong but TRADER STATUS does not do much to help with your taxes anyway, because you are still paying your marginal tax rate on any gains and not capital gain rates. All it does is it allows you to deduct interest expense (margin?) and other things such as trading books, seminars, home office etc. which isn't a big deduction unless you are spending a lot on that crap, but that would only mean that your returns are in reality a lot lower because you are spending them on training material.

 

There are a lot of benefits to filing under trader status such as the wash rule not applying to you. I think holding on to something because you want to pay lower taxes on the gains is a suckers game because you are basically gambling on the future because you want to pay a lower tax rate. To me thats just foolish.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 
trade4size:
There are a lot of benefits to filing under trader status such as the wash rule not applying to you. I think holding on to something because you want to pay lower taxes on the gains is a suckers game because you are basically gambling on the future because you want to pay a lower tax rate. To me thats just foolish.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

You keep talking about the benefits in theory, but in reality they are not that great. For example, your wash sale rule not applying only means that you will be able to take the loss this year (which is a great benefit), but it's not like a wash sale deletes the loss, it just gets rolled forward into the new basis of the stock that you bought and you will have been able to use that loss once you sold that stock again anyway.

If you are filing your taxes under trader status then you should know what I am saying.

For example: Let's say you earned $10,000 trading. Normally you would pay $3500 in taxes (assuming highest tax bracket) for a net profit of $6500. With trader status, you will now be able to deduct some expenses, such as books, seminars, depreciate your computer, etc. for a couple hundred dollars - let's say $500. Now your income is 9500 and pay $3325 in taxes for a net profit of $6,675.

You saved $175 (which is great), but if you paid l-t cap gains rate of 15% you would have only paid $1500 in taxes for a net profit of $8500, which would have saved you $2000.

@Drex - I never said buy and hold forever, just that it is still a sound strategy. But just like any trading strategy timing is everything, obviously you are going to sell once you think it is fairly priced.

If you bought GOOG for $85 during it's IPO, you could have sold it in the next few days and earned 50%, but if you held onto it for a year you would have earned 200%, two years and 400%, four years and 800%, but if you held onto it five years you would have gone back to 300%. Obviously timing is everything, buy and hold doesn't mean hold forever but hold for a couple months/years and reevaluate your position. Just saying that 99+% of people will make more money in the market if they held on to their gains for more than a year because of the tax advantages (unless they are in a low tax bracket to begin with). Very few people have the skill to make a high enough profit trading in and out of positions to offset the tax disadvantage of s-t cap gains rates.

As to my Buffett/GS example: No it was not retarded, because a half a year ago almost everyone (on this board and in the media) was criticizing Buffett that he made a mistake and had gone in too soon, and I was one of the very few people that were defending him (you can see that in that thread that I posted a link to). But you wouldn't know that, because you weren't even a member of this board 6 months ago. And now you are a hothead, know it all, king kong status, 21 year old who has all the answers to everyone's questions. Give me a break dude, how about you get a college degree first and get some real world experience before you actually start arguing about which trading strategy is better. I respect your opinions, but you are not seeing the big picture and your arguments are one sided.

Your argument about losing more money in one day then you would save on taxes is obviously a possibility but it could just as easily go the other way as well. If you are well diversified and own several stocks then you will win some and lose some and over 30-40 years until retirement will end up being a wash (if you look at history actually it should end up working to your benefit), which makes the tax savings even more attractive.

My point is that if you can day-trade and make money doing it then good for you, but for more than 99% of Americans buy and hold (not forever) is their best bet if they want to own stocks.

 

This is a ridiculous article and taxing short speculators is absurd. How could you even define buy and hold with a fixed period. If one believes a company will report outstanding earnings in the forth quarter but not in the first then it's time to sell. Perhaps after the second quarter the investor could pick up that company at a discount. The point is that buying and selling stocks whenever you want is part of the game. I understand a lot of people are trying to make a quick buck and have no idea what they are buying. Some are just focused on buying stocks rather then buying a company there's a huge difference. Nevertheless; mistakes were made in this crisis and this article is interesting but would do more harm than good.

"I wanna Thank the Good Lord for Making me a Capitalist"

"I wanna Thank the Good Lord for Making me a Capitalist"
 

two words.... LIQUIDITY PROVIDER

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

Forgot to add that filing under the TRADER STATUS will raise a HUGE red flag at the IRS and you are almost guaranteed an audit (at least within a few years). And even if you aren't hiding anything from uncle sam, the waisted time and money to go through an audit will cost you a lot more than the tax benefits you get filing under trader status.

 

After re-reading what I wrote about the Buffett GS convertible PS, I see now that I wasn't too clear about getting my point across. I meant to use as an example of going against the grain not as trading strategy example (I agree that would have been a retarded trading strategy example :).

Buffett went against the grain by buying financials when everyone was selling and he is now reaping all the benefits.

And that is what you have to do. 1-2 years ago everyone was saying buy and hold was the way to do it, now everyone is saying shorter term trading is the way to go now and into the future. But I completely disagree, because if you went against the grain and started trading 1-2 years ago then you would have probably been better off. And that is why I am lobbying for people to start to buy and hold once again, because 5 years from you may be looking back and thinking wow I should have bought BAC at $2 or GS at $47, or GOOG at $260, or FSLR at $85.

People are scared to buy into the market now, which is why you should. I actually think that trading is a lot more risky now, because of the spike in volatility, unless you are extremely good at it or like to gamble.

 

I think its relevant to note that people on this board posting in the trader forum probably wouldn't consider themselves in the 99% of "investors"

Also, if it was so easy to buy and hold I think the average American should make a lot more then whatever they end up making, like 4.5% a year or something like that

 

People posting on the trading forum were never buy and hold guys to begin with so there is no change here.

and the market historically returned about 9% annually during the 20th century, so I don't know how you got the 4.5% number. But even if it is true then it means that they weren't diversifying un-systematic risk properly, and it doesn't mean that they would have done better with s-t trading.

 
stk123:
People posting on the trading forum were never buy and hold guys to begin with so there is no change here.

and the market historically returned about 9% annually during the 20th century, so I don't know how you got the 4.5% number. But even if it is true then it means that they weren't diversifying un-systematic risk properly, and it doesn't mean that they would have done better with s-t trading.

4.5% google it. Most people just can't buy and hold, they're too emotional.

 

9% before taxes.. Dont forget your taxes taxes taxes. Honestly I cant even legitimately argue with you on this stk because I lack the brain power. Investing/trading decisions should be based on your analysis NOT on L/T vs S/T capital gains. If your up huge on a position and have held it for 11 months hedge using options then sell and take advantage. If I want to sell 10 months later unless I am up massive I highly doubt the tax benefits will outweigh the potential risk. Again could always hedge out the risk.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

Which is further evidence why a more active approach would better suit most people. Buy and hold requires discipline and to not capitulate. In a bear market people are obviously capitulating because something is driving the prices down ultimately.

"By day trading, I meant anyone who buys and sells stocks on a daily/weekly basis, e.g. if you cash out a gain within a couple days/weeks/months of your purchase."

Uhhh holding something for a couple weeks/months is daytrading? Hardly.... More like active investing.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

I worked a shitload for a freshman in college and managed to save up some. I told my dad I wanted to buy a house (this was 2007) and asked for his thoughts because he did so and rented them out when he was younger. Thank God he had other ideas. Instead he got me 50 shares of Visa in their IPO opening price (I paid for them just as a disclosure) and the stock went up like 27% the first day. From that moment I knew I wanted to work in finance in some investment capacity.

I did very well when the recession recovered. Beat the market and my former money manager. Sold most of my positions to partly fund studying abroad twice and the rest when I came back and looked for a job. I have one stock now...I think...but it's not a big position and it's not doing much (thinly traded). Trying to pay off other student loans now...

 

I remember when I was selling Visa after IPO on a BD on Wall Street after I left school on a hiatus in 2007-2008. I had friends who graduated who were making 150k-200k 1-2 years out, an amazing time. I remember my pitch being how Visa was akin to MC (Mastercard) in it's growth potential.

I have not personally gone buy and hold myself but I am contemplating it. In certain markets where the institutional player can't reach i think it can be a good idea. In this place in the cycle you might as well buy class B or small MF in a growing market like Tampa. Either class A buildings will hold their value or smaller class C will increase. I think high yield properties with high cap rates are a good risk, again in certain markets.

I'd rather buy a 20 cap in MF in Tampa than a single fam anywhere.

I could be completely wrong,

 

Real estate is a game you have to study first then invest. The real estate game is only thinly tied together on the macro level. For a major market, or even a mid major market city you have to know what you are doing. Projections vary from neighborhood to neighborhood. One neighborhood might be hot and the one a mile away might be a no go zone. It requires actual work and effort to get into the game.

As for your plan. Well you are likely to loose money for the first 3 to 4 years on a month to month basis. In most areas around the country today prices are high. If you pay a PM company 10% of gross per month you won't have the economies of scale to make a positive monthly cash flow. However if you are okay with sinking some money into the place on a month to month basis and are waiting on appreciation you can feasibly make some money.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 
Best Response

I love that people think sinking your money into sh*thole single family rentals in 2016 is a sound investment strategy. The publicity that SFR investing has gotten in the past few years through get-rich-quick promoters and do-it-yourself real estate websites is absolutely absurd.

But I welcome novice investors to sink your net worth into a shitty strategy that gets reconfirmed via institutional players in the space (who's cost basis is next to nothing because they timed it properly and can see true scale). Portfolio construction of this sort is solely for outsized cash yields.

And for anyone who tries to tell me their rental is a cash cow (with a sample size of

 

1000% agree with this. I have a few SFH rentals and unless you enjoy dealing with tenants and contractors I would recommend passive investing thru REITs or private funds for real estate exposure. In my case I was able to buy them significantly under market - this was the real value creator, not the monthly cash flow.

A lot of newbies and gurus tout that you can get 15-20%+ returns on your cash but conveniently forget to factor in the time suck and headaches along the way.

I think it can be a good thing for a hands on investor who does their own management and repairs and lives close to their properties, but if you are making good money then your time should be more valuable than this. I think buying some crappy class C/D rental out of state is one of the worst ways to "invest".

 

Buy and hold investor here. I'm in the Southeast, but I've found that my most effective investments have been with quads. It's simple, still qualifies as a residential loan, if by some chance a unit is empty the other 3 are still paying the mortgage, and it's just easy. The cash flow works in my market and funds other investments. I do have single family rentals, but only because I lived in them first and moved, they weren't bought as investments. I generally wouldn't buy a SFR as an investment because the numbers normally don't work. Unless it's a crazy deal, but let's be honest, that shit doesn't really happen in the real world. This isn't HGTV or whatever.

That being said, inspect the shit out of the property before purchase. And if it's not a great deal, don't buy it. If you don't know the area, don't buy it. Don't stare at excel and say yeah that's perfect! You're probably missing something. Plus, tenants are assholes a lot of the time. You have to consider your target audience. If you're in a large downtown market and you're looking at a building that rents for $600/unit, I might stay away because you're not going to end up with the best tenants. Call it judgmental all you want, but it's just being realistic. There's a reason you buy a class A building for a lower cap rate than a class C.

Bottom line for SFR's, if you're looking to park the cash somewhere, find a REIT you like and put it there. It's 'diversified' that way. ish. If you've got more capital and are looking to really make moves, then find the right MF for your investment strategy and have a couple of friends in RE double check your numbers and assumptions before you invest any money. Good luck.

 

I contribute heavily to my 401(k), near the annual maximum which is about 20% of my annual salary. That's my buy and hold.

After taxes and expenses, the rest goes towards savings as I am saving for a personal residence to start a family, but I take my bonuses, tax returns, relocation, or other lump-sum benefits and invest them into high-yield closed-end funds with dividend reinvestment on a regular basis. With fund expense fees of 1-2% and the $7/trade through Scottrade, I try to use each lump sum ($5000-15,000 A/T depending on the benefit) to pick a high-yield fund trading at a decent discount to it's NAV in an beaten-up area (Emerging Markets, Asia) or sector (i.e. energy/resources) that is likely to stay steady or even rebound over a certain time period. If I like a particular fund I might double down at a discounted price or choose another depending on the distribution frequency, yield, etc. that fits my needs at the time. I use the smaller investments to fund upcoming vacations, and medium investments to save towards things like a new car or engagement ring, etc. but leave the larger investments in low expense funds and maintain the dividend reinvestment. Basically treat them as a high-yield savings account with frequent compounding, and justify the expense ratios and $7 trade fees by buying a few less drinks on the weekends.

We are here to drink beer. We are here to kill war. We are here to laugh at the odds and live our lives so well that Death will tremble to take us. - Charles Bukowski
 

Real estate is a quagmire and unless you know exactly what you're doing and everything about the area, its not worth the hassle. The capital gains are only worthwhile due to mortgage leverage. As others have said, get the same asset exposure through a REIT.

Personally I put 8% of salary into a pension, company puts in another 12%. Remainder of my savings (c.40% of net income) go straight to a mixture of emergency cash, P2P lending and global equity ETF.

SFR is getting shit on all over this thread, and I'm not going to say that their points are straight-up wrong, but I don't think it's a bad play and it's a fairly innocuous way to invest. It works best if you buy in a submarket that hasn't recovered from an appreciation standpoint. I have a couple and they are fine. If you get them at the right price in the right area, they are actually LESS trouble than multifamily because of the superior nature of your tenants (single-family home dwellers tend to treat their place w a sense of "ownership," and you should require them to mow the lawn, etc.), and because demand from renters is so freakin high that the balance is in your favor. You will always be occupied if you do it right. Cap rates in multifamily are WAY too low right now, so fuck that.

 

Me and some buddies are currently investing in MFs. We've just gotten started, but these are a pretty good source of cash flow as long as you have 3 or 4 units in a building and decent appliances.

"Even if you're on the right track, you'll get run over if you just sit there" - Will Rogers
 

Before I got into CRE, I built homes for 5 yrs and had a couple of rentals along the way.

I would recommend you put that money elsewhere, unless you are going to buy 5 or more at a time to offset the one revenue source issue. 1) Capital Events - During the hold shit will break for sure, reserve for the worst 2) Property Taxes and Insurance 3) Upfront Transaction Costs * 3% of Total Cost 4) Vacancy, factor in 2 months of vacancy per year 5) Add in a legal reserve for evictions (some people make a living repo-ing private jets, on a long term deal high chance someone won't pay) 6) Lawn, pest and general refresh expense after someone moves out (carpet, paint, etc) 7) Disposition Cost 5-7% of Sales Price

Beach Condo in Florida? I live around Daytona, terrible town but RE is cheap and rents are high Condo Association takes care of everything Something you can use when vacant or let family use

Things to remember every town is different invest in a place you know or have someone close, other than the management company brokers and management companies - always trust but verify, expect never trust the broker ever get a contractor and plumber to inspect the property with you, home inspectors are a joke

Elsewhere to put them money Having a pretty descent run with BX stock, buying limit and selling a deep in the money covered call same day. Example buying at $26.50 today selling a May $18 Call for $9.50 ($950 Per Contract) in premium, picking up ~$1 per share in profit ~3.8% per trade net of fees, factor in the margin @ 25% for BX its a sweet deal for a 30-day hold, if you happen to employ this strategy keep it under 50% of the portfolio; recently got jacked upto 55% margin requirement on BX because of my holdings, thanks E*Trade, you can buy the calls back on the dips and time it right get the dividend as well, started selling puts as well but I prefer predefined risk and since the call is deep in the money; the world would have to end for me to loss money or BX go below $18 Per Share with the example above. PM me if you want to pick my brain.

 

Yeah, after purchasing Bayer and BMW stocks I'm into buy and hold now not by choice but by necessity.

You killed the Greece spread goes up, spread goes down, from Wall Street they all play like a freak, Goldman Sachs 'o beat.
 

What about buying a 2-4 unit duplex/triplex/fourplex, living in one of the units and renting out the others? You can buy with as little as 3% with an FHA mortgage (however you probably won't be cash flow positive if you're buying in a decent area with that kind of leverage), you can get massive tax benefits that come with owning rental property, and I think if you live in one of the units for 2 years you are partially exempt from capital gains (need to confirm this).

What are people's thoughts? Has anyone pulled it off?

 

At the end of the day you need to choose your battles. There are endless options to park capital both real estate and non real estate. There are tons of people who do what you described. I'm sure only a small percentage of those people actually understand the amount of work and headaches that come with it and the true return on cost over the long term.

I suppose, as an institutional real estate investor, I am perplexed when peers (OP) ask questions like this. Sure SFR or 1-4 MF units can be phenomenal investments - but as someone in this thread correctly stated, most of the value and outsized cash yields that can be realized from these strategies are simply a result of your cost basis (buying at discount).

 

The ability to leverage your investments and write off mortgage interest comes to mind. Let's say you buy a 5.0MM multi family deal with a $4.0mm loan, put in 100k in rehab, raise rents and now Lets say it's worth $7.50mm. Now you can refi it with a 6.0mm loan, take cash out tax free, and the property could still throw off a pretty healthy cash flow after debt service.

Obviously it's not without risk, but you can't lever up any other income producing assets like you can real estate. You can buy options, but you're subject to margin calls, or you can buy a business, but operating a $5.0mm business requires a lot more overhead and effort than operating a $5.0mm multi family.

 

Obviously there's more to it than putting 100k into rehab. I've seen countless multi family deals during this cycle where guys have bought value add deals, spent 4-5k per unit on rehab, bumped rents, improved margins.p, cleaned up the rent roll and gotten re'fied out at 100%+ of their cost basis within 24 months. Probably tough to pull it off at this point in this cycle, but not a huge stretch. Ask anyone that works for Fannie or Freddie and they'll probably tell you 80% of the refi's they work on are complete cash outs

 

Fuck all the ney sayers - you work in REPE, I'd like to think you have an idea of what you are doing already. Go for it. A lot of valid points in this thread, but I am sure you know what some of the downfalls are already - vacancies, repairs etc...

One thing I want to point out - management fees are not just expensive for the 10% you pay. Every time something breaks down they bring in expensive contractors that would have cost you a lot less to hire yourself. I only self manage my properties otherwise your cost in management are way too high. I have multiple apartments so when a roof or something else breaks down the fees are split amongst the different flats - an added plus.

Someone mentioned selling calls and puts on stocks as an alternative etc... I won't bother answering that. You are being a 100x safer investing in a shitty property than doing that.

 

I feel that the fact that the market has tons of fluctuations makes it more viable for value investors with long-term horizons that can weather short-term storms. It's hard enough, at the retail level, to invest passively with ETFs for many people. Imagine how much harder it'll be to try and time the market or gauge volatility with options. Buy and hold I think is still the best way to go for most people and I don't think the fact that people are making money through short-term speculations is evidence against that.

 
jmr1991:
This year has so far been euphoric for the financial world, less Apple and Bill Ackman. The S&P 500 continues to push the boundaries on all-time highs, and Total Household Assets have recovered 92% of value lost during the crisis of 2007. The Dow has also seen a return of 7.7% and the NASDAQ is up 4.17%.

"Should the approach to investing be changed?"

Yes

So, has anyone tried to invest largely using options? Is it significantly more profitable than traditional investments, or is the extra effort not worth the extra cost?

For the average retail investor or even 95% of investment advisors, options are not a great investment vehicle due to the lack/limited understanding of them.

Does anyone employ a strategy that is largely different from "Buy and Hold" for their personal accounts?

For short term trades, options are great if you have a limited amount of capital to work with, but once again a great deal of understanding is needed to gain an edge using options - Theres a reason why the majority of option contracts expire worthless lol

 
Buy and hold I think is still the best way to go for most people and I don't think the fact that people are making money through short-term speculations is evidence against that.

Right, and I agree that most people should focus on the passive long-term approach. I was speaking more to the strategies employed by people like us (finance guys/girls) who have a fairly good understanding of portfolio theory / derivatives / financial securities.

What's less emotional than buy and hold?

That's poor writing on my part, but his argument was based on the notion that the "roller coaster of returns" causes significant anxiety for individuals who have employed a buy and hold strategy. I see his point, because most people can log into retail accounts and see money disappear from the balance, haha.

 
Jerome Marrow:
Buy and hold w/ rebalancing returned roughly 1,500,000% from 1900-2000 in the US. A bit more in Australia and slightly less in most areas of Europe. Do you want to try to beat that, long term?
I think we need to look at a little larger sample size- do you have to have those figures for the full A.D. period? If I invested one Roman denarius, what would I have today?

Any investor using 100 year-old data to test strategies will probably be in trouble.

 
Jerome Marrow:
Buy and hold w/ rebalancing returned roughly 1,500,000% from 1900-2000 in the US. A bit more in Australia and slightly less in most areas of Europe. Do you want to try to beat that, long term?

That's only 10.1%, so we can at least try!

I hate victims who respect their executioners
 

I have some money I play around with within my retirement account. Looking at biotech where I can take a punt at the next great thing. However, due to the strict rules from our compliance guys (need to hold any equity positions for at least a full year) there are limits as to how daring I can be besides ETF, bond funds, dividend plays and the occational biotech punt.

CNBC sucks "This financial crisis is worse than a divorce. I've lost all my money, but the wife is still here." - Client after getting blown up
 

Why bother then? Again, do you believe you're going to outperform the general market, especially small caps or emerging markets? I don't see where most people are going to get their edge as stock pickers here. There are a lot of good strategies, scalable even to the retail level, but they don't really involve being a good stock picker. Most people would be better off with just buy/hold and targeting specific geographic areas or market caps depending on their biases or risk tolerances.

 
Jerome Marrow:
Why bother then? Again, do you believe you're going to outperform the general market, especially small caps or emerging markets?....

I sure do hope so. Because that is my job.

Then again,it is less than 2% of my account that I fuck around with. Just to add some flavor into my portfolio.

CNBC sucks "This financial crisis is worse than a divorce. I've lost all my money, but the wife is still here." - Client after getting blown up
 

As a college undergrad who likes the 'hustle' I have been working and trading at the same time, and I have been using options a lot with relatively good success.

Although nonsensical and obvious options quite frankly give you more options

When I started out i was playing naked call/puts on big ticket stocks like AAPL starting out with only $1,000 I managed to get up to $8,5000 before dropping to $5,000. This was the first time I was trading and the emotional rollercoaster was phenomenal. By the way I lost $3,500 in one day and it was the best lesson I had, since then I have invested heavily in stock & options trading.

For the average investor who isn't that interested the buy & hold with the dollar cost averaging at a set point in time will work very well.

If you want to play options really invest in your education, and don't for f*** sake thing that just because you made a 5000% return on a demo account that it will translate into live.

The mathematical part is very stimulating if you get really involved in it, which to be honest you really have to. I use options house and thinkorswim, normally I would just use buy & hold, but I wouldn't be able to make 135% returns. Of course right now my capital is still small ($46,000) so I'll have to see what happens as I go on.

Currently, selling out of the money options is a great way to make money, albeit a bit tricky at first. You have to learn how to use the greeks, historial & implied volatility, technical analysis and computational finance.

Either way for kids our age (20) and in college its a great way to grow your money and start building some experience, especially if you work at a job. Learning how to program is a must though (zshell all the way) if you want to work/study at the same time since you won't have enough time to sit in front of a screen all day.

 
SirTradesaLot:
The market timing Hall of Fame is an empty room.

This one goes to the WSO Hall of Fame.

The truth is you're the weak. And I'm the tyranny of evil men. But I'm tryin', Ringo. I'm tryin' real hard to be the shepherd.
 

The "there's no good stock pickers" argument that people use for EMH is so ridiculously easy to disprove, and Warren did it best, as More Money Than God paraphrased... It's very easy to say that if you had a sample size that included all the stock pickers that ever existed, it's conceivable that many of them would beat the market over a significant period of time. However, what if I told you that every single one of these people came from the a similar background with similar influences and similar ways of assessing value in the market? Then it starts to get a lot less likely that it's an accident. And that is exactly what we've seen with the class of value investors that are do uber-diligence and only buy dollars for a quarter while having the patience to wait for the market to agree that their dollars are worth a dollar. EMH is definitely not correct.

I hate victims who respect their executioners
 
BlackHat:
The "there's no good stock pickers" argument that people use for EMH is so ridiculously easy to disprove, and Warren did it best, as More Money Than God paraphrased... It's very easy to say that if you had a sample size that included all the stock pickers that ever existed, it's conceivable that many of them would beat the market over a significant period of time. However, what if I told you that every single one of these people came from the a similar background with similar influences and similar ways of assessing value in the market? Then it starts to get a lot less likely that it's an accident. And that is exactly what we've seen with the class of value investors that are do uber-diligence and only buy dollars for a quarter while having the patience to wait for the market to agree that their dollars are worth a dollar. EMH is definitely not correct.

Did you actually read what I said or did you decide to just post this out of your ass after skimming? I'll help you:

"I also don't believe in people being good stock pickers, outside of the funds and investment teams doing extreme amounts of due diligence full time with lots of resources... "

And event driven strategies != stock picking. Completely different source of alpha.

 
BlackHat:
The "there's no good stock pickers" argument that people use for EMH is so ridiculously easy to disprove, and Warren did it best, as More Money Than God paraphrased... It's very easy to say that if you had a sample size that included all the stock pickers that ever existed, it's conceivable that many of them would beat the market over a significant period of time. However, what if I told you that every single one of these people came from the a similar background with similar influences and similar ways of assessing value in the market? Then it starts to get a lot less likely that it's an accident. And that is exactly what we've seen with the class of value investors that are do uber-diligence and only buy dollars for a quarter while having the patience to wait for the market to agree that their dollars are worth a dollar. EMH is definitely not correct.

You are right that there are skilled stock pickers, but your criticism of the EMH is unfounded.

The EMH has nothing to do, and does not say anything about valuation. Simply because there is not a single, definitive way to valuate a stock. So the EMH is perfectly fine with different investors having different expectations (say, Mr. Buffet values it $40 and Mr. Market currently values it $10).

The EMH is about information and how quickly it's reflected in the current price.

 

And please tell me you aren't using Warren Buffet as your example. He certainly didn't make the majority of his money as a stock picker of beaten down blue chips. Special situations and events could probably be described as being the reason for most of his wealth and success, something you are not going to do on a side PA.

 

As an individual who trades his own account, I used to be very disdainful of "buy and hold".

But my attitude now is "if it makes money, don't diss it". Many, many strats out there work. I would even be highly interested in a strat that consistently lost money.

Buy-and-hold's weakness is the lack of compounding (and some would argue the time frame). To remedy this, consistently purchasing shares and reinvesting dividends would, to my mind, negate the effects of large drawdowns on the indexes. In effect, you may consider investing twice your usual amount in the event of a selling spree. The trick is to see events like 2008 as opportunities than as a big red mark in your portfolio. The offset, however, is whether you have any money to invest in such events.

No, buy-and-hold is not dead, nor should it be dismissed. Value investing also has its place. The one and only thing that matters, in the long run, is whether you made money or not (preferably by keeping risk as low as possible).

 
Jerome Marrow:
You really are an idiot. Thanks for spending the time continuing to prove it. Best of luck to you and your endeavors.

Oh thanks. By the way I just covered my short at 1535.25 ES. I am an idiot yes. How much monkey shit have you had thrown at you?

I guarantee that anyone would agree with my half ass analysis.

Btw for any monkeys 153.45 SPY is the level to watch for RH

 

lol your own link shows that you went long on Friday, so not sure why you're making shit up. Are you really going to try to take credit for a news event in Cyprus and you went short the last few days? Spus aren't even down 20 handles here and unless you went short on Fridays close, you've barely made a cent. Considering your posts are from mid last week, you might be breakeven now, congratulations. You are absolutely delusional.

 

Pretty sure...... the link shows me net short and has....... I dont manage trades on that account for the most part. I got my own to worry about. And I added my shorts back for any wondering with a stop within a few point. Spus were down to 1529.5 ES last night so not sure what you are talking about (1554-1529.5=24.5 points if I can count-the former is my stop btw). And that SPY level still stands as next vst target. Ridicule all you want but everything was put out there full disclosure. I am not talking with you anymore........... but you should get your facts straight before talking next time. Thanks and next time don't try to troll me.

 

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Get busy living
 

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