In continuing the haphazard and dis-organized nature of posts in the initial part of this story, I would continue here on the basic strategies of investing. In the last post, we looked into basic accounts and not to get caught up on semantics and rather to open a few accounts with your local brokerages as long as the commission is low. Fees and commissions being low are very good. However, they are also diversions and you don't want to miss the forest for the trees by looking into just fees and commissions and in general the price aspect of the trading and investing.
Trading of stocks have some basic philosophies and each camp have their own drum beats. How many stocks to keep and hold? Detached and unemotional way or some emotion is good? Buy and hold is a very common approach. But hold a turd for how long? Those of us in the 2008 financial crisis know this by holding the finance stocks which have still not recovered in the subsequent bull run till 2015. Some banks and finance stocks are decently up. But one might not necessarily agree with their way of doing business. I generally take a balanced view of things and not extreme views when it comes to business. Basic differentiation is a right of every business but to just outright keep competition at bay by using unfair practices is kind of under belly of capitalism. A bad practice of capitalism.
Some of the major philosophies are those of:
1. Buy and hold: Long term investors prefer this where they buy say a stock of a local utility company and hold it for the next 10 or 15 years. Up or down, they swing with it. Buffet writings echo this and have some concentrated stock portfolio but they also got this stocks at lower rates, get good dividends while not paying dividends to their own company's investors. At the time of this writing, Berkshire H investors don't have dividends. Also, they have access to some instruments and preferred dividends which the common investors like you and me don't have. So all in all, while this is one cornerstone of philosophy, let this not be the over-riding factor.
2. Buy low and sell high: Easy to say and difficult to implement as it is tough to predict market timings. But this combined with the momentum trading is a good way to ride when the market are high.
3. Momentum trading: You keep a stock in sight such as Apple. It is in news and people constantly know what is going on. Has a good amount of liquidity and trading volume in the exchanges. So you buy them when it is said a 100 then sell it as soon as it hits 105 and then again buy when it comes down or just buy it back at 110 and then sell it off on 115. The downside is sometimes it also goes to 90 or 85. Then what do you do?
4. All in Active trading: For folks who have access to no commission trading due to large account balances, they just keep booking smaller profits ... kind of like surfing ... or as they say in NFL, keep taking the smaller scores by rushing 10 yards at a time. Once in a while, you will get the good stock with a definitive edge and then you ride it.
Most people do a combination of all this. Big people mistakes too. Berkshire did such mistake with COP shares. What do you do once you realize there is a mistake. Swallow pride, book losses, and harvest the losses by reporting them as tax loss? Tax loss harvesting is pretty much point where you have given up on your own convictions about the particular stock that you are holding. One could of course buy the same stock at lower price and hold it. But like a complicated interstate freeway system, you also have an option to renew this money and invest it in fresh, new stocks and then see it go further.
Point is do not get tied up to any of the above or any other philosophy out there. In the finance world, the king is the cash. The bank which is pretty much printing the cash is the king. So have plenty of cash handy. Remaining everything is just commodity. Whether you, your company, your idea or project or product or service or group or inventory of commodities and a massive group of resources are nothing but commodities. In a way, having some unemotional bond towards your investment is a good strategy to co-opt. Patience is a good ally.
No comments:
Post a Comment