# Invest or Trade?



## beerwm (30 January 2009)

I'm guilty of be being abit close minded about investing.

I've run some very basic entries and exits through amibroker, and found that 9/10 a simple strategy vs. a buy and hold strategy comes out on top.

moreover, sometimes in vast sums.

I'd like to hear from some investors, on their approach?

I can only think of consistant income from dividends [which a likewise return can be achieved from trading.] and also a personal preference to be separated from the market.

so, do u invest or trade, and why?


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## CanOz (30 January 2009)

beerwm said:


> so, do u invest or trade, and why?




Even "Investors" have labeled this a trader's markets. Heck, even the swing traders have abandoned that method in favor of shorter times frames.

What does that say about this market?

CanOz


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## beerwm (30 January 2009)

Hi Canoz,

i was refering to all market conditions,

not just the current, when i was backtesting in amibroker, even the boom period performed better with trading tactics.

And in the recovery period to come [if there is one,] many of people are talking about investing at such low prices, yet i cant see the advantage. If you're dealing with the market, you are going to play the percentages, and trading carries a higher percentage.

I'd like to be proved wrong though


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## MRC & Co (30 January 2009)

beerwm said:


> Hi Canoz,
> 
> even the boom period performed better with trading tactics.
> 
> I'd like to be proved wrong though




Check out the performance of trading funds on average, in comparison with longer term index investments, over the boom period.


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## So_Cynical (30 January 2009)

beerwm said:


> And in the recovery period to come [if there is one,] many of people are talking about
> *investing at such low prices, yet i cant see the advantage*.




U cant see the advantage?  

The one big example that comes straight to mind is the 100% plus turn 
around in the Australian (producing) gold sector.

I mostly invest and trade a little...i buy value...wait till it comes good and 
depending on factors i sell (trade) or keep (invest) or a bit of both.

The recovery will come u know.


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## beerwm (30 January 2009)

So_Cynical said:


> U cant see the advantage?
> 
> The one big example that comes straight to mind is the 100% plus turn
> around in the Australian (producing) gold sector.
> ...




I can't see the advantage in terms of the alternative.
Say you invest in XYZ stock for 3 years, it may go up 100%, a buy hold strategy would give you a 100% return... not bad hey!!

but that stock will retrace, move up , move down, and trading may turn that into 150% return,

both still great, but the later is better.

My firm basis is upon my amibroker backtest, where the buy and hold strategy was out-performed by some basic entries and exits.

I'm not saying Investing is Bad, but im viewing trading as a better alternative.


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## CanOz (31 January 2009)

beerwm said:


> I can't see the advantage in terms of the alternative.
> Say you invest in XYZ stock for 3 years, it may go up 100%, a buy hold strategy would give you a 100% return... not bad hey!!
> 
> but that stock will retrace, move up , move down, and trading may turn that into 150% return,
> ...




So, the backtest you refer, can you describe how it was constructed and what results it produced?

Cheers,


CanOz


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## beerwm (31 January 2009)

MA 15 entry,  MA 10 exit, it might have been EMA, also with wider day counts
something along these lines,

basically taking advantage of upward moves,

my 1 concern with investing is it is based on fundamentals. Even if a price goes lower there is no trigger to get out aslong as fundamentals remain.

I dont know why everyone is fighting my logic, trading takes the good runs, investing takes all runs.

PS: refering to EOD trading, not intraday


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## So_Cynical (31 January 2009)

beerwm said:


> but that stock will retrace, move up , move down, and trading may turn that into 150% return,
> 
> both still great, but the later is better.




agreed...simple buy and hold don't do as well as in and out and build.

Still the super 2000%+ returns only come from buy and hold.


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## beerwm (31 January 2009)

I must confess, my backtest was not that thorough, i only have the trial version of amibroker.

I was really just trying to get views on why people like/prefer/find more profitable trading or investing.


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## beerwm (31 January 2009)

So_Cynical said:


> agreed...simple buy and hold don't do as well as in and out and build.
> 
> Still the super 2000%+ returns only come from buy and hold.




could u elaborate more on these 2000% returns?


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## MRC & Co (31 January 2009)

So_Cynical said:


> Still the super 2000%+ returns only come from buy and hold.




Trading leveraged products with tight stops, you can far superceed 2000% returns.


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## So_Cynical (31 January 2009)

beerwm said:


> could u elaborate more on these 2000% returns?




If u look at some of the spectacular charts of the last 5 years...u have to come 
to the inescapable conclusion that the only way to get the specular returns without
high risk leverage is to.


1 buy very close to bottom
2 hold during all retracement's
3 sell at near top.

Very hard to do....and yet super simple...FMG 4 year chart is a good example.

Buy at 40 cents in 05 sell in late 08 at $10.40 Plus...the only tactical way to do it 
is buy and hold...any sort of trading mentality will take u out at the retraces..and 
perhaps u will get distracted and buy into something else...or for whatever reason 
miss the re buy....the main thing is to NOT SELL at the falls on the way up.

And that goes against all trading mentality's.


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## wayneL (31 January 2009)

So_Cynical said:


> If u look at some of the spectacular charts of the last 5 years...u have to come
> to the inescapable conclusion that the only way to get the specular returns is to.
> 
> 
> ...




Can I have the number of your clairvoyant?


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## So_Cynical (31 January 2009)

wayneL said:


> Can I have the number of your clairvoyant?




If u look at all the buyers of FMG in 05 and consider how many held to the top, u would 
imagine that its a tiny fraction of the majority....still the basic premise remains...buy at 
bottom for what ever reason, and hold (do nothing) then sell at spectacular profits...is 
only possible if u buy and do *nothing*.

My point is that the trader mentality will take u out all the time...the specular returns 
only come from *not* embracing the "never let a profit turn into a loss" mantra.


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## beerwm (31 January 2009)

So_Cynical said:


> If u look at some of the spectacular charts of the last 5 years...u have to come
> to the inescapable conclusion that the only way to get the specular returns without
> high risk leverage is to.
> 
> ...




I did that test with the 15MA entry, 10MA exit. - basic

date start 05 - end 07 [didnt have 08 data]

buy and hold- 119,158
my portfolio- 65,914

exposure- 54%
starting capital - 10,000

so i guess in this case there is some merit, allthough the return on money/time with trading is actually better.

but how many stocks out there are suited to "investing" contant rise month/month. if i included all of 08 data, im sure our results would favour trading tactics.

trading in this case is what i would deem safer, buy hold showed drawdowns from 86,000 - 55,000,[-31k] while trading gave only 64,000-47,000 [-17k] and a more constant equity curve.

see a slight advantage in some aspects, but still not convinced


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## wayneL (31 January 2009)

So_Cynical said:


> If u look at all the buyers of FMG in 05 and consider how many held to the top, u would
> imagine that its a tiny fraction of the majority....still the basic premise remains...buy at
> bottom for what ever reason, and hold (do nothing) then sell at spectacular profits...is
> only possible if u buy and do *nothing*.
> ...




Depends on the time frame. Some long term trend following systems may have held through the retracements. On the other hand how does one know the drop from the top is not a retracement... or indeed still a retracement. This could go on to $20, $50, $100.

On the other hand, systems that were chopped out of that stock, had that capital allocated somewhere else.

I get what you're saying, but it's the bottom line that counts, not individual wins.


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## Wysiwyg (31 January 2009)

Yeah it`s pretty hard to watch large gains slip away.Though nothing wrong with the free carry I suppose.


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## So_Cynical (31 January 2009)

beerwm said:


> see a slight advantage in some aspects, but still not convinced




Look at the real time trading blogs...trend following still gets down to a decision,
at some point the trader makes a (trader) decision and takes the profit, and goes 
on to something else...sure it "locks in the profit" but also (in the worst case 
scenarios) locks out the future potential.

This is the trade off, of the trend following mentality....taking whats in front of u, 
and forsaking what may come....the unknown.


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## johenmo (31 January 2009)

So_Cynical said:


> This is the trade off, of the trend following mentality....taking whats in front of u, and forsaking what may come....the unknown.




If you are the sort who sets a profit target and takes it, then you forget what happens after that - you were happy to take the profit.

I got OXR with a view to buy & hold - had worked before (but the market wasn't the same, was it!!!).  And it went down the slippery slope, I stayed with the buy/hold/long term view that it will recover etc.  So now my OZL shares are locked away and really all I can do is hold until it comes out of suspension.

So I have devised a short term trading system and am paper trading it mechanically. In the past two weeks I would have recovered the losses from the OZL (if I'd put money in).

As I learn I can see this being a short/very short term market.  I won't buy and hold until things seem a lot better in the market (and I learn more).

Buy, hold and closely MONITOR - as a few people have been saying - is about as good as you'll get investing.


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## Nick Radge (31 January 2009)

so_cynical, Your logic is full of contradictions;



> the main thing is to NOT SELL at the falls on the way up.




yet,




> Buy at 40 cents in 05 sell in late 08 at $10.40 Plus...the only tactical way to do it is buy and hold...any sort of trading mentality will take u out at the retraces..




Somehow you have, using hindsight with this example, been able to distinguish between the final capitulation of the stock and the intermediate retracements. Indeed, the retracements you held through on the way up were 45%, which on that basis means exiting at $6.50 on the way back down, not up above $10.00. A true buy and hold does not make that distinction, indeed making that distinction is why extremely successful investors exist because the majority can't make that distinction, which is why/how a trend following system works.

You also quote...







> buy at bottom for what ever reason, and hold (do nothing) then sell at spectacular profits...is only possible if u buy and do nothing




...what is a spectacular profit?

In 2002 you could have bought FMG for about 1c, then sold it 12-months later for 28c. Is that not a spectacular profit? I'd suggest it is, as would most.

When do you exactly decide to "_only possible if u buy and do nothing_" or "_sell at spectacular profits_"?

The other flawed argument with buy & hold is always the use of the historical perspective that is always used. Who here would think, 'gee, if only I had bought FMG when it was 10c..." Firstly you can't now. The logic stands then that you buy the 'next up and comer' but most people do not realize that FMG traded in a sideways band for 10-years before breaking out in 2002.

Which begs the question on 'when' to initiate a buy and hold, because you can't (yet anyway) buy FMG at 2005 prices so it's reasonable to assume that you would have bought higher. If so a true buy & hold would be still holding the bag, which I can assure is why most people's SMSF are hurting so much. 

CBA has given back everything since 1999 which means, on an ex-dividend basis, that anyone who bought after 1999 is out of the money. Someone who touts the buy & hold strategy will say, "yes but if you had bought in 1992 you'd still be well ahead". Yes, but, you can't NOW buy at 1992 levels. You can buy at todays levels, last months levels, last years levels, 2007 levels, 2006 levels, 2005 levels etc etc etc and you'd be losing.

A good trend following system will outperform buy & hold on an _*ongoing basis from today*_ .

Here are some CBA trades using my long term trend following model that is perfect for the SMSF. We'll discount the first trade on the basis that it wasn't important enough to be included in the universe (which is another reason why the FMG example is possibly flawed). 



A $10,000 investment would now be worth $31,202.

A $10,000 buy & hold investment, assuming you made that in 1995, would be also be worth about the same, but the issue here is making that buy & hold decision _*after*_ 1999 - that's 10-years ago, has been a losing proposition. It may eventually turn out that making that buy & hold decision in 1995 will also be a losing proposition.


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## beerwm (31 January 2009)

So_Cynical said:


> Look at the real time trading blogs...trend following still gets down to a decision,
> at some point the trader makes a (trader) decision and takes the profit, and goes
> on to something else...sure it "locks in the profit" but also (in the worst case
> scenarios) locks out the future potential.
> ...




I'd disagree with that,

If you're using stops to take you out of a position and 'some form of positive price rise to get you back into the position' then really you arent making decisions,

-the market is making the decision

you are right how stops, do lock in profits, but it far from limits future potential profits - which also depends on whether you have a re-entry plan after your stop is hit.

you really just have to ask..... does the market trend?


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## Cooks (31 January 2009)

Good luck to anyone that has the guts to invest in this environment. Clearly a trading / scalping ground. Have invested in some gold stocks as they look decent on longer term and shorter term time frames. As for holding anything else, no way until those weekly charts show some signs of life.


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## gfresh (31 January 2009)

It's is an interesting debate.. 

I think buy and hold is bound for some major problems eventually.. Assuming every X years there is some monumental market shift, you're going to run into something that significantly takes away your capital and/or capacity to invest most efficiently at these "once in xx year" lows. 

Now if you are the "hold no matter what", more than likely, you will hold through and through as the shareprice drops 40-50-even 90% until you possibly panic and sell out at a very low. By then that is probably too late, or in fact this may be the best re-entry position. 

The Babcock & Brown, Centro, and Macquarie stories are probably all excellent examples of this. Having given excellent returns for several years, the GFC has completely destroyed any capital in these companies. Buy and hold was clearly a mistake, and you really don't know until it's much too late.

Even if it's a very basic trailing stop, it could be enough to save you in these situations. It could be very large, accepting a 20% loss say, but if that prevents you from being wiped out in the long run, and giving up years of gains (e.g. the CBA example), using basic trading methodologies can save your bacon. 

I'm not a very prolific, or gun trader (practise, practise, practise) but even following the very basics, such as not going against the trend, getting out quickly of failed trades, and using some form of buying at support and selling at resistance -- it's allowed me to collect a lot of "free" shares in the last 6 months. 

There definitely isn't that capacity to do so with a true "buy and hold" philosophy, and it simply requires some basic understanding of technical trading. 

As an added advantage you can also mitigate some major risk (I feel anyhow) in a bear market, if you can trade your way on a minor bear-rally on stocks you now believe *are already reaching undervalued status* (according to your own methods).. You may pick up 10% return. If you then match up 50% of your own capital on this "free" return then you have a 50% buffer from current levels. And of course you can lower your average price with rinse and repeat on the same stock. 

If your fundamental analysis is reasonable, the stock will reach a bottom and other more orientated "value buyers" will step in when it also reaches their price calculations. But of course you don't discard the possibility of getting out if required or you think conditions have sufficiently changed. Probably not a strategy for specs either, don't bother with them at the moment. 

That is the only form of "buy and hold" I am prepared to do in this current market, the rest is almost, suicide.


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## gav (31 January 2009)

What about the tax benefits of investing? Hold for more than a year, you only get taxed on 50% of your profit.  Trade and you'll get taxed on 100% of your profits!

Don't forget the tax benefit of fully franked dividends also.


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## MRC & Co (31 January 2009)

lol, don't need to pay tax on capital losses though!


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## nomore4s (31 January 2009)

gav said:


> What about the tax benefits of investing? Hold for more than a year, you only get taxed on 50% of your profit.  Trade and you'll get taxed on 100% of your profits!
> 
> Don't forget the tax benefit of fully franked dividends also.




Long term trend trading can also hold for 12+ months as well as receive d/e


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## beerwm (31 January 2009)

gav said:


> What about the tax benefits of investing? Hold for more than a year, you only get taxed on 50% of your profit.  Trade and you'll get taxed on 100% of your profits!
> 
> Don't forget the tax benefit of fully franked dividends also.




how is a year defined?

12months? or cross-over the financial year?, and does it compound, like 50% 1 year, 25% 2 years?

i didnt really consider the tax breaks


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## So_Cynical (31 January 2009)

Nick Radge said:


> so_cynical, Your logic is full of contradictions;




Soz Nick i just don't see any :dunno: perhaps it was in your interpretation?



Nick Radge said:


> Somehow you have, using hindsight with this example, been able to distinguish between the final capitulation of the stock and the intermediate retracements. Indeed, the retracements you held through on the way up were 45%, which on that basis means exiting at $6.50 on the way back down, not up above $10.00.




And u totally lost me here....exiting at $6.50? -  im saying u have to hold through those 
downswings and im suggesting that most trend following systems wont do that, as it goes 
against many trend following rules....as posted elsewhere, most trendy's would be happy 
to take a good profit and move on.



beerwm said:


> how is a year defined?




1 year from date of purchase.


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## prawn_86 (31 January 2009)

So_Cynical said:


> Soz Nick i just don't see any :dunno: perhaps it was in your interpretation?




I think what Nick was getting at is how would you know its the final peak in the example you used? Its only with hindsight that you can tell...

IE - why would you let it fall 45% in one of the first retracements, but then still manage to sell very close to the final, all time high?


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## Cartman (31 January 2009)

So_Cynical said:


> Soz Nick i just don't see any :dunno: perhaps it was in your interpretation?
> 
> And u totally lost me here....exiting at $6.50? -  im saying u have to hold through those
> downswings




what Nick is saying is --- how do u/we know to cash in at 10 bucks but not $6.50 ? ---- ie we dont know at what point a stock might be in a retrace or whether its the start of a bomb cycle -------- 

the main difference between a buy/holder and a trader is a trader tries to milk the chop ----  both systems work ---- a trader is just happy to back his analysis 'more often' ----

Sorry PRAWN ------ I posted this b4 seeing your post ----- saying pretty much the same thing


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## So_Cynical (31 January 2009)

prawn_86 said:


> I think what Nick was getting at is how would you know its the final peak in the example you used? Its only with hindsight that you can tell...
> 
> IE - why would you let it fall 45% in one of the first retracements, but then still manage to sell very close to the final, all time high?




Ah ok

The other question is why buy FMG at 40 cents in the first place...a long term buy and 
hold decision/punt is the only thing that would get anyone in at that level...as for selling 
near the top...i dunno. :dunno: there's no system that can do that.

I think the only way to do a super trade is belief in something...a cycle, person, commodity 
etc...gold for example, will it go ballistic? where is the top for POG :dunno: LGL was 1.50 a 
share a few months ago, what would LGL be with Gold at 2 or 3000 USD an ounce?

Luck is timing, both good and bad.


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## Nick Radge (31 January 2009)

> a super trade is belief in something...a cycle, person, commodity
> etc...




A lot of people believed in FMG at $8, at $9, at $10, $11, $12, $13, $12, $11, $10, $9, $8, $7.....$3, $2....they still believe...for all we know it will back to 10c.

I know people who bought CMR at $0.25 and still hold because they believe. Sure they could have cashed out above $5.00 but they believed it was a $20 stock. Belief also leads to denial.

A simplistic trend following system, such as a 13-week/35-week crossover will have long CMR at $0.53 and out at $3.80. Not the top, not the bottom, but a $69,000 profit on $10,000.

I spoke with a woman when ZFX was at $10.00 on its way back from $20. She bought at $19. She genuinely believed it would not only go back to $20 but go well beyond. She believed so much she still holds...whatever is left. 

HIH was full of believers. OneTel was full of believers. 

Yes, a super trade is catching a macro cycle before others do so and then exiting before others do so. For a non-skilled person like myself however, the only way to do that is use a trend following system.


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## Wysiwyg (31 January 2009)

Throughout the bull run different resources peaked at different times ....  uranium one of them. Post no. 1. (note the date and 50% fib. retrace)



tech/a said:


> Another pullback opportunity(Missed by myself)


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## beerwm (1 February 2009)

Another question I'd like to add.

But maybe the process of investing was 'invented' to make the markets more stable and effectively reduce supply of a stock.
-I saw a bank advertisement on the TV awhile back which stated 'if you have withdrawn your money from the market and missed the best '50[or however many day]' you would have earnt half as much [in total capital gains]' 

-although i guess they failed to meantion what the outcome would of been if the had missed the worse 50 days.

-i frequently run into people who tell me 'you never sell a stock' or except corrections/crashes as speedbumps that are unavoidable and unforseen.

-as the market started to retract early last year, you would hear pundits on the news saying 'mum and pa stockholders should not panic and sell out' - ever optimistic of a recovery and largely vocalised.

to me there seems to be alot of mis-information out there that have..
'persauded' people to invest long term.

Sounds all too much like a conspiracy


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## gav (1 February 2009)

MRC & Co said:


> lol, don't need to pay tax on capital losses though!




No, but at least you can use them to offset your profits


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## MRC & Co (1 February 2009)

gav said:


> No, but at least you can use them to offset your profits




Not too sure many buy and holders over the last 12 months have many of those profits you speak of


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## tech/a (1 February 2009)

One point *missing *in the arguement is that long trends happen in both bull and bear runs.

I certaintly didnt take advantage of the run down and am doing what most are-- trading shorter term.

But Sorros,and Radge and many here discussed and found the top of the market back at 6880.
Few hedged,many sold.
if you had purchased 1 Short SPI contract and kept rolling it over today it would be worth around $67,000 (from say 6000).

A short CFD trade on BHP or CBA or MQG or RIO or FMG or ZFX---you get the picture.
I'm sure most of us are at most times biased in market direction and as such miss these *very rare *opportunities.

Sure we have avoided much of the carnage but not taken advantage of the power of long trends.
Sure easy to see in hindsite but are they really that hard to identify once underway?


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## Julia (1 February 2009)

beerwm said:


> -as the market started to retract early last year, you would hear pundits on the news saying 'mum and pa stockholders should not panic and sell out' - ever optimistic of a recovery and largely vocalised.
> 
> to me there seems to be alot of mis-information out there that have..
> 'persauded' people to invest long term.
> ...



I'm not sure that there's any conspiracy involved but I absolutely agree about the crappy advice that was being handed out in all the media.

There should at the very least have been some proviso added for people retired or close to retirement to make protection of their capital their first priority.


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## Jikx (4 February 2009)

For certain "superstars", trading is the way to go.

However, most people will never be able to beat a simple buy and hold (especially in index stocks), especially AFTER tax. That's a very key point, because even "professional" managers rarely out-perform the index when tax is taken into account.

Buy and Hold, with Sell triggers is probably a safer bet for normal investors. But if you want high risk, go ahead and trade!


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## sinner (4 February 2009)

Hi guys,

I wonder how many times this question has been asked before on how many stock forums all over the world?

My answer is both. Invest and trade. To me, "investing" as it is referred to here is just a long only trading strategy over an increased timeframe.

"Trading" is only to take advantage of an obvious move or hedging.

I never trade a stock. Most of my picks expose my capital to energy and gold, I rarely venture out of these markets. To that end, I am more inclined to protect my profits by shorting the underlying instrument which controls sentiment for my stocks.

For example: 

I buy gold prducing stocks on a significant low in November '08. The stock gains support from the gold price and moves rapidly upwards. Now I am at a 30% gain but expecting a sharp fall in gold to reduce that to 15%. So I take a short out on XAU proportional to my holdings in gold miners with a tight stop at the last high. Now if there is a sharp drop on gold, the short will usually protect my profits and sometimes exceed the losses. 

If I am incorrect in my analysis and there is a large upward move, my short will get stopped out and any losses from the short will usually be taken care of by gains on the miners.

Profits are stored in USD as a risk free currency hedge against the AUD.

As a more current example: have just gone long a slew of energy (gas and oil) stocks, expecting a move up in the oil price. Once this move up is complete, if I am anticipating a retracement on oil rather than exit my longs or short those stocks as a hedge, I will take a short out on oil or gas futures proportional to my holdings (with tight stops at the previous high). This proportion is easily handled using leverage (rather than invest the same amount of capital again in the opposite direction). I never long with leverage.

Hopefully this makes sense. It obviously doesn't work with all stocks, but my personal feelings are if you can't hedge against the underlying instrument which controls sentiment then it probably isn't worth investing in.

It is also worth noting that not all stocks are suitable for "trading", usually those that are not well known or understood by the market until there are changes to its fundamentals.

As part of my overall strategy, I also never take a "trading" position unless it is opposite to my natural market state (investments and bank account). e.g. I will never trade gold oil or AUD long, only short.


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## investorpaul (4 February 2009)

I previously was an investor due to time, knowledge and capital constraints. I then traded for a while before getting caught up in other things and am now moving back to trading with the aim of eventually being a full time trader.

I think trading suits certain personalities and people, anyone who has seen Million Dollar Trader (the BBC program) will note how many people had trouble shorting a stock, because it meant other people would be losing money. For me I don't care about the company, I don't care what it does or how well its run. My time frame is anywhere from minutes to hours and all I am concerned about is the charting patterns formed and what they are telling me. I buy or sell with the aim of closing that position before the end of the day. What it does tomorrow doesn't matter.

Investing is different, it has a different mentality and obviously suits some people. If I self managed my own super fund I would use and continue to use that as my investing vehicle.


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## Page (12 February 2009)

You should not hold yourself to any specific type of channel. You must diversify whenever you find a great opportunity for profit. The bottom line is do anything just earn maximum profit.


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