Big Gain Dilemma?

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At the beginning of June of 2010, I unloaded some bonds and bought some stocks. 

Over a couple of drinks last week, while sitting on my friend’s Vancouver patio, he said, “Look, I know that you’re up about $12,000 on those purchases you made in June.  Why don’t you sell and take the profits?”

He thought I was nuts for holding the stocks after such a quick paper gain.

But he didn’t know the half of it.

Since the beginning of June, my portfolio has a “paper increase” of about $130,000 U.S.

Am I tempted to sell anything?  Nope.

Trading stocks, I think can be a pretty slippery slope.  If you “get lucky” on a trade, and sell at the right time, you’re going to be tempted to go back into the casino.

My motto is to hardly ever sell.  If something reaches a silly price, trading at a ridiculously high earnings level, or if the company’s CFO resigns over impropriety, then I’ll dump my shares, but I’m mostly a “buy and holder” for life.

When I feel good about the businesses I own, and I understand them thoroughly, then I buy more shares when their prices fall.  I’m a bottom feeder of great businesses, and I hold for a very long time.  That’s one of the reasons every individual stock I own is “up” based on my average cost (the other reason is luck). 

True, there are people who can dance in and out of stocks and do well.  But studies show that, generally, the lower the turnover on an investor’s account, the higher their returns.  Even mutual funds with the lowest turnover (which have lower fee and tax burdens) report higher returns as an aggregate.  … read more

The biggest enemy to sound investing is the one we face in the mirror each day, as Robert suggests at DIY Investor

 Fear and greed pull many people’s accounts underwater.   

What do you think? 

Have you done well trading stocks over a significant period of time?  Or do you prefer to buy and hold, like I do?







Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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9 Responses

  1. I have somewhat drifted away from buying individual stocks. When the market dips significantly, I usually increase my holdings in my mutual funds.

  2. @Everyday Tips

    Everyday Tip

    That sounds like a great overall strategy. Most people do the opposite, and while they might feel good joining the crowd, short term, they generally pay for it. I'll bet you've done very well.

    Andrew

  3. I meant to say, "short term they feel good about going with the crowd"

    Long term, they pay for it.

    Contrarians like you will do really well over time.

  4. Buy right, sit tight…. as the saying goes. Only sell when you see clearing that you make a mistake in your original assessment or if company turns out to have less of a moat than thought, or begins diworsifying or taking undue risks.

  5. clearing=clearly, sorry for the typo.

  6. @The Biz of Life

    It must be this particular post Biz. I've made a load of typos on my comments above, and because I don't manage the site myself, I can't fix them right away.

    You and I sound like we have very similar investing philosophies. Do you buy any individual stocks anymore? Will you again?

  7. DIY Investor says:

    Thanks for the mention. I've been successful over the years mostly by aggressively changing asset allocation on the basis of my macro view but like you I feel that luck played a role. I've been ok with it because I felt I understood the risks – both on the upside as well as the downside. Today my bonds are positioned for a rise in rates. It has been a bit painful to endure but I feel confident that in the long run it'll pay off. I like technology and watch the sector to try to overweight on dips and then will get back to even after it makes a run.

    I feel that clients on the other should confine this type of activity to 20% of total assets. Their main long term objective is typically to get the market return. Over and underweighting of sectors or getting exposure to firm specific risk by buying individual stocks jeopardizes this and therefore should be limited, in my opinion.

  8. Don't sell your winners (unless they are overpriced)

  9. @ThinkDividends

    Those are wise words from ThinkDividends

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