Hi, this is Adam Hewison and I have just returned from vacation in Maine. This is my first day at the office and my first video from the digital den.
While I was away, I got to thinking about one of the oldest myths about trading: the buy and hold myth. While this strategy has worked in certain markets at certain times, I do not believe we are in a time frame where this strategy is going to meet with a lot of success.
The world around us is changing rapidly and therefore it is important to have strategies that can change with this new regime.
In today's video I'm going to show how the buy and hold strategy is flawed when you compare it to our "Trade Triangle" technology. I think you will be surprised at the results and how well you can do using this simple approach to markets.
There is no need to register for this video and of course you can watch it with my compliments. I highly recommend watching this video today, otherwise you risk missing out on what could be the move of the year.
Enjoy the video and please give us your feedback on this blog.
All the best,
Adam Hewison
President, INO.com
Co-creator, MarketClub
Buy and hold still has its merits. Unfortunately, the advent of the ultra short term trader, the impact of characters like Jim Cramer and the CNBC crowd and the "cheaters" on Wall Street (which includes stock analysts running point) has made it nearly impossible.
On the bad side, it has traders missing potentially larger moves that would make their portfolios blossom without all the constant "in and out".
On the good side, once you realize how manipulated everything is, it gives you the opportunity to play by the rules everyone else is playing by and actually make some money.
If you think about it "buy and hold" theory makes sense only under a given premise. You have to be assured that the company you buy has two things going for it. The first is that its earnings bottom line are growing continuously and secondly, the market is growing as well continuously. Find those two conditions working at the same time with a degree of certainty and I'll buy and hold. Otherwise, you have to have a lot of faith buying into a green shoots theory. If those prognosticators of the green shoots theory are unable to detemine in advance when the shoots will wilt then why should anyone accept their predictions that the new green shoots are in great shape, healthy and will mature over the next five years. That's about the time limit buy and hold theorists seem to require. Commodities generally work the same way. When there is a shortage of a commodity then prices tend to rise. This brings about a ramping up of production. This will always occur within a one to two year time span rarely never five years. So why would one hold commodities or equities for an extended period of time as is required by the buy and hold theorists? That's not a good strategy for me except in exceptional circumstances. LOL Looking after your money.
I guess I have always been a Contrarian, for ~40 of my 65 years anyway.
I never bought into the whole strategy of buying and forgetting an investment ( Buy and Hold ). Scares the Cra$ out of me actually. Even Mr. Buffet readjusts now and then.
Also, the buy on dips only works in a real bull market, and then works as a way to accumulate a position incrementally when you don't have the means to allocate larger sums for a particular investment. I did that many years ago when I was starting out.
Later, if I felt that an investment would make money, I bit the bullet and allocated a percentage of my portfolio to invest. That was as high as 50% at times. And I bought into a rising trend-always.
Getting out is the hard part. I again watch the trend. when it is against the investment, I sell.
I now use Options in my trading to capture big moves, or avoid them if the move is against me.
Sorry this is a bit off topic but I wanted to know if Marketclub has any plans for the future to include LSE listed stocks?
The reason I ask is that being a UK citizen I am one of many thousands who like to trade/invest inside a stocks and shares ISA (Individual Savings Account). This is a UK tax sheltered account whereby an individual is allowed to salt away £7500 p.a for stock investing and the gains are not subject to capital gains tax as long as the stocks are held in the plan. The scheme has been running for approximatley 12 years that I know of and a married couple that has been salting away £14500 p.a would have a fund valued at £174,000 (without accounting for gains). This allowance is increasing to £10,500 for the over 50's next month and for everyone in April next year. The rules allow the inclusion of stocks listed on any major stock exchange worldwide. However, there are only a few stockbrokers in the UK that are registered plan managers that offers dealing (albeit on a limited basis - telephone only, no stop or limit orders)on foreign stock exchanges. Also the service level and the commission charges of these brokers leaves a lot to be desired. I would ideally like to set up a brokerage account with a US broker (e.g. Tradestation, Interactive Brokers or Thinkorswim) but that is not possibe as they need to be a registered plan manager with the UK tax authorities (for regulatory reasons).
Obviously commission costs are much lower to trade on the LSE for UK citizens, there is a wider choice of brokerages, it is possible to trade with DMA with stop and limit orders and currency risk is not an issue.
Looking forward to a reply.
Regards
Rob
Robert,
Thank you for your feedback. It is always nice to hear from our UK friends.
Now for the good news, we do expect to be carrying the LSE sometime in the near future.
We also have some great new features that will be rolling out to MarketClub members in the very near future.
Once again, thank you for your feedback.
Adam
Thanks for the reply Adam, that's good news for UK peeps.
I forgot to mention that many of us here in the UK also have IRA(ROTH)equivalents i.e. SIPPs (self invested personal pension plans) I manage my own retirement funds in one of these myself. Same CGT exemption applies and also to dividends too, futures, forex and some derivatives are allowed to be traded and with leverage to boot. These being tax sheltered retirement vehicles the contribution limits are much more generous than the aforementioned ISA plans. Currently SIPP holders can contribute up to the value of their annual salary (net profits for self employed) each year and gain tax allowance against those contributions.
I don't think you'll regret adding LSE listed stocks once the word gets out. Now, imagine if you had requests to add the Shanghai Composite 🙂
All the best.
Robin
Robin,
One step at a time.
Thanks
Adam
Very good.
ATB
Robin
Charles,
A great reply. Most of my big losers have come from trying to predict the reversal or turning point. It appears to be more profitable on a regular bases to confirm the reversal prior to placing your bet. I think this is the theory behind the "delayed" trade triangles. I can always spot the turn prior to the "daily" triangle but I presume the formula for the triangles includes a confirmation component.
Yogi Berra, that famous baseball player turned "economist" once said, "It's tough to make predictions, especially about the future."
Buy and hold has become Buy and hold and PRAY. No one can predict or guess what the markets will do on a continuing basis. It just seems smarter to just follow the trend of the markets.
What is trend following? The first part of the term is "trend". Every trader needs a trend to make money. If you think about it, no matter what the technique, if there is not a trend after you buy, you will not be able to sell at higher prices. The second part of the term is "following." We use this word because trend followers wait for the trend to shift first, then they "follow" it.
Charles Maley
Though your point is well-taken, when the next REAL bull market begins, I predict buy and hold will be the thing to do for a couple of years, at least.