The stockmarket has been like an 18 year old on viagra over the last few weeks, but it can present a dilemna over whether to sell on your short term gains or hold for the bigger gains to follow over the years. Lets see if this piece can help you out.I made some share purchases last Wednesday, The Warehouse Group [WHS.NZ] and Mainfreight Ltd [MFT.NZ] and two on July 6, Auckland International Airport [AIA.NZ] and Michael Hill International [MHI.NZ]
I also participated in 3 capital raisings (1 2 3) covering off Sky City Entertainment Group[SKC.NZ], Freightways Ltd [FRE.NZ] and Fletcher Building [FBU.NZ] which gave me extra shares mid June to add to the Share Investor Portfolio.
I have done particularly well with short term gains in all of these purchases as the local sharemarket has had a lazarous type recovery over the last few weeks.
At close of market today here have been my returns for these purchases over the last 4-6 weeks.
1. The Warehouse Group $1600.00 - 6.2%
2. Mainfreight Ltd $487.50 - 6.1%
3. Auckland Airport $440.00 - 14%
4. Sky City $1200.00 - 24%
5. Freightways $310.32 - 29%
6. Fletcher Building $225.66 - 37%
7. Michael Hill $350.00 - 8.5%
By any stretch of the imagination a $4613.48 or a 17.82 % average return for the last 6 weeks is pretty good, especially the $2000 plus return in the last week for my two recent purchases.
So why don't I sell?
Well, I think I can make more in the long term by simply holding good companies and collecting the dividends and tax credits along the way. One comment to a recent post reckons my buy and hold strategy is flawed and he can make more money getting in and out of shares quickly.
That maybe right, in fact I may have done it once or twice myself in my investing career, but if you do it intentionally you open yourself up to getting your trading profits taxed and I don't want to enter that level of investing, not just now anyway.
As you will see in my 10 editions of the Long VS Short series, the long term wins in the return stakes and it might also be worth noting that the resurgence of the market has also increased the value of the long-term Share Investor Portfolio by more than $40000.00 in less than a month.
But anything can happen when Mr Market has his crazy mood swings and the portfolio could lose all that in the next few weeks or few days for that matter.
Long vs Short Series
Fletcher Building Ltd
Ryman Healthcare Ltd
Michael Hill International
Auckland International Airport
Freightways Ltd
Pumpkin Patch Ltd
Fisher & Paykel Healthcare
Mainfreight Ltd
The Warehouse Group
Sky City Entertainment
Related Amazon Reading
Investing for the Long-Term (Market Strategies) by Robert Linggard
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The Complete Guide to Investing in Short Term Trading: How to Earn High Rates of Returns Safely by Alan Northcott
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c Share Investor 2009
I would like to correct you, I never stated that your buy and hold strategy is flawed, I mentioned that your conclusion of your study was flawed.
ReplyDeleteYou have picked two completely arbitrary dates and compared them. This is not a fair comparison of long versus short. In fact it is rather nonsensical to have picked 1 year and 10 years exactly to have the comparison considering the strong downward trending bias of the last year and the strong upward trending boas of the previous 6 years.
As a value investor you should not be selling based on your price gains, but rather based on whether the market price of the company meets your calculated value of the company. If the current price still undervalues the company why would you sell?
As a short term trend trader, I have been known to ride ternds in mining and biotech stocks for years and hundreds of percent returns, so I am not a short term trader, but I will take my money off the table if either the stock is overpriced or the trend reverses.
You major fault has been to not take your gains when the industry fundamentals changed in 2007. The stock prices of companies at the top of the market in 2007 must surely have been trading over your intrinsic value calculations at the time. Which should have been your signal to sell.
Tax issues are of course another topic altogether, and I will not discuss them here.
I beg your pardon for misstating what you said then but as I said I believe my study, while arbitrary actually proves my point of the superiority of long VS short-term investing.
ReplyDeleteIt isn't flawed, but we will never agree on that.
I must say that selling just because share prices went up over fundamental value over the last few years doesn't wash with me either, but if you are going to sell clearly that is a great time.
I intend to hold for a very long time, for that is when the best returns are made on the stockmarket.
I would never point out any faults that your investment approach might take because it clearly works for you and I would never dare tell someone what might be best for them.
By the way would you be interested in writing a few guest pieces on short term investing while I am away for a month or so?
First, I wish I had the time post more, you can tell by my blog I am just not dedicated enough. Second, my spell checking skills are shocking, and I should not be allowed near an editor in normal circumstances. I typically trade more liquid markets, so I have little to say about the NZ markets, which is why I read your blog. I only follow a few NZ stocks which I find interesting. However if I feel the need or desire to write something, I will be sure to forward it to you for posting. Thanks.
ReplyDeleteI still think the study is flawed, however we are not in complete disagreement. I have some stocks I hope never to sell. However as soon as there is a change in the fundamentals of the business or industry, the intrinsic value of the company must be revalued and if something has materially changed then the stock possibly sold (e.g. demographics, generational changes). If a stock is consistently under priced in the market based on it fundamentals (cashflow, book, earnings growth), then I see no reason to not hold it forever.
Every system has faults, and short term swing/trend trading has many such as whipsaws, high commission charges, etc. Also the biggest problem where short term traders tend to miss many of the really big moves in the stocks.
I am pretty much with whatever works for the individual, in terms of investing, is the right thing to do, short/long, stocks/property whatever.
ReplyDeleteWhat the long term investing approach accentuates is though is the ability of the investor to pick companies that will be good for the long term/never sell and that is the main determiner of future success along with the price paid in the first place of course.
That is particularly hard in NZ but I believe I have picked reasonably well, for my own reasons, stated in this blog and not stated.
I would love to have a full written up analysis of your approach to balance things up because this sort of discussion helps others to chose what might be good for them.
I use spell check on a regular basis, it comes with your blog SB:)