3 ms·

Buy and hold is only a good strategy if you have a diverse portfolio. The goal of the strategy is then to keep the value of your assets, and maybe make a nice p

by tinco 10y ago

Buy and hold is only a good strategy if you have a diverse portfolio. The goal of the strategy is then to keep the value of your assets, and maybe make a nice percentage associated with growing economies. If you are operating however with an edge on the market, that is to say you have knowledge you think some percentage of the market does not have. For example you profoundly believe that Bitcoin will increase in value, as the author of the article does. In that case, buy and hold is only a mediocre strategy. At most you will make whatever the percentage is that the asset will grow. If instead you make use of the idea that between now and the mystical future bitcoin value increase, it will go both up and down, you can come up with strategies that make you more money than that value increase. I think it's possible to come up with a strategy that are guaranteed to make you more money, based solely off those two assumptions "Eventually it will increase" and "there will be fluctuations". Some simple ones I've come up with I think come close to it, but I've never dared to execute any of them. I wonder if there's people here who have.

nemo44x 10y ago
It would appear that in this instance his strategy of trading the asset numerous times over the years has led to significantly less yield than if he would have bought and held. If you have an edge on the market there's a good chance you're either breaking the law or deluding yourself. Not that some people haven't found legal edges and made vast fortunes from them - sophisticated mathematicians have for instance. But there's many more who confused dumb luck for alpha and ended up underperforming the market or broke over time. You're right though - buy and hold is generally best applied to a diverse set of assets. If you're making direct plays on companies and have little ability to influence the board and leadership then that's a lot of unhedged risk. Warren Buffet's advice is often confused with making directional stock plays. He buys enough to get board seats and can influence the direction of the company and has a track record of doing this well. Regular people will never have enough of a bankroll to qualify for a board seat or have influence on the management. And yes, many day traders and swing traders have some strategies based on short term changes in an asset but taxes are the killer. Short term capital gains are taxed the same as labor but with considerably more risk.

by tinco 10y ago

nemo44x 10y ago

It would appear that in this instance his strategy of trading the asset numerous times over the years has led to significantly less yield than if he would have bought and held. If you have an edge on the market there's a good chance you're either breaking the law or deluding yourself. Not that some people haven't found legal edges and made vast fortunes from them - sophisticated mathematicians have for instance. But there's many more who confused dumb luck for alpha and ended up underperforming the market or broke over time. You're right though - buy and hold is generally best applied to a diverse set of assets. If you're making direct plays on companies and have little ability to influence the board and leadership then that's a lot of unhedged risk. Warren Buffet's advice is often confused with making directional stock plays. He buys enough to get board seats and can influence the direction of the company and has a track record of doing this well. Regular people will never have enough of a bankroll to qualify for a board seat or have influence on the management. And yes, many day traders and swing traders have some strategies based on short term changes in an asset but taxes are the killer. Short term capital gains are taxed the same as labor but with considerably more risk.