The Power of Holding
You’ll often see Popular Investors (myself included) touting the benefits of holding i.e. buy and then keeping you positions in stocks, cryptos, PIs etc. open for weeks or even months.
It is true that the PI benefits if you hold your copy, but it is also significantly better for you (as long as you’ve done your research on that PI) too. Let’s ignore PIs for now and look at “normal” trading.
Trading Frequently — don’t try this at home
There is an adage “90% of traders lose 90% of their money in 90 days” — I cannot vouch for the accuracy of this statement but it’s easy to imagine it being true. Quite often new traders expect to make a lot of money very quickly, and are disappointed by the truth i.e. trading and investing are life-long activities. These people either then quit, or take enormous risks that quickly reduce their capital to nothing. Part of their risky behaviour lies in jumping from stock to stock very quickly e.g.
- Buy AAPL, paying spread and potentially fees — “Oh no it’s down 0.5%, but GOOG is up 1%. I’m going to move my money there” — pay another spread.
- Next day GOOG is down 0.5% — “$h1t, now AAPL is up 3%, better jump back” — pay another spread.
- Next day EtherCoin is up 40% — “Wow, better move my money there quickly!” — another spread, and then EtherCoin collapses.
Doing this a few times quickly eats away at your funds due to fees, but you also don’t realise the potential benefit of your investments because you don’t hold them for long enough.
HODL and ignore FOMO
Let’s look at some lovely stats on different instruments to see how holding works out in the long run.
Microsoft, a good stock but not known as a massive “growth stock”
Price range from 19 November 2012–14 November 2017: $27.70 — $84.05
Return from holding: 203%
Gold, who doesn’t love Gold
Price range from 12 November 2012–15 November 2017: $1713.50 — $1282.05
Uh-oh, return from holding: -25%, but over a 10-year period: 48.9%
Wesl3y eToro Copy Fund
I can’t do a price range comparison here, but below are the equivalent stats.
Returns for the Oct 2017: 13.99%
Returns from May — Oct 2017: 40%+
Returns from Nov 2015 — Nov 2017: 560%+
S&P 500
There have been several monumental market crashes since 1970, but how would you have done if you just held through all of them?
Return from 1970–2017 (including dividends): 10,000%+ (not too bad right?)
The End, or is it?
In summary, is the ultimate strategy simply to hold? It can be boring, and it can be terrifying but perhaps that is the ultimate trading secret. Or maybe it’s not that it’s a secret but incredibly difficult to do? I’ll let you decide.
