Wednesday, April 8, 2009

More Investors Say Bye-Bye to Buy-and-Hold

Interesting Article, hng, for your reading pleasure.....

By JANE J. KIM

For much of the past decade, Kenneth Kimmons of Bedford, Texas, was a buy-and-hold investor. He regularly socked away money in mutual funds across his 401(k) plans, individual retirement accounts and a brokerage account.

But after watching his investments fall by about 50% last year, he started trading individual stocks and options full-time last fall. He generally buys stocks at the start of the trading day -- lately, it's been bank stocks -- and sells them a few hours later. "I just got tired of putting money away and losing it," says the 31-year-old. He says he's doubled his money since he started trading full-time.

The ups and downs of the market are prompting more retail investors to abandon buy-and-hold strategies in favor of opportunistic trading. Some want more control over their money, so they are fleeing funds and advisers -- not to mention the feelings of helplessness raised by recent months' losses. Some are attempting to recoup their losses, while others are stepping back into the markets after a recent string of stock gains and better-than-expected economic news.

Most financial advisers still believe investors should stay the course, pointing out that frequent trading can incur fees, erode returns and result in higher tax bills. But many individuals have lost faith in the long-term growth of their investments and are trying to make money off the market's volatility.

"When I was younger, I banked on the fact that, over time, stocks will go up, and that if you dollar-cost average [following a fixed schedule of purchases], you'll be fine," says Jim Catalano of Ashburn, Va., who in September rolled over money from an old 401(k) into an IRA at TradeKing, an online brokerage firm with low trading fees. "But my time horizon is getting shorter -- and when you see your 401(k) get chopped in half, I decided I needed to take the reins here and not leave it to the money managers."

Mr. Catalano trades mostly stocks and exchange-traded funds, usually four to five times a week. He writes covered-call option contracts to generate income off his shares, a tactic that could lose him some of the upside if share prices rise substantially. Since he started trading in September, he is down about 5% but has done better than the market.

At the New York Stock Exchange and Nasdaq stock exchanges, turnover levels -- a measure of how often the average share changes hands -- have been rising. At the same time, stock-fund investors sold about 33% of their holdings last year, implying a three-year average holding period, down from a four-year holding period in 2004, according to the Bogle Financial Markets Research Center.

Discount brokerage firms -- including Charles Schwab Corp., TD Ameritrade Holding Corp., E*Trade Financial Corp., ING Groep NV's Sharebuilder and Fidelity Investments -- are seeing record levels of trading activity and new-account openings. Since last September, nearly 7.5 million investors -- or 20% of the online investing community -- have increased trading volume enough to be temporarily reclassified at a higher trading level, says Matthew Bienfang, senior research director at TowerGroup.

More Investors Ramp Up Trading
More buy-and-hold investors are changing tactics. Here are some factors to consider:

Trading activity and new account openings are hitting highs as average holding periods decline.More investors are trying to take advantage of market volatility, which they expect to continue.Active trading can erode returns as investors get hit with higher trading costs and taxes."Typically in a bear market, you'll see a retraction of activity and reduction of people opening new accounts," says Jay Pestrichelli, managing director at TD Ameritrade. "This time around, somebody forgot to tell the retail client that's what happens."

Some market experts say retail investors are likely to make a bad situation even worse. "It's a fools' game," says John Bogle, the 79-year-old founder of mutual-fund giant Vanguard Group, which helped popularize index funds and the virtues of buy-and-hold investing. Not only will short-term investors pay more commissions, fees and other costs, but various studies have shown that market timers typically lose more money than buy-and-hold investors. "If you want to trade the market, you've got to be right twice -- you've got to get out and get back in," he says.

But others say things are different this time. "The problem I have with the buy-and-hold strategy is that it's a bull-market strategy," say Matthew Tuttle, a financial adviser in Stamford, Conn. "In the bust, you give all of your profits back." Mr. Tuttle has recently taken a more active approach to trading. While short-term investors are likely to face higher tax bills -- since short-term gains are taxed at higher rates than long-term gains -- he notes that some people who incurred big losses last year will be able to carry those losses forward to offset taxes in future years.

"The psychology of the market is broken," says Michael Parness, who runs Trendfund.com, which dispenses trading advice online. "People just don't trust it." As a result, many of the market's moves are "almost entirely based on whatever news is coming out of the government," he says.

The uncertain environment has prompted David Dilley of Bonita Springs, Fla., to trade more frequently. The 76-year-old retiree believes there has been a "sea change" in economic philosophy -- shifting from private enterprise to a command-and-control economy. "The long-term market gains that we've had in the past will not occur until that reverts and we get back free enterprise," he says. So, while he had considered himself a longtime buy-and-hold investor, he's now trading Canadian oil trusts in his E*Trade account several times a week. Mr. Dilley didn't provide exact numbers but says he's beating the broader market averages so far this year.

In another sign that investors are getting more speculative, the most widely held stocks in investors' accounts at discount brokerage firms Sharebuilder, TradeKing and Firstrade Securities Inc. are the same ones that are under the most pressure, including Citigroup Inc., American International Group Inc., Ford Motor Co., General Electric Co., and Bank of America Corp. By contrast, the most popular stocks a year ago were Apple Inc., Google Inc., Microsoft Corp. and the like.

"We see a lot of people trying to ride the waves of stocks with no long-term vision," says TradeKing Chief Executive Don Montanaro. "They're so low-priced -- and it's nothing for these stocks to move 40% or 50% in a week."

Sue Cirillo of Pelham Manor, N.Y., used to hold on to household names such as Apple. But last fall, she sold some of her longtime holdings, moved to cash and started trading. "The difference between now and then is that when I've made money, I take it off the table and look for the next opportunity," says the 47-year-old music producer. "Before, I was more focused on companies that I felt were going to be profitable." Now, she pays attention to daily market swings, subscribes to online advice services such as Mr. Parness's for trading ideas, and has recently learned to short stocks.

Mark Swenson of southern New Hampshire says he typically trades with exchange-traded funds, instead of buying individual stocks. The 40-year-old says he started trading for the first time last October, in part to generate additional income in case his work as a plumber dried up. Although he says he got "slaughtered" when he first started trading, he says that he has since made up much of that initial loss and that it's easier for him to trade than do nothing.

"I could no longer stomach it -- watching my money disappear," he says. "For right now, it's a traders' market. Until I get the sense that the market is on the rise, I generally don't plan on doing any buying and holding -- not for the long term."

Others got tired of paying their advisers. Last June, Linda Smith of Denver fired her broker, saying it was a waste of money to pay her adviser 1.5% in annual fees for picking mutual funds she believed she could pick herself. "No one on this planet knows better what to do with my finances than me," says the 53-year-old.

For the year, she figures her portfolio is up about 5%, including the interest from her CDs. "Nobody can time the market 100% correctly 100% of the time," she says. "However, that doesn't mean you can't get lucky now and then."

37 comments:

Anonymous said...

Nobody is responsible for our hard-earn money, except ourself. We can take full control if we equip with all necessary knoweldge in financial market and gather all expericence either loss or gain. Do research and post-mortum on each transaction, to avoid mistake and repeat success. Its not whether you make right or wrong decision in stock investment that important, but how much profit you make when your decision is right and how much you lose when decision wrong.

I belive one should stay in the market full time in order to take whatever oppurtunity and capitalize on upside momentum. Missing few days market rally, may end up nothing if market turn south again.

As mention before, recent market rebound may be just bear-rally and shortlived. A lot of driving momentum are derive from feel-good sentiment and believe that everthing will turnaround soon. With increasing global layoff, job security may under threat resulting depression in consumer spending. As long as root of cause doest not pacify, financial market will contiune its volatility. Thus, buy and hold no longer applicable and one should opt for strategy sell on strength and buy on weakness to better suit current situation

Anonymous said...

Sold off all remaining Crestbuilder at 51-51.5sen, CNI at 20sen.

Anonymous said...

Market downward accelerated toward the end, closed down more than 1%.

Portfolio value relatively unchanged as most of capital (80%)was use to buy TM today at 3.58. Still need to wait for announcement of its dividend and cap repay which will serve as catalyst for price to regain momentum.

ccdev said...

hng,

have been following your blog for awhile. impressed by your trading skills and logic. care to share what tactic u use as you jump in/out quite frequently. like what kind of buy signal/ sell signal do you look at, would like to learn a bit of stuff from you. have you ever written anything on your trading philosophy?

Anonymous said...

Most of my trading philosophy are derive from Warrent Buffett (value buy) + George Soros (trading buy). After make necessary adaptation that ended up with a trading style which suit my own personality, abilities, knowledge, objective and experience. I've develop own personal system for selecting, buying and selling stock, with calculated risk to increase odd to win Mr. Market.

Due to past experience, i'll always sell stock before it reach target price, to lock in profit as soon as possible. Thus, a lot of time could not maximise potential profit. However, net profit can be mitigated with high volume of stock purchase.

Anonymous said...

Market soar, up 14pts, leading by blue-chip.

Still waiting for TM to pick up momentum. Now, q to sell at 3.64-3.66

Anonymous said...

Najib announce Cabinet line-up. The new Cabinet is leaner, being downsized to 28 ministers from the previous 32. There are now 25 Ministries compared to 27 previously. MCA retain 4 minister, while Gerakan receive one full minister.

Anonymous said...

Sold partial classic scenic at 33sen, realize T+2 profit.

Anonymous said...

Market soar more than 1%. Just sold half of TM at 3.64, q another half at 3.66.

Bought back csenic at 31.5sen

Anonymous said...

Sold off all MFCB at 75sen

horse said...

Market up 1.5%. TM has hardly move as yet. STill havoring between 3.58 - 3.62. Would likely need to wait for it annoucement to give a boos.
Remain very positive to TM.

horse said...

If volume can surpass 1b today, come Monday will have another leap... :)
hng, laughing all d way to Bank...by then..

Anonymous said...

market surge 16pts, sentiment very bullish now. The problem is whether is it real bull or not!

Nevertheless, I'll still strictly follow strategy: sell on strength and buy on weakness.

However, no many stock left in my portfolio: cscenic (12%) and other small holder: wthourse, KSL and melati, which all consitute about 15% of total portfolio, while TM (40%) now is q to sell at 3.66. If materialize, portfolio again will flush with cash capital of 85%.

horse said...

Very likely u will get hit at 3.66 for TM today, i'm still patiently waiting not making any move as yet. Hoping that today's vol can hit 1b...

Anonymous said...

Today is good friday, Asia market STI and HangSeng closed, and Europe as well as US will also close for trading today. It is possible, Bursa may lack of lead on Monday and worry about overbought may drag down market again.

Just manage to sold small volume of TM at 3.66, will q again in the afternoon session. If sign of correction set in, i'll probably sell all TM at 3.64 to realize all profit before market close.

Anonymous said...

Invest TM in big volume (75-80% capital invested) indeed give my capital a very big boost. After this round of trading, TM already generate 3 round of porfit to portfolio.

However, TM still have upside potential with target price of 3.80-4.00 after announcemnt of its dividend and cpaital repay. Therefore, a lot of capital still reserve to buy TM on its weakness.

Anonymous said...

Decided to sell off all remaining TM at 3.64 to take contra profit first. But q to buyback TM at 3.58-3.60.

horse said...

wow, its 1b vol....i bet Monday to take another leap again. Keep finger cross.
So, u r free from TM now...if it retreat to 3.6 you load up again. perfectly run into your strategy if TM does fall to 3.6 again. good trade friend.

Anonymous said...

Market close near to its highest, up ,more than 22pts. TM close at 3.64, unable to buyback.

Sold all remainig KSL at 63-63.5sen, sold also this morning Csenic at 32.5-33sen for intraday gain.

Portfolio now almost 86% is cash capital, ready for next bargain hunting next week, if stock on weakness.

Alternatively, stay out of market a while as portfolio already generate nearly 3 month targeted profit in just one week time! So can afford to stop trading and adopt wait and see approach.

Anonymous said...

Hourse, you have been no active in trading quite a while. What is your stock portfolio? What is your current percentage of stock holding in turn of total capital? Are you fully invested already.

I think most of your stock must be up subtantially, and yet still waiting for higher target price. Hopefully, everyone will be happy in current uptrend market.

horse said...

frankly, as u know i'm just a parttimer, sometime just can't have time to monitor d mkt. most of my stocks are longterm keeping and meanly for div yield. i lose out in term of daytrading like u. many time when im free looking at d mkt, i've lost the opportunity buying it.
My stock holding is about 60% against my capital. Most of the stocks have been keeping for ages (some more than 10 years) and only concentrade on bluechip & div yielding stock. Many of these stocks are not cheap, a small qty of them will almost cost all my capital. i'm still building up my portfolio and perform some daytrade like u but only for small some.
YOur result of trading is indeed superb, i really admire that but still i cant afford to do so like u unless i'm fully involve in tis as my rice bowl. I'm have been constantly getting a return of around 12% pa for many years, i consider tat is good already.

horse said...

my return consider realistic n achievable, i guess everyone can do tat without problem. As for u, i presume u can easily does tat without raising a sweat. Likel u say protect capital is upmost importatnt while trading stock. Only with capital then one won't lose out of seizing the opportunity. Many of the ppl i know they brag how much they make but they never reveal thier losses. One of my friend claim he makes 100K 2 years ago but what he did not reveal is tat he lost 200K tis round n is the personal sharing by his wife when we met.
Need to go BF, will come back n update more on my story...

horse said...

am back lets cont... have i spoken to u b4 tat i make 100k during bullrun n just to lose it when bear come ? i lose even more > 100k when bear trap me bcoz i was more daring n punting even heavier than i used to be just bcoz easy money was make b4 n greed on my side, i tot i will repeat d same windfall again with even more $$ flowing in yet i got bash up badly. Many of my speculative stocks fall under PN4, delisted and i lost it totally and a heavy one. It was a paintful lesson, i stop trading for almost 3-4 years after that, licking my wound. Now i switch, my strategy change, i convince myself to come back here and have clear mind that only want to make slightly more than FD rate, then i will be more than happy. Thus, i buy only BlueChip & div yielding stocks. Today here i'm come back in trading back in year 2002....making around average 12%pa....may slowly gaining momentum of surpassing this figure, will reassess again by end this year.

Anonymous said...

My previous investment style was highly speculative strategy in nature, only concentrate on warrat, high beta stock and small cap.

I've same experience, lose almost all my fortune by investing in warrant alone, due to its high leverage and big margin spread. I lose all becos the warrant expire and price become worthless, due to share price fall below exercise price.

That expericence almost send me into deep depression and quit market and decided went to Singaprore and work...

Nevertheless, my passion toward stock investment still very much intact, after approach various kind of investment book and learn seriously on how, why, what..technical, fundamental, tactic, strategy, investment plan..., i decided to come back and get whatever i lose in the market.

Anonymous said...

TM officially announce its final dividend of 14.25sen

This morning decided to buyback all TM at 3.62. TM in Portfolio go back to 80%. The reason is simple, invest in TM give almost 4% yield return in a month, plus possibilits announce cap repay by end of this month. My strategy now is buy high, sell higher.

ccdev said...

hng,

thanks. you also kena warrant b4, yeah, me too, damn pain man. also, why do u say TM give 4% yield a month when the price would adjust after ex-div, hence not really change in value?

horse, you can get 12% p.a. is pretty good and consistent. at least i think so.

horse said...

thanks ccdev, i think earning 12% is no big deal but consistency is definitely tougher when dealing with shares investment. I believe u can easily did tat as well...most ppl lack of is controlling the greed well within them. d more sweetening u get in d first taste, d more it controlling u and rendering u to bet more. just like gambling.

BTW, Mind to share with us what stocks r u eyeing?

Anonymous said...

ccdev,

The yield refer to return of dividend over current share price before ex-date in month time. If one buy now and keep share for at least a yr, due to recurring dividend payout, the yield will be current 14.25sen + 12sen (interim) + 14.25sen (final) = 40.5sen (11%), provided TM stick to similar dividend payout. Managment of TM already committed to pay at least 700m or 90% of its net profit as dividend split into interim and final payout.

Stock tend react positively when there is dividend payout, especially toward the end of entitle date, which push share higher to reflect underlying dividend before the ex-date. Another factor is In addition, TM also due to declare capital repayment by end of this month.

ccdev said...

horse,

at the moment, i am out of the market already. i know maybe can go more but scared to die so i will wait for retracement first even tho today the 3rd liner also go up somemore. Previous, was holding thgroup (60% of my exposure) for months waiting for the takeover. other than that, held a bit of airasia and muhibbah but sold already. even then, only cuki rat makan, miss the airasia move today. i am definite not in your class or hng's. impressed to see hng play so many stocks, don't know how he do but bet he must have special skill can keep track of so many counter.

Anonymous said...

ccdev

I don't have special skill other than technical, fundamental analysis on stock that i intend to trade and set entry and exit price as investment plan. Another factor is probably i'm full time trader, perform stock trading is my routine job and derive profit for living and compounded retain earning every month.

Anonymous said...

Tomorrow is the first offer bond simpanan rakyat (sukuk saving bond) with each citizen age above 21, limited to 50k. The return is 5% and mature in 3yr, payout every quarter and return is tax exampted.

As part of diversification, one should put aside at least 20% assest as reserve either save in FD with just 3% interest, or alternatively, bond rakyat, which should be ideal to increase return.

Anonymous said...

Just manage to apply bond simpanan rakyat this morning. The offer is base on first come first serve.

Market surge another 1%, sentiment very bullish, and broad base. I think all people seem believe we are in the midst of bottom rebound. Those in the sideline can't resist market rally and all ready to jump!

horse said...

bond simpanan rakyat giving only 5% fixed ? in that case Amanah Saham Malaysia is better, this year giving out 6.25%.
vol still relatively high, short term upside still intact.

Anonymous said...

Bond simpanan rakyat and ASM, ASN, Wawasan 2020 etc are different category. One is invest in bond with fixed cuopon rate, payable quaterly, later is equity fund, invest mainly in stock market.

Bond yield should compared againt FD, while equity fund to KLCI, or personal stock return.

In the personal finance management, one should diversify their assest into different independent class, namely fixed income, stock and property etc. This degree of asset allocation depend on individual age and risk profile.

Anonymous said...

Wow! market surge 12pts, surpass major resistant 950, closed at 953.7.

TM closed up 4sen, at 3.66. Although a bit slow, but steady gaining momentum. This time will patiently wait for all catalyst to come up, with target selling price at 3.80-4.00 (margin at 5-10%).

horse said...

I'M targeting the same range as well for TM. lets hope for d best.
Vol again very high, likely to gain momentum....
US stocks open lower....

Unknown said...

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Regards,
William Roberts

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