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trading vs holding

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DR_1
Super Contributor
looking back at AGL from the recession, it dropped to 144, i bought in at 170, sold at 190, then bought in mittal, and held on for a while...and then came KIO fiasco. Lost a decent packet. Begs the question - how many have made more money since the recession by trading vs buying and holding
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6 REPLIES 6
res
Occasional Contributor
I Bought AGL at 195 in Feb 2009 and have had a 100% gain. Plan on holding for the longer term. Buy and hold works for me.
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THRESHOLD
Super Contributor
Swung property into ANGLO at R150 Sold at R200 Bought at R160 Sold at R280 Bought at R260 Sold at R300 AND Now I've been left behind. The net effect - after TAX - I would have been way better off holding! I felt like a hero for a while though. AND it kept boredom at bay.
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DR_1
Super Contributor
Confirms what buffet has been saying.
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Not applicable
firstly, buffet would never buy anglo (he stays away from resources - although has been known to break this rule with some oil exposure). Secondly, I calculate that you can beat the tax effect if you are able to pick up a stock for 10% cheaper after you sell, providing you are using the profit proceeds to increase your holding. So Threshold, you would be way better off if you had continued trading AGL. Now, concerning timeframes - AGL's average monthly rate of change is about 15% - now assuming you are good enough to capture 70% of that - you can expect to catch an ROC of 10%. With trading costs, spread costs, holding cost and slippage, you can expect at least 3% in costs - so I really struggle to see how traders can make money holding on to a stock for less than 1 month.
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THRESHOLD
Super Contributor
That's the point - you cant' always pick a stock up cheaper than you sold it. AND there is the reluctance to "pay up" to resume your trade. The tax position is as follows: I pay full marginal tax on the total profit. This can e treated as a 40% standing cost. ie. I need to achieve this to break-even with a buy and hold scenario on a like for like basis. And one cannot reinvest ones gains in the same trade to aciehve the comnpund effect as this varies the risk of the trade. SARS will also want a meg of tax on this trade which reduces my "trading" capital. and I missed out on the dividend. Then there were the trading fees. I can tell you from experience (and granted I am probabLy a rubbish trader) my "positional" plays have WAY outperformed my trading. The ANGLO story is not over yet though and trading does keep one busy in an otherwise dreary early retirement. So perhaps I'll prove myself wrong on this one.
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Not applicable
Ja, your points are 100% spot on, and the reason I have remodelled my trading strategy. I have a post on it, but the principle is to increase my gearing slowly and steadily. I don't exit my positions. My criteria is to keep stocks, as long as a) market is still trending up and b) stock is showing a relative strength to the market. So as long as a stock is outperforming, I keep it. Once I am through my 1*R risk level, I move my stop up, and add more positions, either as a new trade in the current stock, or a new stock alltogether. Goal is to get gearing in excess of 10 times my current capital allocation.
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