I have a question

KennyGStocks said: "Hi I'm a reader of these forums and a first time poster. I'm a college student that has been studying and practicing stocks and stock options for about 6 months now and something keeps popping up when I'm reading articles. Most writers say that you can't beat the market and that if it's fun for you then give it a try. They say that the market can't be beat over the long term and you should just buy and hold on to stocks. I've always adopted the motto of 'Don't tell me what I can't do'. My questions is why am I seeing this everywhere, is there truth to this statement? I find this very hard to believe if you are very well disciplined with strategy and homework. Thanks for any replies and I'm happy to be part of the community, Kenny"

cwms said: "Ask Warren Buffet, the king of "buy and hold" and also one of the wealthiest men on this planet."

KennyGStocks said: "So I buy and hold and hope that the stock goes up in ten years? I buy and hold even when horrible news comes out about the company or their fundamentals become shifty? Because as the market shows, all stocks go up over time. Am I getting this right? Because if I sell the stock that has had bad news or bad fundamentals a few years later, that wouldn't be buy and hold. I understand Warren Buffet's strategies such as put all your eggs in one basket, just take really good care of those eggs. This would be buy and homework in this case. I just don't see how I could agree with buy and hold over the long run."

Raharu Haruha said: "The hardest part is knowing when to sell."

cwms said: "Why do you say that he puts all his eggs in one basket? He owns a variety of companies."

KennyGStocks said: "I didn't say he does that now...but he has said in the past that as long as you pay close attention to the company you can throw all your eggs in one basket. I need to find that again to show you guys. Thanks, Kenny"

prohobo said: "You should NEVER try to beat the market - you should try to make money IN the market. That saying comes from single directional shot taking. I have been doing this for over 20 years (on the professional side). I have not HAD a pay check since 1991 - only living off what I make in the market. Yeah - you can make money. However - you NEED to decide if you are an INVESTOR or TRADER - and there is a BIG diffference between the too. I have been a trader by trade (member of the NYSE and CBOE) - I am also an investor. But I don't pay my bills with my investments. My INCOME is generated by TRADING. If you are interested in KNOWING more about it - let me now and send me a PM. I will try to respond when I can. I lurk on this site because I was directed here by someone. However - I usually do NOT spend any time on message boards - except implode-explode. I have a couple of friends that post on there - but it is mostly the mortgage market - and there are MANY real-estate agents, mortgage brokers, and real estate investors on there - so I like to check it out to get a FEEL of what they are experiencing. I also post a morning pre-market email - I have been posting it to a blog for archiving. You may find it useful. - see sig for link. Don't try to BEAT the market - just particiapate."

KennyGStocks said: "Thank you prohobo that was very helpful. I think I like your style, generating income from trading and investing for the long term. I know there are huge differences between the two and I'll start learning everything I can about trying to adopt this strategy. Thanks again for the reply and the outlook, Kenny"

Fx247org said: "When to sell,this is a questions."

Harry said: "[QUOTE=cwms;68901]Ask Warren Buffet, the king of "buy and hold" and also one of the wealthiest men on this planet.[/QUOTE] Buffet and others like him are enigmas. Stocks go up when their names are attached to them. It's hard to follow Buffet as an example of trading or investing anymore more because he's moving more money than God. Plus having his own name attached guarentees growth."

bjohn13 said: "the one thing to keep in mind is that it is very rare for traders to make money long term. Yes, there are traders out there who have a knack, but study after study says that long term buy-and-hold investors make more money. The biggest reason is because traders tend to get hurt more by paying commissions and higher tax rates on equities held for less than a year. In order to get past these obstacles, you need to be able to move a lot of money at one time. But keep in mind that this doesn't mean that you can never sell. In fact, the most important part of investing is knowing when to sell. Just last night, for instance, I was looking through my portfolio and decided that it was time to sell a couple of my long held equities. To me, the most important, and the most fun, part of investing is keeping tabs of the companies I have invested with while making continual decisions about them. One thing to keep in mind, though, is that when you get to a point where a stock you paid $10 a share for increases to $50 a share over a period of time, the 5% dividend is actually a 25% return on your initial investment. It's difficult to give something like that up."

prohobo said: "[QUOTE=Fx247org;68971]When to sell,this is a questions.[/QUOTE] Rule: for trading If you do NOT have a sell price (or buy for shorts) before entering in the position - you should NOT be in the trade. Same does NOT hold true for investing."

prohobo said: "[QUOTE=Harry;68974]Buffet and others like him are enigmas. Stocks go up when their names are attached to them. It's hard to follow Buffet as an example of trading or investing anymore more because he's moving more money than God. Plus having his own name attached guarentees growth.[/QUOTE] I actually disagree. I know many like Buffet - investors. They do have something what I like to call "CLEAR VISION" they avoid the fluff, are not swaded by news stories, and make long-term decisions based on a very simple yet CLEAR hypothosis."

prohobo said: "[QUOTE=bjohn13;68976]the one thing to keep in mind is that it is very rare for traders to make money long term. Yes, there are traders out there who have a knack, but study after study says that long term buy-and-hold investors make more money. The biggest reason is because traders tend to get hurt more by paying commissions and higher tax rates on equities held for less than a year. In order to get past these obstacles, you need to be able to move a lot of money at one time. But keep in mind that this doesn't mean that you can never sell. In fact, the most important part of investing is knowing when to sell. Just last night, for instance, I was looking through my portfolio and decided that it was time to sell a couple of my long held equities. To me, the most important, and the most fun, part of investing is keeping tabs of the companies I have invested with while making continual decisions about them. One thing to keep in mind, though, is that when you get to a point where a stock you paid $10 a share for increases to $50 a share over a period of time, the 5% dividend is actually a 25% return on your initial investment. It's difficult to give something like that up.[/QUOTE] VERY TRUE. The introduction of online-trading in the late 90s turned retail investors into traders over night. They failed to understand this is a BUSINESS not a hobby. Commissions, taxes, and other costs of business must be taken into consideration. Additionally - our firms trading could NEVER be done in a retail account with the expectations of the kind of returns we make. We have special margins (haircut), mix-straddle tax elections, very low clearing and commissions, special interest rates. If we moved into the Reg-T side of the business - we would be out of business by years end. I have been doing this (on the the none retail side) for over 20 years - I don't know how I would be able to do this in the retail world. It is just too cost prohibitive. Additionally - we do not "trade" in what you would think trading is like. We mostly trade arbitrage, mix baskets, etc. We don't pick stocks or direction. We look for "edge" and our systems 80% are traded by computers. There is no way we could do this by clicking the mouse. As a floor-trader - all we did was hedge and capture edge. It was like being a sports book maker. Never directional - except with soft-deltas. We just could not risk getting long a stock and "hope" it goes up."

bjohn13 said: "[QUOTE=prohobo;68992]Rule: for trading If you do NOT have a sell price (or buy for shorts) before entering in the position - you should NOT be in the trade. Same does NOT hold true for investing.[/QUOTE] I like this post. I'm constantly hearing people say that I need to have a sell price before I buy. I have always disagreed, but I think the essense is that I am an investor....not a trader. I decide when to sell based on a stock's value combined with the return it is currently providing."

prohobo said: "[QUOTE=bjohn13;69043]I like this post. I'm constantly hearing people say that I need to have a sell price before I buy. I have always disagreed, but I think the essense is that I am an investor....not a trader. I decide when to sell based on a stock's value combined with the return it is currently providing.[/QUOTE] Bjohn....very good observation. There is a HUGE difference between TRADING and INVESTING. Trading is about capturing REALIZED gains in a specified period of time. You need to pay the bills with trading. Investing can be based on a variety of things from capital utilization, inflation, returns, dividends, etc. Trading is a lot more focused and therefore risk and returns needs to be managed very tightly. Usually in trading you are leveraged, unlike typical investing. I think many retail folks fail to understand the differnce and try to mix the two - and when that happens - OUCH!"

Heather said: "You're right. Investing and trading aren't the same at all. Trading takes a lot more attention to the markets on a daily basis.."

StockHunter said: "[QUOTE=bjohn13;68976]the one thing to keep in mind is that it is very rare for traders to make money long term. Yes, there are traders out there who have a knack, but study after study says that long term buy-and-hold investors make more money. The biggest reason is because traders tend to get hurt more by paying commissions and higher tax rates on equities held for less than a year....[/QUOTE] The studies do show that, but what they don't tell you is the real reasons as to why: Most people try to be a trader part-time while still holding on to their "dayjob". This is probably the #1 reason why most traders don't make money (or as much as long term investors). This is also the reason why most advisors tell you to "buy and hold for the long term." The other reason most people don't do well trading is becasue you must have control of your emotions and not let them affect your trading. This is [b]VERY[/b] hard to do, and I have never meet someone who is fully in control of his emotions. Even successful traders have times where they let emotion affect them. And then their is the lesser issues of trading capital, taxes, and commissions."

prohobo said: "[QUOTE=StockHunter;69067]The studies do show that, but what they don't tell you is the real reasons as to why: Most people try to be a trader part-time while still holding on to their "dayjob". This is probably the #1 reason why most traders don't make money (or as much as long term investors). This is also the reason why most advisors tell you to "buy and hold for the long term." The other reason most people don't do well trading is becasue you must have control of your emotions and not let them affect your trading. This is [b]VERY[/b] hard to do, and I have never meet someone who is fully in control of his emotions. Even successful traders have times where they let emotion affect them. And then their is the lesser issues of trading capital, taxes, and commissions.[/QUOTE] Emotions are NOT part of a successful trading operation. That is why you have a Risk Manager and Computer systems that keep trading the math and not your emotions. There is NO WAY we could continue to make money year-after-year if we traded on our own without oversight and risk systems in place. Again we are trading not investing. BIG DIFFERENCE!"

StockHunter said: "[QUOTE=prohobo;69087]Emotions are NOT part of a successful trading operation. That is why you have a Risk Manager and Computer systems that keep trading the math and not your emotions. There is NO WAY we could continue to make money year-after-year if we traded on our own without oversight and risk systems in place. Again we are trading not investing. BIG DIFFERENCE![/QUOTE] Uh yeah, I said the same thing in a different way lol. :respect:"

bjohn13 said: "I think emotions play just as big of a role in investing, to be honest."

tomtat1 said: "[QUOTE=KennyGStocks;68899]Hi I'm a reader of these forums and a first time poster. I'm a college student that has been studying and practicing stocks and stock options for about 6 months now and something keeps popping up when I'm reading articles. Most writers say that you can't beat the market and that if it's fun for you then give it a try. They say that the market can't be beat over the long term and you should just buy and hold on to stocks. I've always adopted the motto of 'Don't tell me what I can't do'. My questions is why am I seeing this everywhere, is there truth to this statement? I find this very hard to believe if you are very well disciplined with strategy and homework. Thanks for any replies and I'm happy to be part of the community, Kenny[/QUOTE] There are several reasons for everyone saying you can't beat the market, a lot of them self serving because the pitch is basically you can't, so give it to us and let us try (For managed Funds), or you can't, don't try, give it to us because we are cheap (For index funds). The reality is some people can beat the market but it is not easy, and others are destine to under perform. You need to look at yourself to decide which group you fall into. I will give you some characteristics of each Group. These lists come from a more long term investor�s point of view; you traders out there may differ on some of the points. Market beaters 1) You enjoy it. You enjoy research, talking to other investors, learning 2) You are disciplined, by this I mean you understand risk and buy only when you are getting paid adequately for it, and sell when you are not.. 3) Self confident, you need the self confidence to go against the crowd. Buy low and sell high is going against the crowd. 4) Have an overall plan and are forward looking. This doesn�t mean you ignore the past, but far too many investors think they can pick winners using metrics that measure the past. 5) Understand asset classes and how they perform in various market environments. 6) Can give you a well thought out argument for why they bought or sold. Underperformers 1) Are risk adverse, they sell assets because they cannot stand the pain of them going down. 2) Follow the crowd, they tend to buy in at asset tops because they see everyone else making money and can�t stand being left out. 3) Do not understand the risk/reward relationship. They ignore risk and just consider gains. 4) Cocky, they do not exit positions when they are wrong. One thing I read or hear all the time from people that makes me chuckle is how the market really got this one wrong. It doesn�t even occur to them that they might be the ones that are wrong. 5) Don�t learn from mistakes, they ignore or rationalize losses instead of figuring out what went wrong. They make statements like �it�s not a loss unless you sell�, while sitting on a stock that is down big."