Many of my friends have asked me why I do not day trade. You can make money by day trading; however, this method of making money in the stock market is something I dislike and do not pursue in doing. I used to try learning how to day trade. When I was still a beginner in investing in the stock market, I tried doing some day trading when I was still studying in the United States. It might seem easy and fun; however, it is actually pretty tricky and stressful.
This is why I decided to do value investing as a method to make
money in the stock market. I believe that investing in the stock market for the
long term suits me more than day trade. I want to explain why I decide to not day trade or time the market
and choose long term value investing. I believe investing in the stock market
for the long term is more beneficial and also more profitable.
It Occupied Your Daily Task.
One reason I decide not to day trade is that it
takes a lot of my time every day. As a day trader, I have to be in front of the
computer monitoring the stock price every day. It is basically like a full-time
job when you are day trading.
I believe the time consumption as a day trader is more
beneficial if I spend the time doing something more productive. For example,
rather than always checking the stock price movement, I could be using the time
to make a business of my own that can generate a healthy profit. Spending your
time in front of the computer trying to time the market is a waste of time.
Yes, you might be able to make few bucks here and there. However, in the long
run, you probably make losses too.
By being consistent, day trading every day does not guarantee you will profit from your trade. By becoming a long term investor, I can actually make a better profit from my capital. Also, I found that using my time to create a successful business can let me invest more of my money into my portfolio. I believe by being consistent contributing money into my portfolio account every month and using the money to invest in the stock market using value investing is more practical and can perform better for your investment than trying to time the market.
Trading
is Stressful.
Watching the hourly market movements or always
having Bloomberg blaring in the background can be a massive emotional roller
coaster. I tried becoming a day trader when I was still in college in the
United States. It is not simple, and it's also very stressful. I was able to
make some profit here and there; however, I also lose a lot. I spend many hours
monitoring the stocks every day, and it was not practical.
It was very
emotional since I was able to make a lot of money and also lose a lot of money.
The stock movement drove my mood, and it was not fun. Moreover, throughout my
trading venture, I lost more than I profit. This is why I decided that day
trading or market timing is not the style of investing I want to pursue.
I like the way I invest now because it is straightforward and practical. It is also very profitable and does not consume a lot of my time. With my investing strategy, I do not have to worry about where the stock market is going. I know that I have great companies in my stock portfolio, and holding them for the long term will help me become very wealthy.
Most
Traders Lose Money.
Most traders will lose regardless of what methods
they employ. Even if all traders knew how to trade successfully based on
current conditions, most traders would still lose over the long run. The
academic evidence shows that most traders actually lose money. 80% of traders
actually lose money before fees and taxes. It's no surprise more than 75% of
all day traders end up quitting within just two years. In 1999 The North
American Securities Administration Association (NASAA) reported 70% of traders
would lose nearly all their money.
It might be true that there are some traders out there who
actually made it. This is really a very few percent, and it is not consistent.
If you see them becoming really wealthy is not due to stock trading, but the
business they own. For example, a famous penny-stock day trader, Timothy Sykes,
has made a great fortune from stock investing. However, this is not the prime
reason how he became wealthy. If you actually take a look carefully about how
he gets wealthy is due to the business he owns. His online course on penny
stock trading is how he became wealthy.
He is not able to live the lifestyle right now by just being a
good trader. It is impossible! No one has consistently made a profit through
day trading. Timothy Sykes is excellent in marketing his online course to penny
stock trading. He used a lavish sports car, extravagant vacations, and life
style to attract new students to his course. He wants to give the impression to
the public that by becoming a day trader, you can live the lifestyle as he
does. It's all just marketing! Do not be fooled by this.
When I was still an amateur stock investor, I was also attracted to the internet's day trading seminar. I was lucky that I did not sign up for them and decide to read high-quality investment books written by successful investors. It was because of these books I read that opened my mind to understanding how the stock market works. If you are still a beginner, I advise you to read investment books. Keep learning so that you have a better knowledge of making a stock investing decision.
Timing
the Market is Impossible and a Waste of Time.
The market's historical perspective shows us a
pattern of bull and bear markets that may be tempting for investors. You guys
probably ask why not try timing the market, and avoid those short-lived bear
markets? Wouldn't that be more lucrative? Unfortunately, it's not as easy as
you guys think.
I learned from reading an investment book written by Peter Lynch
that it's impossible to time the market. If you don't know who Peter Lynch is,
he was a former fund manager from Magellan fund at Fidelity, who is one of the
most successful investors in history. The fund he was managing had a
magnificent track record of an annualized return of 29.2%. It was more than
twice what the S&P 500 earned during that time.
Peter Lynch mentioned that more money had been lost by investors
preparing for correction or anticipating corrections than lost in market
corrections themselves. He believes that trying to time the market is
impossible, and it does not work. There is no way for anyone to know where the
short term future movement of where the stock market is going. No one knows
when the next Bear Market is going to be.
He went on to give
an example of why market timing is impossible. He used a period of market
performance from 1965 through 1995. Let us say there are three investors, each
of whom puts $1,000 into stocks annually over these three decades.
Investor 1, who is
very unlucky, somehow manages to buy stocks on the most expensive day of each
year. Investor 2, who is very lucky, buys stock on the cheapest day of each
year. Investor 3 has a system: She always buys her stocks on January 1, no
matter what.
You guys probably think that Investor 2, having a great skill
for timing the market, would end up wealthier than Investor 1, the unluckiest
person on Wall Street, and would also outperform Investor 3. Nevertheless, over
30 years, the returns are surprisingly similar. Investor 1 makes 10.6%
annually; Investor 2, 11.7%; and Investor 3, 11%. Even with perfect market
timing each year after year, it is only worth only 1.1% more than horrible timing
year after year.
Trying to time the market is generally a waste of time and effort. It is not when you buy that matter, but how long you own the securities. After experiencing stock trading and market timing myself, I realized it was impossible. There's no way I was able to know where the market is heading in a short-term period. This is the reason why I decided to invest in the stock market for the long term.
Buy-And-Hold Investing Beats Market Timing.
By investing in the
stock market for the long term actually beats market timing. Peter Lynch
mentioned, "If you put $100,000 in stocks on July 1, 1994, and stayed
fully invested for five years, your $100,000 grew into $341,722. But if you
were out of stocks for just thirty days over that stretch—the thirty days when
stocks had their biggest gains—your $100,000 turned into a disappointing
$153,792. By staying in the market, you more than doubled your reward."
Invest in the stock market for the long run rather than the short term. If you guys look at the S&P 500 performance from 1926 to now, it actually returns a 10% annualized average. This is the reason why I do not want to day trade or time the market anymore. Rather than trying to figure out the short term trend of the stock market, I decide to buy and hold stocks long term. I believe that building a dividend growth portfolio and contributing $2,000 every month is more practical.
No timing the market? So What to do Instead?
So if stock trading or timing the market is
impossible, what should we do instead? My recommendation is to do what I am
doing. I build a portfolio of dividend-paying stocks and contributing an extra
$2,000 per month to it. I buy stocks on a steady basis. Like dollar-cost
averaging, however, instead of purchasing the same stock every month, I buy a
stock when it's in the value territory.
I applied value investing when buying a stock. I focused on
investing in a company because of its fundamentals. Instead of wasting my time
trying to figure out where the stock market is heading in the short term, I
focused on creating a business that can generate profit. I believe that having
a successful business of my own is more beneficial because I can use the money
that I generate into my portfolio. I treat my dividend growth
portfolio as a passive
asset that I can use to grow and build my wealth through compounding yearly
over a long period.
I do not care or try to monitor my stocks every day. I know by holding them for a long term period, I can generate significant returns. I am not wasting my time and effort figuring when to buy or sell. I just keep buying a great dividend-paying stock that has great value and fundamentals. Moreover, since my portfolio is a passive asset, I can focus on figuring out how to generate more income. I want to increase my primary income to contribute and invest more in my portfolio account.
Time
to End This Post.
I hope this article
I have written explaining the reasons why I do not do day trading or market
timing. I have many of my friends who asked me why I don't day trade. They think
that my investing method is very slow and boring. My investing style is indeed
very plain and boring; however, I am very confident that my portfolio will do
great over a long time. I am not trying to make tons of money instantly but
actually do it slowly step by step through compound
interest each year.
Instead of wasting my time trying to predict market movement, I
used it wisely, trying to build a business of my own. I want to increase my
primary income so that I can invest more money in my portfolio. I know that my investing strategy will result in
me becoming wealthy decades ahead.
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