High Trading Is Bad News For Investors
By JASON ZWEIG
WSJ
Buy-and-hold hasn't looked too good lately, but churn-and-burn is no better.
Stocks are sloshing around faster and cheaper than ever. You can trade online for $7.95 or less. Nearly 2 billion shares are handled daily on the NYSE, not counting trades in rival markets. Throw those in, and trading is a tidal wave, averaging 9.4 billion shares so far in February—up from 9.1 billion in January, says Rosenblatt
What to do when market volatility strikes? WSJ's Intelligent Investor columnist Jason Zweig says unless you're a real investment professional -- and maybe even then -- sometimes the best trading move is not to trade at all.
Pause before you plunge. Trading costs money, raises your tax bill and can reinforce bad habits. As Benjamin Graham defined it, investing requires "thorough analysis" and "promises safety of principal and an adequate return." Trading on rumors, hunches or fears is antithetical to investing.
Mr. Graham insisted that "the typical individual investor has a great advantage over the large institutions"—largely because individuals, unlike institutions, needn't measure performance over absurdly short horizons. The faster you trade, the more you fritter away that advantage.
A new study by Mercer, the consulting firm, and IRRC Institute, an investing think tank, asked the managers of more than 800 institutional funds how often they traded.
(More here.)
WSJ
Buy-and-hold hasn't looked too good lately, but churn-and-burn is no better.
Stocks are sloshing around faster and cheaper than ever. You can trade online for $7.95 or less. Nearly 2 billion shares are handled daily on the NYSE, not counting trades in rival markets. Throw those in, and trading is a tidal wave, averaging 9.4 billion shares so far in February—up from 9.1 billion in January, says Rosenblatt
What to do when market volatility strikes? WSJ's Intelligent Investor columnist Jason Zweig says unless you're a real investment professional -- and maybe even then -- sometimes the best trading move is not to trade at all.
Pause before you plunge. Trading costs money, raises your tax bill and can reinforce bad habits. As Benjamin Graham defined it, investing requires "thorough analysis" and "promises safety of principal and an adequate return." Trading on rumors, hunches or fears is antithetical to investing.
Mr. Graham insisted that "the typical individual investor has a great advantage over the large institutions"—largely because individuals, unlike institutions, needn't measure performance over absurdly short horizons. The faster you trade, the more you fritter away that advantage.
A new study by Mercer, the consulting firm, and IRRC Institute, an investing think tank, asked the managers of more than 800 institutional funds how often they traded.
(More here.)
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