Know when to Invest
Being a short-term stock trader is tough enough; being a successful, short-term stock trader, is another thing altogether.
If you are a successful short-term trader, then regain perspective and consider the benefits of having a well balanced portfolio of trading positions, and aggressive long-term holds. Maintaining perspective and reestablishing your investing goals is a must if you plan on attaining any level of long-term goal achievement.
I strongly encourage you to set an upper limit that you wish to maintain in your trading account. This upper limit serves as a point at which your trading goal has been achieved, and at which your long-term strategy begins, or continues.
Without proper discipline, it is all too easy to lose your perspective on achievement, for at that point, you become dangerously close to the point at which you may become desensitized to short term success. Should this become the case, discipline is soon lost, and those variables that led to your success quickly lead to losses. Resist the temptation to increase your risk as your trading account increases.
No one can argue the well-timed placement of strategic long-term positions. We, as traders, have all experienced the thrill of the quick “home run” only to sell out (as good discipline dictates) too early as the issue continues its ascent, sometimes to staggering levels. Now, this event alone does not dictate that a long-term position is necessary as, all too often, those same issues collapse just as quickly. But how often has your due-diligence resulted in uncovering, albeit unknown at the time, a truly “special” long-term investment opportunity?
Once great trading issues have, as it turns out, become great long-term opportunities. By way of compounding shares, through splits, it is quite possible that an initial 100 share position would now be equal to the number of shares that you originally traded, and those shares are essentially free. And as I stated in my earlier article, it only takes one well-timed, long-term, position to secure your retirement. But just as trading takes discipline, so does long-term investing. Resist the temptation to “trade” your investment issues. It can be tempting to take that “top”, but it is an unwritten, and sometimes even written, fundamental law that unless their exists a reason to liquidate the position, continue to hold ….. it is simply too difficult to try and time investments.
As a general rule when I identify, and take, a long-term position, I do so with the intention that I will double-up should events warrant me doing so. In essence, I take an initial 50% position, and add the other 50% as I see fit. This does not preclude the possibility of adding additional shares in the future, but before doing so, additional capital will need to be raised through my trading endeavors. As stated earlier, as my trading account eclipses the upper range of my goal, all excess is immediately earmarked for long positions.
While I firmly believe in researching my long-term holds, I will frequently establish positions in companies that are not deeply rooted in value. As in my trading account, my long-term account has names that are both well established, as well as exceptionally speculative; remember that it only takes one.
The point is that, if you are a successful trader, by prudently channeling some of your capital into long-term investments, you ensure your long-term success, independently of your future short-term success, or failure.