Be a trader, or a 30 year investor

Let me be clear as to where we should put our money and over what time frames. Here are the options:

  1. Put invested cash into shares with a view of keeping it there for 30 years or more
  2. Have a traders account, intraday out for a few weeks
  3. Between a traders account and the 30-year hold, invest in considerations that balance with stocks and bonds

There we are, it is that simple. The 30-year option means that if we choose a great company to invest into, and we buy that company’s stock at a high price, then all of that, coupled with the compound interest, will give us an incredible return. Moreover, we are not overly concerned by market crashes at this hold timeframe. Indeed a market crash provides an opportunity to add more stock to the portfolio.

Here’s a simple chart the shows how the market often returns to trend lines:


Not so apparent on this scale, but the market crash at points 1 and 2, with a trend line drawn between them (B), was touched by the 1987 crash at point 3.

The trend line (A) drawn between the 1987 crash and the 1990 low was touched by the 2009 bear market before it reversed up.

The market may very well gain a new high, that is above the top of 2007. However, a pullback to a trend line, either line A or even line B, is a 60% probability. A pullback to line C is unlikely.

A 30-year investor, in great companies bought at a wonderful price, will not be affected. Also, a good trader will mostly find profitable trades in such a scenario.

The in-between investor, between a traders timeframe and that of the 30-year investor, that has not got a balanced portfolio of stocks and bonds, is too reliant on getting their timing spot-on!

Happy New Year

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