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 money into shares with a view of keeping it there for 30 years or more
  2. Have a traders account, intraday out to a few weeks
  3. Between a traders account and the 30 year hold, invest in accounts that are balanced with stocks and bonds

There we are, it is really 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 great price, then all of that, coupled with compound interest, will give us a wonderful return. Moreover, we are not overly concerned by market crashes at this hold timeframe. Indeed a market crash simply 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:

Snip20151230_3

Not so obvious on this scale, but the market crash shown 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 high of 2007, however, a pull back to a trend line, either line A or even line B, is a 60% probability. A pull back to line C is unlikely.

A 30 year investor, in great companies bought at a wonderful prices, will not be effected. 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, well…screwed!

Happy New Year

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