The age old argument....
Does anyone agree that Buy and "Hope" (hold) is the most risky method?
I was reading Leon Wilson's "The business of share trading" book tonight and he believes trading is far less risky than buy and "hope". He was slagging the hell out of it as something only suitable for retired people.
How can buying an excellent bluechip that is not overpriced and pays good dividends be riskier than trading a speculative stock that has never made a profit?
His belief is people will hold on too long if the price is going down and they could lose all their money, HIH, OneTel, Enron etc.
Sure it is possible, but diversifying so that no more than 10% of your investments is in one stock you'll lose at most 10% in the worst case scenario. And few if any bluechips ever just go belly up.
The flipside is you don't pay tax, or brokerage fees, there is no slippage, and no stress, you reinvest dividends and large companies tend to get bigger, small companies are far more likely to go under. And you do not need a stop loss because you mostly don't lose.
Trading is so hard to make a profit, it takes many hours of your time, you get slippage on your buy and sell prices, you pay brokerage fees and get hammered with a large tax rate. You usally miss out on dividends as well.
Amusingly he quotes Warren Buffett in his book, does he not realise Buffett is a buy and hold man?