James Rev Shark DePorre

Stock quotes in this article:

aapl

msft

hpq

After the market gyrations of the last few years, there have been very few articles written about how buy-and-hold investing is the superior approach to the market. I see that Tim Melvin is dragging out the old be like Warren Buffett argument once again.

The buy-and-hold argument has really lost traction in the last few years, in large part because most folks simply can’t handle tremendous volatility, even if they have very long-term time frames. They end up making their moves at exactly the wrong time. Few have the discipline of deep-value investors like Mr. Melvin.

One of my biggest problems with the buy-and-hold argument is that it is always done in the rearview mirror. Look at how easy it was to just buy Apple (AAPL ) and ride it up tenfold is how the argument always goes. You just find the stocks that have performed the best over the last few years and frame an argument about how holding them for the long term was your best course of action.

The problem is that finding the great buy-and-hold stocks before they move is one of the most difficult things you can do in the market. In fact, it is my contention that it easier to find a consistent supply of good trades than it is to find the small handful of stocks that should be held for many years. How many people have been stuck in things like Microsoft (MSFT ) or Hewlett-Packard (HPQ ) that haven’t done anything in over a decade?

Yes, trading can be time-consuming, and it does require work. Traders have to constantly be looking for new ideas, and they have to stay disciplined and manage trades. You can’t just buy something and ignore it for years. However, the great benefit of trading is that you have much less risk. If you are willing to sell when a stock acts poorly, you can keep losses small, and new opportunities will always arise.

It has always been my position that there is no inherently superior way to approach the market. Good investing and trading is highly subjective. A good trader will beat a good buy-and-holder, and vice versa.

Just buying good stocks and holding for the long run is much more difficult than it sounds. My personal experience is that active trading not only produces superior returns, especially when there is high levels of volatility, it is far less risky than hoping that the great stock you are buying cheap really is going to pay off.

At the time of publication, DePorre had no positions in stocks mentioned.