FESTIVE periods such as Chinese New Year usually mean some time off from our spreadsheets and laptops, and a break of a day or two from managing our portfolios. But just how easy is it for us to take a break from trading?
Are we, for instance, a compulsive trader but do not even know it? Do we feel the need to trade in increasingly larger amounts just to get the same “buzz” that smaller deals used to provide us with?
It can happen without us even knowing, because trading can be addictive.
Do we ever get the urge to sneak in a trade even during working hours, or when we are supposed to be spending quality time with friends and family?
Do we have one or several of those easy-to-use trading apps on our smartphones and tablets that allow us to monitor stock price movements by the minute?
Just too easy
Many brokers have made it very easy for us to trade. We just need to tap a few buttons and the trade is executed. Some brokerages have even cut trading commissions to the bone to make it cheaper.
Some have gone much further. They do not even charge a commission for trading at all. But remember the adage – if you are not paying a fee for a service, then you are not the customer.
Zero-commission trading can entice us to buy more often and sell more frequently than we might normally do. We might think twice if we had to pay to trade. But it is important to consider that the spread between the buy and sell prices for a stock is still a cost.
If we are guilty of trading more regularly than we would like, then perhaps it might already be too late.
But for those of us who don’t want to end up being a slave to the market, here are a few warning signs that we might want to look out for during the festive break.
Holiday blues: Do we dread public holidays because the opportunities to trade are being cruelly taken away from us? Does the prospect of a long weekend fill us with unease rather than joy?
Do we look at our calendars and wonder how on earth we are going to fill our downtime without a chance to execute a trade? Do we scout around for other markets that might be open even if our home market is closed?
Sleepless nights: What is the last thing that we do at night? Do we whip out our phones and check our portfolios to make sure that our trades are in the green rather than in the red? Do we fail to get a good night’s rest because some of our trades have gone the wrong way?
Pet names: Most people, it should be said, like to name their pets after mythological and legendary figures. For instance, Apollo, Titan and Zeus are popular names for dogs, and Sheba for cats. But if we have named our pets Fibonacci or Bollinger, then that might be a sign of compulsive trading syndrome.
Yet, if our pets are named after Buffett or Munger, that would be entirely different. They are, after all, long-term, buy-to-hold investors rather than short-term traders.
On a more serious note, it is good to be interested in what is happening in the markets, especially when it comes to the companies in which we have a financial interest.
After all, we are a part owner of the business. But it is a terrible idea to overtrade.
Buffett’s advice
It is important to bear in mind that every trade costs money, and trading too frequently can eat into our overall returns. Legendary investor Warren Buffett once quipped that frequent trading is good for brokers, but not good for us.
Consequently, it might be better to spend time looking for quality companies that we can buy to hold for the long term.
A telltale sign of a quality stock is one that we rarely need to monitor because we have absolute confidence in its future. The only time that we might want to look up the share price is when we need to buy more.
Investing, as Buffett once pointed out, is so favourable to the investor that it is a terrible mistake to dance in and out of it based on the turn of a tarot card. He also said that we should be happy buying a stock even if the market were to close for five years.
When we invest, we are buying a business. If we are not comfortable owning the business for at least five years or more, then we really should not be buying the shares at all.
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