Why aren't there more long term investors?

[Splitlink]

Trading is useful for shorting shares that you have and that you think should not be sold. I don't do that because I am not, often in high volume shares. Options can be written in the same way.

I am fairly conservative. I don't like leverage, much, which is what trading lends itself to. If I am going to lose, I want it to be limited to the amount that I risked in buying the shares in the first place. Ending up owing the market money is not for me. That is why the trading that I do is for relatively small amounts. It's fun, though.

But horses for courses!

Split

 

[chump]

One other factor in deciding between investing and shorter term trading is the transactional cost ,not particularly spread/slippage ,BUT taxation. To put in more intensive effort and funding to trading I personally am not prepared to do that when such a huge chunk ends up in the govt pot. In other words I suspect traders with the kind of money that can decide whether to focus on investing ,or trading probably don't trade from a country like the UK ...let's wait for someone to cry spreadbetting ..LOL
Actually one one thing that's perhaps going to help to some degree in this is the advent of the Sipp and A day rules on pensions.That adds another flavour to the mix. Anyone who#s cash rich and still has not taken up much of their lifetime pension pot has an opportunity to exploit that and trade it rather than simply invest it. Part of a solution to the invest or trade taxation issue.

 

[damianoakley]

Why aren't there more long term investors?

As far as i can gather from this site, most people aren't long term investors.

Suirely it's less demanding that day trading or holding a position just for a few days?

Weekly analysis would do the trick.

Hi,

From my experience, most people get into trading because they see it as an opportunity to generate a good income without the constraints of a 9-5 job.

This automatically leads people towards shorter-term trading in which they think thay can trade for a few hours each day to bank 30% over the month, as opposed to "investing" and making 30% over the year.

Many people take the view that "investing" is for retirement in the future, whilst "trading" is for income in the near-future.


Thanks

Damian

 

[qwertyuiop1]

Hi,

From my experience, most people get into trading because they see it as an opportunity to generate a good income without the constraints of a 9-5 job.

This automatically leads people towards shorter-term trading in which they think thay can trade for a few hours each day to bank 30% over the month, as opposed to "investing" and making 30% over the year.


Damian

Hang on - so judt to get top the nuts and bolts of what you are saying, you are basically saying that short term trading is more lucrative than longtermn trading.

Now that owuld certainly be a reason to do short term above long term.

But - I'm not sure at all if that is teh case.

I don't see any obvious logic why short term is more lucrative than long term.

 

[qwertyuiop1]

One other factor in deciding between investing and shorter term trading is the transactional cost ,not particularly spread/slippage ,BUT taxation. To put in more intensive effort and funding to trading I personally am not prepared to do that when such a huge chunk ends up in the govt pot. ...let's wait for someone to cry spreadbetting ..LOL

Spreadbetting is a perfectly good vehicle for longterm tradimng without the costs of tax.

I do it myself all the time while holding positions for many weeks/months.

 

[qwertyuiop1]

It's about recycling capital quickly and effectively using leverage. Example: if you're a forex trader with £1000 to play with and 100x leverage, you can take some reasonable position sizes to generate a daily income (sure you can get wiped out quickly too, but just making the point and assuming competence...). More to the point, by closing out intra-day you bear none of the financing costs. For a long-term trader/investor then you bear the financing cost of gearing, and arguably you need more capital to get going - all of this has to be built into your return assumptions, as does the point about drawdowns. If you were taking a long-term view on EURUSD, for example, you'd need to be able to finance the moves against you which could be significant, and you certainly wouldn't be using maximum leverage. You then look at the average newbie poster to T2W who has a couple of grand to play with at best and you can see why making fractions of a percent trading forex intraday on a highly geared basis is more attractive than investing that money for a few months looking for a 10-20% return or similar. You do need some capital to invest effectively long-term, which is why its mostly the old farts on T2W (me, chump, Split!) who are doing it!

I disagree. It's perfectly reasonable to reinvest paper profits while doing loing term trading.
Teh position doesn't have to be closed to reinvest teh profits in my book.

Also - leverage is no more apparent with short term trtading than long term trading.
Leverage is leverage - it's there for all to use.

Also - by short term trading, while you may save the cost of gearing, you will pay a far higher poercentage of your equity on teh spreads.
Teh spread has little impact for teh long tern trader.,

 

[Jack o'Clubs]

I don't see any obvious logic why short term is more lucrative than long term.

I tried to put it succintly in a previous post, but obviously not clearly enough so I'll try again: FREE MONEY

Us long-termers have to pay for leverage, if we use it.

 

[nobel_1101]

Hang on - so judt to get top the nuts and bolts of what you are saying, you are basically saying that short term trading is more lucrative than longtermn trading.

Now that owuld certainly be a reason to do short term above long term.

But - I'm not sure at all if that is teh case.

I don't see any obvious logic why short term is more lucrative than long term.

I agree with Jack O' Clubs. Apart from the fact that you get quicker feedback from short term trading which is valuable from an educational point of view, mathematically its more lucrative.
Tell me if I'm wrong, but I think your argument is that the markets are fractal - in other words, markets are scaleless. So you could apply a short term strategy on a long term scale and make the same profit.
Even if you could apply the same strategy, you wouldn't be able to make the same optimal amount of profit, assuming you started with the same amount of trading capital.
The reason is leverage. You can't apply the same amount of leverage in the long term strategy because you would incur heavier/lethal drawdowns. You can reduce your drawdowns by reducing your leverage but you lose out on the extra returns so its a trade off.

Craig

 

[damianoakley]

Hang on - so judt to get top the nuts and bolts of what you are saying, you are basically saying that short term trading is more lucrative than longtermn trading.

Now that owuld certainly be a reason to do short term above long term.

But - I'm not sure at all if that is teh case.

I don't see any obvious logic why short term is more lucrative than long term.

Hi Qwerty,

It depends on the system being used, but in the main, trading on a shorter time-frame gives you more opportunity and more trades, which is why many people try to day-trade for income.

For example, if someone is a successful day-trader using a market-maker strategy trading tick-by-tick, he could have up to 300 trades in a day. Someone like this (providing they are a professional) will very rarely have a losing day. At the other end of the scale, if someone is a long-term trader using weekly charts and only spending 30 minutes on a Sunday to monitor their positions, they may only take 100 trades over a year. Someone trading this type of strategy can go for many months without making a new equity high.

I have used 2 extremes to make the point, but can you see how the opportunity factor can effect results?


Thanks

Damian

 

[chump]

Hi Qwerty,

It depends on the system being used, but in the main, trading on a shorter time-frame gives you more opportunity and more trades, which is why many people try to day-trade for income.

For example, if someone is a successful day-trader using a market-maker strategy trading tick-by-tick, he could have up to 300 trades in a day. Someone like this (providing they are a professional) will very rarely have a losing day. At the other end of the scale, if someone is a long-term trader using weekly charts and only spending 30 minutes on a Sunday to monitor their positions, they may only take 100 trades over a year. Someone trading this type of strategy can go for many months without making a new equity high.

I have used 2 extremes to make the point, but can you see how the opportunity factor can effect results?


Thanks

Damian

and the net pay rate that results in most developed countries with UK style tax regimes isn't worth getting out of bed for.....now in Dubai I can understand it.

 

[damianoakley]

Hi Chump,

Well, a good accountant will minimise the tax implications on any business venture, but I prefer to trade somewhere between the 2 extremes described above.


Damian

 

[chump]

Hi Chump,

Well, a good accountant will minimise the tax implications on any business venture, but I prefer to trade somewhere between the 2 extremes described above.


Damian

Yes, well i'm afraid there's only so much an accountant can do if he wants to remain a good registered accountant .The ability to write down expenditures in a trading business venture is very limited as it is overhead light and the loopholes for circumventing same legally have been getting closed year by year and in some respects one couldn't even feel safe from retrospective action with this govt and so I say again intensive trading as an option V investment is much more attractive outside the UK and if you would really like to convince me otherwise you're going to struggle whilst you trade outside the UK and indeed from one of the most obliging places on planet earth.

 

[damianoakley]

LOL - I agree, there's only so much you can do as regards tax.

But, a wise man once told me: "If you're paying the taxes, then you're earning the money...."

At least by running a self-employed trading business, you have more control over your tax than the average PAYE employee.....


Damian

 

[qwertyuiop1]

Hi Qwerty,

It depends on the system being used, but in the main, trading on a shorter time-frame gives you more opportunity and more trades, which is why many people try to day-trade for income.

For example, if someone is a successful day-trader using a market-maker strategy trading tick-by-tick, he could have up to 300 trades in a day. Someone like this (providing they are a professional) will very rarely have a losing day. At the other end of the scale, if someone is a long-term trader using weekly charts and only spending 30 minutes on a Sunday to monitor their positions, they may only take 100 trades over a year. Someone trading this type of strategy can go for many months without making a new equity high.

I have used 2 extremes to make the point, but can you see how the opportunity factor can effect results?


Thanks

Damian

Ok - so correct me If i am wrong here but what i think you're saying is that when trading on a short term basis you will have far more trades.

And the more trades you do - the greater likelihood of your pre-determined expectancy being attained in a shorter time frame ?
As opposed to long term trading - given that you do so few trades, many moons could pass by before your long term ecpectancy is reached.

SO therefore - over the very very long term the long term strategy is fine - but in practice,waiting for teh very very long term to achieve your expectancy is too long for most.
Is that basically your point?

 

[qwertyuiop1]

I tried to put it succintly in a previous post, but obviously not clearly enough so I'll try again: FREE MONEY

Us long-termers have to pay for leverage, if we use it.

Ok - so for you jAck o'clubs. the single main attraction for short term trading is that you get free leverage as opposed to paying for it?

 

[dcraig1]

Ok - so for you jAck o'clubs. the single main attraction for short term trading is that you get free leverage as opposed to paying for it?

Not really. The point is that if you wish to use high leverage (whether you are paying for it nor not) is that you MUST trade short term and with relatively tight stops. There is no other sane way to do it with any acceptable level of risk.

 

[qwertyuiop1]

Not really. The point is that if you wish to use high leverage (whether you are paying for it nor not) is that you MUST trade short term and with relatively tight stops. There is no other sane way to do it with any acceptable level of risk.

ok - so what you are saying is that due to this high leverage that short-term trading is more lucrative ?

So - out of curiosity - As a return on cash, what would be considered an average mioddle-of-the-road return on cash in any 12 month period through short term trading?
100%? 500%?

I just want to compare this to a long term traders expectant return on cash.

 

[Jack o'Clubs]

Ok - so for you jAck o'clubs. the single main attraction for short term trading is that you get free leverage as opposed to paying for it?

Your statement was that "I don't see any obvious logic why short term is more lucrative than long term!" One simple mathematical difference that demonstrates that logic is that a long-term investor will be paying 8%+ for the leverage enjoyed for free by a day-trader. So on that alone, if all else were equal, the day-trader should out-perform. But you then add in the additional factors, particularly around drawdowns which means that you can't use anything like the full leverage on your long-term positions that you would intra-day, because you would be stopped out a couple of times a day if you tried to use the same leverage for a long-term strategy. As an example, when I traded intra-day I was perfectly happy using the 100x leverage provided on forex or 20x+ on futures - now I trade long time frames I use 3x as a maximum, so there's no way I would be making the returns on capital that I would have made day-trading. I can see where you're coming from, and to an extent I agree, as I'm investing over the longer-term, but the problem is that you can't use the same strategy with the same leverage long-term as you do short-term, not without scaling up your own capital which reduces your ROI/ROCE.

 

[mp6140]

here we goes again !

the SUCCESSFUL daytrader will make more money than MOST long termers and the SUCCESSFUL longterm investor will make more money than a below average daytrader !

daytrading offers the ability to use MORE leverage because your exposure is a relatively short time and the drawdowns smaller than the "investor".

the "investor" has the benefit of less work but increased stress.

it all comes down to who and what you are, whats your timeframe for being able to trade, whether or not youre even vaguely interested in trading (hey, as impossible as it may be, someone might actually LIKE their work better than sitting in front of a computer and trading all day)

advantages to both, with a nod towards the GOOD daytrader because of the increased size of most trades, the rather immediate return on investment and the ability to move long or short as needs develop !

mp

 

[Jack o'Clubs]

ok - so what you are saying is that due to this high leverage that short-term trading is more lucrative ?

So - out of curiosity - As a return on cash, what would be considered an average mioddle-of-the-road return on cash in any 12 month period through short term trading?
100%? 500%?

I just want to compare this to a long term traders expectant return on cash.

Look - here's an example. I've got £1000 and can trade forex at £10/pt. I go long cable on an intraday move, and get stopped out for a 20-point loss. I'm down to £800. I then take another trade, but this time make 40-pips. I take a third and make 25-pips, spread included before calling it a day. I've ended up making £450 on my £1000 capital, so a 45% return, but with my stop losses set at 20-pips, the most I could have lost was 3x£200. I could have lost all three trades and still lived to fight another day.
The next day, I decide to go long-term on my view that £ will continue to weaken against $. So I take my £1000 and put a £10/pt position on. The problem is immediately obvious - a 100pip move in the wrong direction (and cable can do that and more in a day) - and I'm completely wiped out, all my capital gone. But as I'm taking a long-term view I need to be able to cope with one day's gyrations in the price. Hence, I simply can't trade with the same gearing - maybe I bet £2 point instead which gives me 500-pip headroom, but then you're not using your leverage to full advantage as the daytrader is.
As dcraig says, the two aren't comparable because of the risk management you need to apply to each - and this is before taking into account that my long-term position will incur price adjustments to account for the interest rate differentials.