20 Jun | Investing or Actively Trading?
Despite the fact that I like to think of myself as a long-term investor – albeit with a speculative bent – part of me wishes I took advantage of short-term gains a little more often. Sure, I look for shares with the potential for explosive growth but when that explosive growth comes I rarely think of the resultant price as an over-bought position, as a point to profit, but rather as a re-rating, a confirmation of my homework and the reasons I invested in the company to begin with.
Occasionally I’ll take a chunk of profit reasonably early on but without a large fundamental change in the company’s direction, I can rarely justify selling up completely, massive initial gain or not.
It’s the old investor versus trader struggle that rages inside everyone who’s ever let a buck or two loose on the markets.
To illustrate my point lets take a quick technical look at two shares in our portfolio that both put on massive gains within weeks of our purchase. Two shares that have since slided dramatically. Two shares which – to my chagrin – remain in our portfolio. Now don’t get me wrong, I’ve still got faith in both in the long term, it’s just that some clever buying and selling in the interim could have seen me sitting on a much larger holding.
Atlantic Coal – We bought into Atlantic on 12th November 2010 at 0.41 pence a share before they rocketed to highs above 1.75 pence a share early in 2011.
Our entry was perfect almost down to the day. Within a month we’d amassed gains in excess of 300% and yet here we are seven months down the track and Atlantic Coal has closed the day’s trading at .485 pence.
Without the graph below (courtesy of our mates at SharePrice.co.uk) to track the journey to .485 pence you’d say that the 15% growth from .41 to .485 pence represents a nice return on investment in seven months. But the heartbreak is in the path it took to get there.
Edenville Energy – We bought into Edenville the day before we took up our Atlantic Coal shares – 11th November 2010 – at 0.88 pence a share. Again – in retrospect – our entry was practically perfect to the day and again the price climbed dramatically (nearly as dramatically as Atlantic Coal’s) almost touching on 2.50 pence a share early in 2011. And again I sat back and watched the price slide to the point where it’s now trading at 0.755 pence a share.
Is it stubbornness behind our reason to hold even when we know a trend has turned for the worse? Is it optimism? Perhaps it’s greed? I think it’s probably a little of all three and the fact that maybe my knowledge of the markets isn’t what it could be. Maybe I’m yet to find the balance between investing and actively trading. I’d love to hear your views and experiences in the comments below, especially as to how they pertain to the first half of 2011.
I know one thing for sure, it’s optimism that keeps me buttering up for more.
Is that a double bottom I notice in Atlantic’s one month chart? Hmmm.
Thanks again for dropping by.