Methodologies, Trading

Long-Term vs Short-Term Investing

Which is better?

It seems that everyday we are bombarded with news of so-and-so company's stock that went up 20-40% in one day. And so many times you feel like kicking yourself saying "Why did I miss that?" Hence the question: Is there really an opportunity in short-term trading? or is it just statistics playing with us? If there are 10,000 companies and 365 days a year, its not that surprising if there's a 'wonder' every day right?

My reasoning is this: If such short-term opportunities are really out there, someone would have done it already (yes i know the story about the dollar on the ground). The fact that a 30% annual return is still considered an excellent return shows that people have not made it consistently with short-term trading. Coupled with the fact that long-term investing has proven its capability to achieve the 30% returns, hence the obvious choice is to do long-term investing.

(with respect to the dollar on the ground, I believe that there are many more people who are much more opportunistic than me, who are playing the stock market as we speak. Hence if they can't do it consistently, I'm assuming that the opportunity does not exist)

Another point about long-term investing. Does that mean that we should park all our money into long-term investments? I believe that eventually, it should be a hybrid of long-term and short-term investments. A portion of the net worth should be in liquid, short-term investments (less than a year). This short-term pool will 1) act as some backup incase the market is down for an extended period of time, and 2) help to generate more money for other long-term investment opportunities that would come along. Regular cash inflows from your wage should go into this short-term pool of funds.



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