I've got the dumb question of the day?

Question

Why are long-term stock investors only interested in long term investments, when this only ties up your money for long periods of time, why not pick stocks that will be going up in price the day you buy them, and then sell them the same day and earn a very healthy profit on your investment?

I know that according to the stock investors that have answered my stock questions in the past, that investing in stock and sellig it the sae day, the odds are not in "my favor", but who cares about the odds when you can continue to make healthy profits everyday of the week, except sat and sun? It all boils down to knowing exactly which stocks to buy and when to buy, and how many shares of that stock to buy and when exactly to sell that stock, at least thats what I have learned so far and it seems to be working just fine.

My question is, why hold onto a stock for 3 months, 6 months or even longer, when you can invest that same amount of money into stocks that will imediately return

Answer 1

That's not a dumb question.  But day trading is not as easy or as foolproof as you suggest.  Some people apparently can consistently make money this way, but be aware of how risky it is.  I think that people that can do this consistently over time are a small minority of traders and you make it sound like anyone can do it.  Be careful.  You are taking risk with each trade and if you use leverage and guess wrong, you can deplete all your capital.

You have to continually be right in forecasting the short-term direction of the stocks you pick, which is much harder than forecasting long-term gains.  And you have to overcome the extra expenses of commissions that result from frequent trading and the heavier taxation of short-term versus long-term capital gains taxes.

Answer 2

zman answered your question the best. As a daytrader, someone that did what you are describing, I can tell you that it is not possible to beat the market averages picking stocks intraday. The only way to make money doing this is high leverage. In addition, there are liquidity constraints that create decreasing rates of return as you step up your size in shorter time frames. Therefore, you cannot create geometric rates of return that build huge fortunes by daytrading.

Answer 3

The longer you hold onto a stock, the less risk you're taking.

Now, with less risk comes less reward, so it's a question of how much risk you're willing to tolerate.

Most "investors" hold onto a minimum of 20 stocks for a minimum of 5 years.

Most "speculators" do the day trading you're thinking of.

Answer 4

Your question is based on a false premise.

Most people cannot regularaly "pick stocks that will be going up in price the day you buy them, and then sell them the same day and earn a very healthy profit on your investment."

If you "can continue to make healthy profits everyday of the week, except sat and sun" then the odds are in your favor, not against you. However, you cannot. Even the best traders have a lot of days they lose money.

I will also mention that there are a lot of people who are primarily long tem investors but who also do some shorter term trading as well.

Answer 5

Well, first your time has a value to it.  If you find a stock that goes up $1 in a day, and you bought 1,000 shares of it, then you made $1,000.  However, a stock that can go up a dollar in a day might cost you $80 a share.  Do you have $80,000 to invest for a day?  Probably not.  Perhaps you only have $1,000.  So you could buy about 12 shares of that stock.  At the end of the day, you made $12.  But you had to watch it all day and worry.  You had to do research on it.  You might lose money that day.  Basically, you're undergoing a lot of stress to make $1.50 an hour.

Comparatively, you can research a stock and decide to hold it for three months.  The research might take a couple of hours, but you can do it on the weekend.  You can pick the price to buy and sell it at and put those into an automatic program.  Then you can go on with your life and do other things.

If you pick a stock that pays dividends, then you make money no matter what the stock prices does, whether it goes up or down.

Oh, and guess what?  None of this is easy or guaranteed, which is how you seem to think it is.  Do you REALLY know what to buy and sell?  And how much of your time does it take?  And how much are you making per hour of your time at this?