Short Term vs. Long Term


There is a big difference between short term and long term visions, which usually run counter to each other. On the other hand, short term actions are normally required to fulfill long term goals. There are plenty of examples:

*You work every day in order to build future financial stability.
*You exercise every day to build good and robust health.
*You work hard every day for a contest, an exam or a degree.

In the stock market, I advise people to play short term to add up the gains for the long term (See my previous essay “Act Short Term to build Long Term”, Dec. 2011). There are plenty of reasons:

*You never know (only guess) the price of your stock in the future.
*The price of your stock fluctuates (sometimes wildly) every day. This shows the opportunities there.
*Suppose you catch only half of the fluctuations while making $100 or more each time, the small gains will add up significantly in a year.
*If you sell one or two days after you’ve bought because the price is right, you replenish the cash for further purchase when the stock dips temporarily.
*Buy and hold for a long time is equivalent to being a sitting duck with your cash tied up.

Let me show you how I did by copying some information in two of my Schwab accounts:

Account One
Reporting Period: 01/01/2013 to 10/18/2013
Proceeds $381,593.04 Cost Basis $350,218.56
Total Gain/Loss +$31,374.48 (8.96%)
Long Term Gain/Loss +$6,045.51 (28.40%)
Short Term Gain/Loss +$25,328.97 (7.70%)

Account Two
Reporting Period: 01/01/2013 to 10/18/2013
Proceeds $130,757.77 Cost Basis $117,344.97
Total Gain/Loss +$13,412.80 (11.43%)
Long Term Gain/Loss +$300.61 (2.59%)
Short Term Gain/Loss +$13,112.19 (12.40%)

Please note the following:

*Proceeds and cost basis: In reality, I don’t have that much money to buy, nor that much stocks to sell (I wish I had). The large amounts represent the high frequency of turnover, that is, many short term buys and sells added up for the specified period.

*The total gain is just proceeds minus cost basis.

*You can see the big difference between long term and short term gains, hence validating my advice to play short term.

*What stocks did I play? Only three or four, but frequently because turnover is the key. If space allows, I’ll show you the stocks I played next time.

October 2013

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