Another week of lockdowns in Sydney and the markets are over reacting again to the economic events and it’s consequences. We are also a little lower than last week because of speculation that banks will increase interest rates sooner than people expect and that scared some people.

Ib Market Values 9 7 21
IB Market Values 09/07/21

As we already know that markets will bounce back, it’s nothing but sheer fear and/or madness that so many people buy or sell on such short term issues. This is obviously very opportunistic by those that only are looking for a “quick profit”. But it sends the wrong message about investing in companies that need stability, for them to get on with the more important business which they should be focused on, instead of worrying about their share price and how that will affect their ability to grow in the future. In my opinion, there’s three reasons against “short term trading”:

  1. It’s hard to know exactly when is the best time to both buy and sell. Often the markets move so quickly that orders are placed too late and opportunities are missed which puts you under a lot of pressure to be faster. Even if you paid for some professional traders to give you the “tips”, you will often find that you’re too late to benefit from their recommendations (yes, I have tried several, at great cost, and all failed).
  2. The brokerage costs and tax (if profitable) will reduce the net gains such that it’s often an exercise in futility. You can waste a lot of time but still have no guarantee that you will even get a payoff? Any potential profits are further reduced by the costs of “traders recommendations” (as per point 1).
  3. Then there’s the pain when you take profits too quickly and wish that you had held onto the shares for the higher gains! In addition, don’t underestimate the time and costs involved with keeping good records for “tax time”.

So the other way is to take the sensible (and less stressful) approach of doing company specific research before looking at the broader market and deciding to invest in a company that we expect will do well over the medium term. The benefits are:

  1. We reduce the brokerage costs and don’t need to look at the share price every day (although I will briefly check it when possible each day) unless there is some important news about the company. This gives us time to allow the company to grow and ride the rollercoaster until it also gets its turn in the “spot light” (i.e. higher price).
  2. Should the company “strike gold” or make a breakthrough of some sort, we can see the price skyrocket, and most traders would miss that whilst patient shareholders will get the rewards. Sometimes there will be a “takeover” offer for a company and that can generate a better return for investors. Of course the company’s board of directors and other major investors appreciate long term investors who keep their share prices stable during any periods of market turmoil.
  3. The tax discount is also very important. To reduce any taxable gains by 50% really helps you keep more of the gains in your pockets. Plus having fewer trades each year makes life easier for “tax time”.

The Bell Direct portfolio has fund managers which are never accurately reflecting the correct current values because they will always be at least one or two days off what their underlying investments values are. They have their place but not very good for trying to “time” things like we can with direct shares. It also means we cannot manage their tax outcomes because we rely on the professional managers to make these decisions for us and hope it works?

Bell Portfolio 09/07/21
Bell Portfolio 09/07/21

Here’s the latest on the cryptos, it’s another non-eventful week and we may need to be patient for a few months before the action “heats up” again?

Crypto Holdings 09 07 21
Crypto Holdings 09/07/21
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