Buy and Hold? Nope. Why Active Trading's Safer - TheStreet

Later this morning, RealMoney.com's Rev Shark will host a special interactive chat. His theme will be the Five Commandments on Effective Trading -- Why active trading is safer than buy-and-hold investing. This column lays the groundwork for how he formulated these Commandments. To sign up for the chat and get the commandments, and participate in the live chat, please click here.

Question: Where did the name Rev. Shark come from?

Answer: Back in the very early days of online investing the primary gathering place for investors was a site on

America Online

run by a group known as the "Motley Fool."¿

The Fools preached that investing was fairly simple. All you had to do was buy good stocks and hold them for the long run.¿ Warren Buffett got rich that way and so can you. They claimed that trading was ineffectual and would almost always lead to poor results.

I had been slowly developing my skills as a trader and my brokerage statements were telling me a very different story.¿I felt it was my mission to spread the word about trading and adopted the screen name Rev Shark.¿ My goal was to preach the merits of active trading and to save souls from the dangers of "buy and hold."¿

My point was simple: Active trading not only can produce better results than buy-and-hold investing but can do so with much less risk. Buying a "good" stock and holding it for the long term is such an easy and appealing strategy that investors are often lulled into buying just about anything and thinking they were safe as long as they were in it for the long run.

What many investors failed to recognize, until it was too late, was how terribly difficult it was to find the few stocks worthy of being held for the long term. Even Warren Buffett has commented that only a handful of truly great opportunities will occur in a lifetime.¿ My contention was, and remains, that finding those opportunities is far harder and riskier than a disciplined approach to active trading.

Back in the highflying bubble days the popular press loved to portray traders as wild risk-takers who made and lost fortunes in the matter of days or weeks. Certainly there were individuals who did that but what was ignored was the methodical risk adverse trader who protected his capital and grinded out gains steadily.

My contention is that the real gamblers and risk-takers are the long-term investors who buy and hold stocks for the long run.¿If done correctly, active trading carries far less risk and offers far more profit.

Effective trading is a skill that anyone with some ambition and perseverance can learn. It takes some effort but the payoff can be huge.

To check out Rev's Five Commandments and participate in his chat, please click here

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