In my work as a stockbroker, I found that many brokers (and clients) expect frequent trades. It’s the type of thing that becomes a habit, and then becomes part of the culture of an industry. I can think of a few reasons for regular trading. First, brokers were traditionally paid per trade. Second, how can a broker be doing his job if he’s not trading? I had a prospective client come in, complaining that their broker hadn’t recommended a trade in years. It turned out to be a small account with two stocks that performed extremely well. I recommended they stick with their broker. Third, clients expect movement in order to take advantage of opportunities or to avoid pitfalls (realistic or not).
As I was learning to research and trade stocks, I read the book The Contrarian Investor’s 13, by Benj Gallander. In it, he shares the wisdom he has gained from 25 years of investing in the stock market. One of his tactics is to buy stocks only once a year. He will generally buy in December, when there’s downward pressure (especially on the down-and-out stocks he likes to buy) from tax loss selling. A supporting aspect of his strategy is to keep a stock on his watch list for at least six months before buying it.
Infrequent trading goes against the grain, and I find it difficult to employ. First, there are opportunities that arise throughout the year. Second, I am not very patient, so when I decide that I need to make a change or that a stock is a bargain, I want to place the trade very soon. It’s hard to wait months, knowing that it could move up in price beyond what I’m willing to pay for. Experience has taught me that it will often come back down, months or even years later. That’s the benefit of having patience and a watch list.
While trading regularly feels productive, it can result in mistakes. For example, I decided that I no longer wanted to own Canfor Pulp (CFX) when it started dropping in value, so I sold it and purchased Enerplus (ERF) as a replacement. It went down equally with CFX for a couple weeks before I sold it as well. The day after I sold ERF, it rose 5% in value. A couple days after that, CFX dropped 18% in a single day. I’m glad I sold CFX, but I really should have done more research and watching before buying ERF. On the other hand, I’ve watched Reitmans (RET.A) for quite a while. Recently, it has fallen in value to the point that its yield matches that of some of my other investments. I feel like this may be an opportunity, but I want to do some further research first.