I believe in the Efficient Market Hypothesis. I do not believe the stock market is perfectly efficient, but I do believe it is efficient enough that retail investors cannot normally/consistently take advantage of inaccurately priced securities. Here are the resulting assumptions I have that stem from this belief:
- Paying any attention to things like technical analysis or 52 week highs/lows is a waste of time.
- Generally, the information you would use to make short term trade decisions is already reflected in the price of the investment.
- The proper way to invest, if one’s goal is to build wealth in the market over the long term, is to dollar cost average into a well diversified portfolio and hold those positions for many years. Do not try to forecast or predict short term price movements, and ignore market downturns, trusting your diversification to prevent permanent losses.
- Trying to pick equities that will skyrocket in value is foolish in a publicly traded market, even if it can work in private equity or angel investing.
Can anyone show me how focusing on short term (1-3 years) price fluctuations and actively buying and selling (“day trading”) has benefitted them?
I’m curious for any thoughts, but if you believe short term trading is the way to go PLEASE BACK THIS UP WITH CONCRETE NUMBERS YOU YOURSELF HAVE EXPERIENCED FROM DOING IT. I am aware of lots of theoretical arguments against my assumptions, but I’ve never been able to see someone get superior results, e.g. a 30% annualized return over a 10 year period or something like that from spending two hours every day messing with their E-Trade account.
Thanks in advance for any insights.
Edit: To be clear, I’m not just talking about day trading. A 40 year old who moves his 401(k) into the fixed account because he thinks the market is about to correct also falls under this category.
Disclaimer: Consult your financial professional before making any investment decision.