Everyone’s Becoming Too Short Term

20 years ago, the average holding period of a stock was 7 years. Today, recent studies show that it’s down to 5 days. Over the past year, I have noticed that many traders and investors are becoming EXTREMELY short-term in their thinking. Here are a few recent examples.

1) When $TWTR was $45, I tweeted that it could double in 12-24 months. When it got to $60, I outlined my thesis in a blog video. After getting close to $75, the stock dropped $9.56 on Friday 12/27/13. Over the weekend, I got 17 emails asking me if I was still sticking to my thesis and if my views have changed. I didn’t answer any of the emails because what part of “by the year 2015″ did people not understand? If you are that concerned about the day-to-day fluctuations, then you should either decrease your position size or you should NOT be trading. Trading scared or nervous gets you nowhere.

2) I was on the phone with my friend last week and $AAPL dropped from $567 to $565. He screamed “What’s the news? What’s going on with AAPL!!!” The stock dropped 30 basis points and he was freaking out. I calmly told him there is no news, and then reminded him that he would never panic over a $5.67 stock dropping to $5.65. This is where watching everything tick-by-tick can hurt people.

3) Respected market technician Ralph Acampora was on CNBC’s Fast Money Monday evening and said we could see a 10-15% correction. One of the traders said “that would be devastating!” REALLY? DEVASTATING? A 10-15% correction is part of the market’s normal price action at times, but the market has conditioned everyone that we won’t see any major declines. God help these people when (not if) this happens.

Enough with the examples, I’m more curious WHY people are becoming so short-term? One reason is that everyone has access to so much information and real-time quotes. The reason all the major online brokerages offer you software with streaming news and free quotes is TO GET YOU TO TRADE! The more they stimulate you to trade, the more commissions they make. It’s no different than Las Vegas offering you free drinks, flashing lights, no clocks and no windows to put you in the mood to gamble and spend money.

Another reason is Weekly options. Everyone I talk to says they can’t afford to buy shares of $AAPL $GOOG $PCLN $NFLX $AMZN etc. so they trade options. Therefore, I get it when they say a 10% correction would “be devastating” because all their options will expire worthless. By the way, many people CAN afford to buy these stocks, but they think in terms of the number of shares they can buy rather than a percentage gain. Last time I checked, a $7 stock going to $11 is a tremendous gain of +57%! Now just add two zeroes and you have Google’s gain for the year ($700 to $1100).

Another reason people tell me they are so short-term is they don’t trust the system. They always have one foot out the door because they are still scarred by the 2008 decline and they fear short-term market events. I think that is a bunch of BS. You either adapt to the market conditions, or if you are THAT scared, you probably shouldn’t be in the stock market. Complaining about it gets you nowhere because the system isn’t going to change.

I realize that everyone has different investment timeframes and I respect that. In my humble opinion, the shorter your time frame, the worse your results will be. In other words, Warren Buffett didn’t become a billionaire by day trading. Refreshing your balance all day and staring at your positions on 1-minute charts stimulates emotion, and that usually leads to making bad decisions. Remember, you never want to make trading decisions (or any decisions for that matter) at a heightened state of emotion. Trust me, if you have a little patience and a calm state of mind, you will make much better decisions. Good luck trading!

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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