Home > General Topics > Economics > Is long-term value investing more profitable than shorter-term trading?

Is long-term value investing more profitable than shorter-term trading?

  1. I am sure both schools are profitable. However, I am curious statistically which school is more profitable. Value investors like to cite Warren Buffett as an example why value investing is superior. They ask "If shorter-term trading is so profitable, why are there no prominent ultra-rich traders who can compare with Warren Buffett"?

    I have been pondering over this question. Is shorter-term trading inferior to value investing mainly because it is not as scalable as value investing? What are the pros and cons of each approach?
  2. Long Term value investing allows you to keep another full time job and that makes it more profitable than day trading right away.............unless you are really piling cash........in day trading.

    Would be good if someone can post stats on raw comparison.
  3. Many, many people basically fail at trading. No matter how hard they try or determined they are. -- Just browse through the trade journals and other sections of this site to confirm so....it's nothing but people beating themselves up for various woulda, coulda, shoulda mistakes.
    They're nothing but a bunch of degenerate gamblers, if you ask me. with no real plan and/or skill.

    So statistically, for everyone as a whole collectively, "long-term value investing" is the obvious profitable option.
    But for the select few who can seem to make trading work...they usually vastly surpass the % returns of investors.

    It's kind of like aiming for the Dream, or playing it safe. If you have the skill and fortitude and character and talent...entertain the idea of playing professional sports. instead of getting a job in the workplace.
    But of course...for every Michael Jordan, Tiger Woods, Floyd Mayweather, David Beckham, Maria Sharapova...there are tons of sardines in that vast ocean of so-called talent.

    This is a retail trading forum...scalability should not be an issue of discussion. Even for the largest individual trader here...they won't cause a tidal wave most likely getting in and out of the pool or lake or ocean.
    That will only happen if you're a hedge fund manager about to buy a penny stock....stomping your foot in would cause all the aquatic life to fly out.

    Make New Year Great Again 2018
  4. I agree that scalability is not an issue for retail speculators. However, for the sake of discussion, I do think scalability is indeed a good reason why the richest market participants tend to be value investors. Value investing as a money-making strategy scales better, so diminishing returns do not set in as quickly as short-term trading when AUM rises.
  5. I think you have thrown a wide open question and crossed several aspects of trading and/or lack of partial knowledge of Buffett. It wasn't until like last year I always thought Buffett was greatest long term trader around until MY interests of trading gone different direction. I think Buffett can be considered one of the best options sellers around to make shorter term durations while using the underlying as the hedge/capital appreciation. It is my believe he is making very more consistent returns on the options than the stocks which where the stock market keeps making higher highs could be thought as a way to limit down side.

    MHO, greatest number of wealthy commodity traders happened in late 1970s/80s was due to extremes and great movement in many commodities and the likes of Dennis, Trout, Rogers and dozens of traders became very wealthy, and cause of brokerage fees in stocks was more of a buy and hold style. But starting in 1990s, cheaper brokerage allowed guy at home, some of walls came down. Think there are more Commodity billionaires today than before because advent of Hedge funds and shows how automation can become an ATM.


    I would like to believe in my heart that "make America Great again" would and could become again. I would like to see more Buffets' of owning businesses besides those just doing hedge funds as if more companies make an effort to start more businesses, business would come back to the states again.

    I am sensing much more diversification of durations because those who are larger are making side companies for brokerage, larger hedge funds are making them. It really difficult to push in one million shares of anything at decent price and still be able to do options with the stocks, whereas owning a brokerage, can hide it more.

    In my case, short term stocks or commodities the risk is the same, so I might as well get for longer durations, but dance shorter 2-12 month duration options around my positions. I think there are much less entrepreneurs who can trade funds and be able to manage people in other companies like those of Buffet, Icahn.

    But let's face it, the number of years to get good and do it from home will be getting tougher, you can make a very decent living, doesn't matter which one you trade so long as you are consistent, what is difference if you net 200% in either one as long as you net the same. One of major problems with many of the pits closed is reduction of networking with those who might back an up and starter. It was much easier to learn spreading in the pits than at home, and spread trading was and is very consistent way to trade. You want to know where good areas to learn more about the markets? Look to see where there is absence of books written on some topics. Those who know-don't write books on it.

    Playing the game is about thinking smart, don't waste you time trying to re-invent the wheel, and when you do know how to play, you will always think "that's it"? But I spent years trying to make it harder, keep it cheap-2% risk max, long term think in terms of 15 to 1 profit to loss min and short term concentrate on low losing percentages, if you not losing often, account more likely to go up and have confidence to add more shares/contracts.
  6. more profitable a coffee shop...

  7. In a 2011 study of behavioral patterns and resulting investment performance of more than 65,000 investors from 1991-1996, Dr. Brad Barber and Dr. Terrance Odean found the 20% least active traders outperformed the 20% most active traders by an astounding 7 percentage points a year.

    The least active group had the time to hold a full time career or run a business - this group is not glued to their screens all day.

    Buffett once said, "The stock market is designed to transfer money from the active to the patient."
  8. Huh? There are loads of them. George Soros, Stanley Druckenmiller, Ray Dalio to name but a few.
  9. Its important to be specific. I wouldn't have said Warren Buffett's style resembled what the majority of private long-term retail investors do, want to do or can do.

    But its also important not to be too narrowly focused. Although I'm a short-term private retail forex, indices and commodities trader, I'm also a long-term investor - in property. I've owned the houses I've lived in since the mid-80's. I wouldn't recommend anyone invest solely long-term (or solely short-term) and I'm actually doing both - I suspect most traders are also.
  10. Important for who?

  11. Important for learner88 who put up the original question, and for those responding, if we are to have a sensible debate.
  12. The overwhelming majority of investors/ traders do MUCH better by investing long term. That is a fact. Short term trading is too emotionally driven. Even if you did have a winner, how many times did you say to yourself “ i should of held longer “?
    Get a job doing something you enjoy( not gambling) and invest in various funds, you will do well. All the ups and downs with daytrading causes extreme stresss on marriages and also causes depression. Ive seen many traders on the brink of suicide and im not kidding.
  13. Obviously, you are making the assumption that you have everything that it takes to become the next Maria Sharapova. I am pretty certain it's not true (I've never seen you but I am sure she has nicer legs), plus it's important not to discount the value of luck along the way to the great success.

    On topic now :) First of all, it's very hard to separate "trading" from "investing" and any cutoff will be arbitrary. If you go down the passive vs active road, there is value to both and it's worth combining them if you have the expertise and the time. Second of all, active investing/trading naturally incorporates frictions and those things add up very quickly (btw, one of the arguments against robe-advising services like Betterment is the transaction costs).
  14. Long term investing benefits greatly from preferential tax treatment.
  15. You haven't seen me play tennis yet... :)
  16. Isn't there a U shape to the time frame in terms of optimal profitability? And isn't it relative to the liquidity in the market? The only study I've come across is in Rob Carver's book. Sharpe ratio is improved by moving to a shorter time frame. Swing trading seems optimal for retailers but not daytrading. The costs of daytrading are too high to overcome. The results of daytraders are definitely not good according to O'Dean and other academics.
  17. And make sure to take whatever "supplements" Sharapova is taking :)...to even the odds.
  18. The more savvy traders these days diversify through various holding frequencies and across many domestic & foreign trading instruments. This goes contrary to the group think - the one trick pony's parroting the trading techniques that don't stand the test of time.

    For example when the market has been at 5 year lows after the crowd pukes out, and a base emerges, they adapt with the changing market conditions into value investing with a portion of their capital and will still trade shorter and intermediate time frames as the new bull market plays out.

  19. Is this what you're doing?
  20. Somewhere I also read that it has been proven statistically that more you day trade, the more your probabilities of winning trades go down.

    Do not know in depth of this logic but it does make sense given the mental toll day trading can take leading to "unforced errors" in decision making.

    Also, look at the numbers of CTAs, CPOs and Hedge Fund managers of Forex and other fast lane instruments. Even these what so called Ivy League and well experienced "Top Guns" are not able to return consistently 20% a year and can't blame the "mere size" of the fund alone. Numbers are pretty consistent for AUM of $1M to $50M to $500M.

    Best returns out there are 401(k) with 100% matching by the employer. Tax free growth until withdrawl and even 5-7%/year appreciation does lots of good.
  21. Makes sense. Add in costs like spreads and commissions.
  22. That's what most successful professionals are doing these days. Instead of searching for that one holy grail, you get a bunch of passable vessels - some made of porcelain and some are tin cups, but as a combination they tend to be as good as a holy grail is.
  23. Thanks for your input. I kind of got that impression from reading AQR's blog and Anti Ilmanen's work.
  24. Thanks for the tip.
  25. Thanks. This is good advice. Have different tricks in the bag to prosper in different kinds of market conditions, though it takes skill to recognize what tricks to apply in what kind of market. Many value investors say market timing is impossible, so they usually stay invested throughout.

  26. learner88 is risking to never achieve your results.you`ve just set the goal for him.
    Do you become investor once your trade goes against you?:D:D:D
  27. Just to balance the talk about investing being so easy and sound and less cost etc., I've seen people holding and adding all the way to 0-1, in the hopes that this time the company (a solar one) would go up, because "it's the future" (and it is, definately, just not this particular one...). Of course, the industry got exported to China and low cost production (fundamental shift), so this stock just kept going down, not following the "bull market" at all.

    So while you hear alot of these so-called "bull markets", you can get stuck with poor performers and it's lethal to add on the way down. Only in hindsight do these bull markets exist, and they don't mean every stock was winning. The losing stocks just got devalued away from the index while the rising market caps kept pushing the index upward! Thus "bull market" was born. Exchanges are designed that way they ensure a rising market, along with inflation and other devaluing techniques out there.
  28. Sometimes you start out thinking it be short term trade, but I am still holding onto stocks from 2009, so does that make me an investor? But I have added on various times and started dumping half of new position at so much profit and keep other half, to now taking profit at 90% and holding 10%. Either be a genius if market tanks in next year or robbed myself of much if don't. But I also look at it this way, where can I make the most in terms of cash as it costs so much trading stocks than commodities cause margins less in commodities but fees certainly more in commodities cause of rolling over. I don't think of tax issues as 98% in 401k LLC.

    I do something very much the same and done well but with sectors of the S&P 500, I believe there are 13 sectors, if a sector been 4 of 5 years in lowest 2 levels, last trading day of last year, whatever I had in that account is exited and new ones get bought, if there are no sectors that met rules, if there was any stocks for the year, they are exited. I don't hedge them and no stops used and don't check them for three months.

    Last two years have sold off my real estate holdings that was in my 401k LLC, wanting to go different direction in my life, it truly amazing that at some point everyday problems of owning a business, are not problems as you have all the answers from years of doing it. And when you started from ground up, no one can slip a fast one on you.

    Hope all have a Better New Year.
  29. No!
  30. There are all kind of traders, function account size, of who's money they're trading, of their understanding of markets' working, etc.. There isn't a "one size fits all'. What you called "savvy traders" are those who make money from commissions ...
  31. Care to expand? There are plenty of non-MM players that have strategies across the time-frame spectrum as well as across a range of instruments. That does not mean they collect commissions.
  32. Handle misses the fun of being slipped a mickey and getting taken advantage of. Wheee!
  33. Is long-term value investing more profitable than shorter-term trading?

    It seems to have been for some in 2017. Will it be in 2018? Who knows? The question asked can be answered in two ways depending on whether it is referring to individuals, or investors and traders in aggregate. Short term trading for particular individuals at particular times will always be more profitable then long-term value investing over similar time periods. Your job is to look forward in time and determine whether you are one of the particular individuals. :D
  34. Assuming you're as good a trader as you are an investor, shorter term trading is more profitable due to compounding.

    As others have stated, you can be both at the same time if you know how to trade across a range of time-frames.