The Case Against Active Trading

Active trading is buying securities and holding them for a short time before selling.  We put the practice on trial and make a case against it.

Remember, at LMM we advise you to stay in the market for the long con.  Active trading, or day trading is the exact opposite of that and a bad practice to get into.

Jim Kramer, the big mouthed yelling “financial guru” advocates active trading.  Should you listen to him?  He’s on TV after all.  Let’s look at his record.  Between 2005-2007 he underperformed the NASDAQ by 2%, the S&P by 4% and the Dow by 10%.

But what if you hire the best money manager out there?  Surely he or she can do it better than you.  No, they can’t.  Over a twenty year period, 80% of them underperformed the market.  And remember, no one cares more about your money than you.

What if you pick a MorningStar Five Star rated fund?  It’s like Michelin stars, right?  The more stars the better?  In theory yes, in practice, the inverse is true.  Vanguard tracked funds for the first thirty six months after they received the Five Star rating and they all performed worse than the One Star rated funds.

There are an unlimited amount of variables that drive the market.  More than anyone could ever account for.  Even if you had the best data at your fingertips, the vast majority of the time, you still won’t beat the market.  And unless it’s your hobby and passion, who wants to analyze all that data?  The most, maybe the only important thing is that you put your money into the market.

Show Notes

Arabier:  A pure malt beer.

The 5 Mistakes Every Investor Makes and How to Avoid Them:  Learn what not to do in order to grow your wealth.

Betterment:  The easiest way to invest.

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