One of the most interesting topics in the markets is the battle between buy & hold versus short-term trading. Let’s take a closer look at both.
The first thing we need to define is our investment horizon (short-term or long-term), and from there determine our strategies.
A short-term investor actively uses trading, buying and selling on an intra-day basis or in day/week swings (which can also extend to months).
On the other hand, a long-term investor only buys with the goal of selling much later, simply engaging in buy and hold.
Neither of these strategies is inherently better than the other; it depends on who is applying them, as there are profiles that are more conservative and prefer to avoid volatility by focusing on the long term, while others need this volatility to operate in the short term.
Most of the time the biggest returns result from buying and waiting (this is evident in crypto, like those who bought BTC at $500 and patiently waited).
However, the best traders can multiply those percentages much more if they are skilled enough to interpret market conditions correctly and trade accordingly (selling before corrections and buying back at lower levels).
However, unless we are very skilled traders, the best option is always buy & hold:
- Avoid volatility.
- Ignore news that impacts in the short term.
- Don’t try to catch the market’s peaks and troughs.
This chart shows that of $10K invested in the $SPX, the highest returns were achieved by being invested in the market all the time, even during corrections. It also shows that returns decrease significantly if we miss the best green days of the market, something that often happens when opting for very short-term trading.
But it’s not necessary to choose one or the other; we can combine them in two different ways:
- By dividing our portfolio into long term and short term, where each strategy is applied separately.
- Investing for the long term but applying trading to acquire a greater number of stocks or coins with the same initial investment.
For example, at the latter point we can buy ETH at $2000 with the goal of selling it at $10K, but to accumulate more ETH, we can sell at certain points that we consider appropriate, hoping to buy back at lower prices (-5%, -10%, -20%). By repeating this process, we can achieve better results than with buy and hold alone.
Therefore, we can say that based on self-awareness, we can apply the strategy that best suits our style, although it is usually safer or more likely to achieve better returns with buy and hold.
So, is time in the market > timing the market? It depends on how good you are with timing.