Posts filed under “Investing”

Another look: A short-term trader won’t beat long-term investor

 

My Sunday Washington Post Business Section column is out. This morning, we revisit the advantages the long term passive indexer has versus short term active traders.

The print version had the full headline The trader can narrow the gap but won’t win, while online, it was called No matter what, the long-term investor comes out ahead of the short-term trader.

Many of you wrote in to point out some errors I made that disadvantaged the trader. In this week’s column, I took reader’s suggestions about taxes and dividends. I made the appropriate adjustments in the trader’s favor:

“Last time, we looked at why traders are at an almost insurmountable disadvantage against investors due to short-term capital gains taxes. Many of you wrote in to note several factors that would have allowed the active trader to narrow the gap against the long-term investor. A few of you asked how likely it was that a trader would outperform by that margin year after year. This week, I want to review those issues readers raised, looking to see how they affected our competition between the long-term indexer and the short-term trader.

Spoiler alert: The issues to which I gave short shrift did improve the performance of the trader, but not nearly enough to narrow the gap between the two. Let’s look at the details”

The takeaway is that short term trader’s have a remarkable bogey to over come: The much higher rate they pay for capital taxes.

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Source:
No matter what, the long-term investor comes out ahead of the short-term trader
Barry Ritholtz
Washington Post, August 10 2014  
http://www.washingtonpost.com/business/no-matter-what-the-long-term-investor-comes-out-ahead-of-the-short-term-trader/2014/08/07/aad83bce-1e64-11e4-ab7b-696c295ddfd1_story.html

Category: Apprenticed Investor, Investing, Trading

Last month, I spilled a considerable number of pixels explaining why Rupert Murdoch’s Time Warner bid had no significance to whether or not this is a market top. My short list included complaints of cherry picked data that somehow ignored most of Murdoch’s M&A activity over the past half century; a laughably small sample size…Read More

Category: Cognitive Foibles, Investing, Markets, Psychology, Really, really bad calls, Trading

Our Self-Inflicted Economic Wounds

In sports, all great competitors know that they have a choice, even when confronted with daunting, insurmountable odds. They can lay down and let the larger, stronger opponent run up the score. Or they can find a way to compete, to make a game of it. A good loss is a dignified way to show…Read More

Category: Investing, Really, really bad calls, Taxes and Policy

Welcome to the Muppet Economy

Slipping back into my regular routine is sometimes a challenge after a few days of traveling. The first day back in the markets — especially following a week like we had to end July and begin August — can be a bit of an adjustment. A few days away allows the accumulation of jaded skepticism…Read More

Category: Hedge Funds, Investing, Really, really bad calls

A Simple Strategy for Shaking Confirmation Bias

A Simple Strategy for Shaking Confirmation Bias Brett N. Steenbarger, Ph.D.     One of the most insidious cognitive biases affecting investors and traders is confirmation bias.  Once we hold a particular view, we tend to prefer processing information that fits with that view.  What’s worse is that, because of our bias blind spots, we…Read More

Category: Investing, Psychology

What if You Were the World’s Greatest Trader® ?

So you’re the world’s greatest trader®? Taxes will fix that. Barry Ritholtz Washington Post, July 27 2014     Imagine the following: You, the investor, believe you have an uncanny skill at picking stocks. You set up an online trading account and begin to buy and sell. As it turns out, you are quite good….Read More

Category: Apprenticed Investor, Investing, Taxes and Policy

Tadas Viskanta in the founder and editor of Abnormal Returns which has garnered a loyal following in the investment blogosphere. He is also the author of Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere. ~~~ Two and half years ago in this space I published a post arguing that there had never…Read More

Category: Investing, Weblogs

Rising Rates Unliklely to Kill This Bull Market

One of the oldest rules on Wall Street is, don’t fight the Fed. When the Federal Reserve is cutting rates, you want to be long equities, and when it is tightening, get out of the way. This has been a cause for concern since the Fed began talking of tapering its program of quantitative easing…Read More

Category: Federal Reserve, Fixed Income/Interest Rates, Investing, Markets

What if You Were the World’s Greatest Trader® ?

>   My Sunday Washington Post business section column is out. This morning, we look at the impact of taxes on personal trading accounts. The print version used the headline A harsh reality for all you stellar active traders; the online version is So you’re the world’s greatest trader? Taxes will fix that. The bottom line…Read More

Category: Investing, Taxes and Policy

Cognitive Dissonance Is Hurting Your Returns

Regular readers know I enjoy discussing behavioral aspects of investing. The reasons for this are twofold: First, we can’t control the markets, but we can control our own reactions to it (at least we can try). And second, many studies have shown that investors suffer from a behavior gap between what they should garner in…Read More

Category: Cognitive Foibles, Investing, Psychology