Just curious on people’s perspective on this. For ETFs and lower-risk investments the line between swing trading and long term investing would seem pretty clear-cut (barring correctly predicting a global crisis, why attempt to swing trade on such an investment?), but when you throw in riskier elements into your portfolio just curious where people would perceive the balance to lie.
In the longer term, my strategy is to give everything moderately or highly risky that I buy (stocks in this category would amount to about 30% of my portfolio, obviously several different ones) a target price. If it hits this price, I re-evaluate the whole company as if I’d never heard of it and never invested in it, and decide whether, coming in fresh, it would be a buy.
If it’s a buy, set a new target price and repeat. If it’s a sell then sell, likely never look at the company again, and find a new place to invest. Standard stuff.
But if it’s a hold - and already a somewhat risky investment that I’ve made a good return on - my thinking is to sell, watchlist it and give it a target price lower than I’m selling at. Should it ever drop to that level then I’d reconsider.
Definitionally this last bit would seem to be swing trading, but does this sort of thinking have a place in a long term plan? My rationale is that when I buy I buy with an eye to 5 years in the future, and that if a company gets there quicker and my assessment is that the growth is front-loaded, rather than being a bona-fide rising star, then by definition if I was going to sell five years after investing and have already made the expected ROR in a shorter timeframe, it simply makes good sense to sell. And that if the market later reaches the same conclusion, then it may once again become a viable investment at that risk profile.
I don’t think you should ever stay completely married to a plan.
If you buy something as a long term hold and then the bottom falls out eg Asos, you have to essentially think of it as a new decision, would you buy now? You either double down, stick or twist but holding just for principle isn’t sensible.
Same with if you’re lucky and it goes on a run, you might believe in the company long term but if you think it’s expensive, it can still be worth taking profits and going back in on a dip.
I mean your post just basically describes value investing, absolutely if the stock’s extrinsic value is above your intrinsic valuation that suggests you need to at a minimum review your model and see if you need to sell.
This seems very healthy. There’s no such thing as a good stock, only a good price.
I guess the only thing I’d say to avoid swing trading is be aware of the error bands on your valuation, it depends on the stock but generally if you think something is 5% over/undervalued that’s basically meaningless because let’s be honest your model isn’t that accurate. Having an appreciation for the limits of your accuracy with a wide margin of say ~20% should mean you don’t end up overtrading.
Sometimes you just need a second opinion. When something seems to be working it’s the easiest thing in the world to use that as evidence to self-validate that course of action as being a sound one. Confirmation bias if you will.