Introduction

Today I am writing about something that I have been thinking about in the last several months. I am becoming a trader. I am adding trading as one aspect of my investment scheme.

It used to be that I was somewhat of a die-hard buy-and-hold investment strategist. I believed in buying a stock, and, in the words of Warren Buffet, "holding it for life". I still believe in that. However, I don't believe in that solely any more. I believe that there are stocks that you trade and stocks that you hold on to for dear life. Stocks that are gyrating, that is, moving up and down, I prefer to trade rather than hold on to for the long haul. I believe this for the several reasons.

Trade and grow your money fast

One reason I believe in trading, what are termed "volatile stocks", is that you get a chance to make money on that stock over and over again. I remember when AIG was selling for only $0.99 a share. So I went out and bought 1000 shares. A few weeks later it zoomed up to $20 a share, dropped back down to $13 a share, climbed to $18.00 a share, and then peaked at $50 a share. (At this writing, it has fallen to about $38 a share.) Now if I were smart-had I been a trader-I would have taken my profits off the top and re-invested my initial investment (contribution), over and over again so that my investment account would have taken off like a rocket. In other words, I would have sharply grown my wealth in a short time.

Trade and stop marking time with your money

A second reason that I believe in trading is that you don't fall victim to having to make your money over and over again. In other words, instead of marking time and going no where wealth-wise, you are, as I indicated earlier, actually growing your money. Using a buy-and-hold strategy when you are investing in volatile stocks (again, stocks that are going up and down in a range), you are in a real sense marking time. You are not taking advantage of the opportunity to grow your earning. On the contrary, you are making and losing the same money over and over again. For example, let's say that a stock in moving in a range of a low of $10 and a high of $20. If you were to buy-and-hold that stock and forget about it, you would double your money over and over again only to lose it over and over again as well. On the other hand, if you were to buy it low at $10 and sell it high at $20 and do that over and over again, you would see your wealth begin to accumulate because you are locking in your profits and re-investing your principle. Instead of marking time, you would be marching forward and growing your wealth through profit accumulation.

Trade and become liquid

Last, I believe in trading because it builds up liquidity. That is to say that you have access to money upon demand. If you need money very quickly to invest in, say, a rapidly trending hot stock, you can do so by selling some of your shares without having to borrow money on margin (i.e. borrow money from the financial institution that you are doing business with) or stand by and watch the money making opportunity vanish before your very eyes since you are wedded to an investment strategy of buy-and-hold alone. My point is that being a made-man of buy-and-hold investment strategy is like being a real estate investor who has all of his money tied up in several properties that he owns. However, his wealth is "frozen" or as they say, "illiquid". He might be worth several million dollars, but doesn't have the money to pay his cab fare!

Summary

In conclusion, I believe that trading should be part of any serious investor's investment strategy for three reasons. For one, it gives you the opportunity to quickly grow your money. Also, it frees you from the buy-and-hold loop of constantly making and losing money over and over again. Last, it adds liquidity to your portfolio.