Online Stock Trading

As strange as it might sound, I’m going to honestly reveal the unpopular notion of mine that holding stocks for a long time has never seemed to be the smartest way to capitalize on their movement in price. But I should qualify “the smartest.” If one takes that to mean: the way in which one could soundly outperform even a high-yield savings account or CD while doing so by exposing oneself to the smallest known risks, then I will, time and again, be sorely beaten in any argument. What I mean, I suppose, is more simply: the way in which one could make the greatest possible gains, period; even more than the kinds of gains made by people who hold stocks long. In other words, echoing the closing words of my last post, those kinds of gains just weren’t good enough.

Such a notion no doubt flies directly in the face of any close follower of Warren Buffett, that’s for sure. Why would anyone want to endorse a notion that was contrary in at least one major respect to the method observed by the nearly unanimously accepted best investor in history? It has been my view that Buffett could do what he did because quite simply of the unique life that he led. In other words, another man, having led a similar life could have done the same. Am I saying that Warren Buffett’s success was based completely on circumstantial luck? No, but I think it was in large part. Am I being spiteful? I certainly hope you don’t think so.

What am I saying? I think until fairly recently in my life, I had actually been in a state of awe about the man. However, once I got old enough and involved enough in financial markets, at some point when I started actually calculating things and understanding the whole, so to speak, on a more comprehensive level, I think my view of his success moderated. I had spent most of my life believing that he had basically started with almost nothing and, through a seemingly mystical expertise, made fortunes by taking the long and hard road. This was the Buffett of rumor. This was the man who turned $100 into billions.

But the Buffett of rumor is just that. His $100 combined with the $105,000 from his family & friends was what really got him going.

And just how much is that? According to MeasuringWorth.com it could be from anywhere as low as $610,000 to as high as $2,989,000 in 2005 dollars depending on which metric you use. Wow. That’s one hell of a foothold. Taking the lowest, most conservative figure and bringing it to meet the $148 billion that Berkshire-Hathaway is worth today over the course of just over fifty years, we arrive at a consistent compounded annual rate of return of about 28%.

That’s good, but its worse if we use any other metric. Had he started off with a million bucks? Really? Looking at it from that perspective, I’m personally less impressed. You mean he became incredibly wealthy after having started with such wealth? When trying to look to the idols of our times to find motivation to locate personal success it helps to have at least a few things in common, yes? For myself, in the life I’ve led, I have no such things in common with that man. His life and experience are quite alien from what I can see around me and so, absent those things which enabled him, I’ve had to look for another road.

What such a road is this?