When I first started trading in 15 years ago, I was dead set on short-term trading, with an emphasis on options. The reason was simple. I had a small account ($5k) and big dreams. At 21 years of age, I was also young and the long run was so far off that I ignored it in favor of the here and now.
Given my mindset, it was difficult to embrace the virtues of dollar-cost averaging and long-term investing. Buying a diversified portfolio of stocks felt like watching paint dry.
With time, however, I wised up.
Now, I can’t imagine not owning stocks and buying more at every opportunity.
Is the reason for my reversal of affection due to circumstance? Is it just because the market has climbed so much over during my adult life? Not at all. In fact, we’ve seen two of the worst bear markets in history in the time frame. The first (2008) was the largest decline since the Great Depression. The second (2020) was the fastest ever. If anything, my love of stock ownership came not in spite of both crashes but because of them. Or, more specifically, because of what came after them.
It’s one thing to read about how resilient the stocks are. It’s another to live through it. Watching the market recover following 2008 and 2020 has cemented in my brain the reality that the declines are temporary, and the advance is permanent. As such, every crisis brings opportunity for those willing to turn off the T.V. and ignore the pessimists.
Ten Reasons to Own Stock
Here are ten reasons why I love owning stock.
The larger your account grows, the more of a chore it becomes to keep redeploying your capital. It’s one thing when you’re managing a few trades in a sub-$25k account. It’s quite another when you’re wrestling a bucketful of positions in a six-figure account. When you own stocks for the long run, you don’t have to keep finding new trades. Your exposure is everlasting.
Maximizing gains on a stock requires continual redeployment when using options. That is, you have to enter new trades again and again and again. In contrast, when you own stock, all you have to do to maximize gains is nothing.
If I have more long-term core stock positions, I don’t have to make many decisions. Fewer decisions mean less opportunity for the twin demons of Fear and Greed to screw with my head.
The odds of making money rise in lock-step with your hold time. The easiest way to increase the chance of making money is to hold stocks longer. Whether they use stock or options, short-term traders live in a coin-flip world.
Another reason to lengthen your hold time is that you’ll capture more dividends. The more dividends pocketed, the lower your cost basis goes. The lower your cost basis goes, the higher your probability of profit.
Buying a diversified stock portfolio requires little skill or knowledge of market timing. Being a successful active trader requires a ton of both. If you’d like to learn how to build a portfolio, read this.
Options traders often twist themselves into knots by building convoluted positions. There’s something beautiful in the simplicity of buying shares to acquire the exact amount of desired exposure.
Long-term positions carry a lower tax burden. In a day where talk of sharp increases in capital gains tax is making the rounds, this is an advantage that demands highlighting.
Owning stocks has been the most effective way to fight inflation over the past century. I believe it will continue to do so.
You get to piggyback off of others’ success by acquiring equity in the most well-run companies on the planet.
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