Years ago, the philosophy of stock investing meant one thing and one thing only: you buy a few stocks (after doing your research and investigating a handful of companies that impressed you and which you felt were going to do well over the next decade or so), and then … nothing.
You put them away and forgot about them. You didn’t need to pay much attention to them at all until you sold them to finance your retirement, along with Social Security and the pension from the one company you worked for all your adult life.
The theory behind this kind of investing was that a good company is a long-term hold, not a stock you would want to sell within a few months or even weeks. Instead, it would be a company that would split and give you twice as many shares, continue to pay a small dividend that would go right back into the number of shares you owned, and bring you great riches when you were ready to retire.
Now here we are today, and everything has changed: first of all, most people don’t work for the same company their entire career lifetime, which means that in some cases, their retirement is smaller than it would be if they stayed put.
One thing leads to another, and the fact that your retirement account is going to be smaller because you’ve moved around at various jobs means that you are going to have to be more aggressive about your stock picks. (Remember, everything is connected in one way or another to everything else. So if you change jobs, while it might be beneficial career-wise, it will have repercussions in other areas of your life, as in your retirement investing.)
Secondly, many of the solid companies that we could always rely on no matter what can no longer promise us such surety. Companies like General Electric have not been very stellar performers in the recent bull market (a market when investment prices rise faster than their historical average during a prolonged period of time).
In fact, had you bought GE a decade ago at $20, today it would be worth close to $37 per share. That’s not even double, and most conservative investments promise you that you will be able to double your investment dollar in seven years.
Also, short-term tax consequences no longer provide the threat that they once did, and people seem to be able to step aside of their tax situation when they are investing. If you hold a stock for a year and a day, you pay long-term capital gains, which is around 20 percent of the profit you make on the stock. If you sell before the year and the day, you pay short-term gains, which could be as hefty as 35 percent of taxable profits. But many people figure “profit is profit,” and they’d rather make money on a stock, sell it before getting greedy and sitting on it too long so that it starts to sink again, and pay the tax consequences with a smile.
All of these factors have combined to produce investors who are in for the short haul. They buy a stock after doing their good research, set a goal of a certain percentage increase in the stock price, and sell when it hits that price, no matter how short a time it took to get there.
Now, there are certainly different lengths of time to own a stock. Many people years ago went into what was then called “day trading,” where you held a stock for minutes at a time and sold when it made a very small profit. The theory behind this kind of investing is that you can buy and sell a great number of stocks in one day and make up in volume what you lack in large amounts of profit. This is a kind of investing that is easier when the stock market is running up, higher and higher, than when it is frustrating and down much of the time. In short, day trading is best in a bull market.
There are other people who hold a stock they’ve researched for a few weeks or a few months and then sell. Maybe one or two of their portfolios will contain stocks that they want to keep for the long term.
Time doesn’t matter so much when investing in the stock market. A better metric of when to sell would be profit or loss. Has the stock made enough money for you that you’re satisfied? Or has it lost enough money that you want to get rid of it and move on?
No glib or pat answers to this one. That’s why owning a few stocks is smart: it gives you the ability to assess each stock on an individual basis without feeling overwhelmed. After all, if you’re overwhelmed in any way, shape or form about your stock investing, you will not be a savvy gal. And that’s never good!