After 25 Years, I've Become a Buy-and-Hold Trader

I’ve been trading and investing for over 25 years, but the primary challenge that I face today is the same one that I faced when I first started: How do I maximize my profits when I have a good stock, and how do I minimize my losses when I have a dud?

I recognize that most of my really great gains are going to come from a small number of stocks. One big winner can more than offset dozens of small losers. To reap the biggest rewards from my best stock picks, I have to have longer time frames. If I trade them too aggressively, I can produce some good short-term gains but I’ll miss out on huge profits.

The issue that I always have to address is being sufficiently aggressive when conditions are good and getting out quickly when things aren’t working.

I’ve found that the best solution to this dilemma is to meld a trading mindset with the thinking of buy-and-hold investing. I want to use the best elements of both styles to maximize gains but eliminate losses.

The biggest problem with buy-and-hold investing is that it is very easy to tie up too much capital in positions that can be dead money for a long time. They may be great stocks and may eventually produce substantial returns, but if my timing is off, then I will lose the use of my capital.

The biggest problem with aggressive trading is that impatience often results in missing out on the really big moves that may develop over weeks and months. While a good trader will catch some of those moves, it is impossible to time things precisely enough to benefit from compounding.

My solution is to meld the thinking of a trader with that of a long-term investor. The process starts with stock selection. I’m constantly looking for good technical setups. Sometimes, these stocks are just short-term trades, but for many stocks, it is the start of substantial fundamental research. I want to understand the story of the stock and what is driving the technical action. The more I know about the fundamentals, the better equipped I am to deal with the inevitable volatility.

As I become more familiar with a stock and trade it a number of times, I will start to develop stronger conviction about its long-term merits. Is this a stock that I think is going to be substantially higher years from now?

When I find an idea that I think will be a longer-term winner, I don’t want to just buy a big position and sit and wait for it to work. I want to look for opportunities to trade it while I maintain a small core position. A core position keeps me engaged. There is often a desire to cut something that has been languishing for a while and is not acting well, but if the long-term prospects are still good, then it pays to keep a position and watch and wait for some shift in the price action.

Some of my best returns have come from stocks that I have held for years, which were initially quite disappointing. I was forced to trade them aggressively to decrease my exposure and free up cash, but they often offered some good short-term trades and the good ones finally are recognized by the market and take off. That is when I put much more capital to work.

A good example of this is Humacyte (HUMA), which I have discussed quite often. The stock was hot during the special purpose acquisition company (SPAC) bubble back in 2021 but then languished for more than two years before it finally exploded higher in the past two months. I traded it numerous times during the down years and kept a close watch on it, but I had very little capital in the game while I waited. It was a stock that I wanted to hold long term, but I benefited more by actively trading it rather than just holding it.

My goal is to always have most of my funds tied up in stocks I like for the longer term but to vary my position size constantly as the technical action shifts. I want to go in big when conditions are favorable and reduce, but not totally eliminate, when the stock is languishing.

Buy-and-hold trading is not easy to do, but it allows you to employ the benefits of both long-term investing and aggressive trading.

More Trading Basics

At the time of publication, James "Rev Shark" DePorre was long HUMA.