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Putting your tail between your legs
It is received investment wisdom that trading in and out of stocks is poor practice . It adds cost but seldom adds value , and may suggest a fund manager has fallen prey to various behavioural biases – panic , exuberance or following the herd . However , companies and market conditions change , and re-evaluating investment ideas can be a sign of honesty and attention to detail . So when exactly is it a good idea ? For private investors , with no pressure to beat their peer group or a benchmark , buy and hold is usually the best option . Phil Smeaton , chief investment officer at Sanlam , says : “ There ’ s a lot to be said for not selling . If you ’ ve found a great company , the greatest risk is that you don ’ t get back in .”
Unbursting the bubble The trajectory of Amazon illustrates this phenomenon in practice : the shares dropped more than 90 % when the dotcom bubble burst , 40 % during the 2008 / 2009 crisis and 25 % in 2018 . Yet investors that have clung on have seen the share price move from less than $ 6 in 2001 to $ 2,301 at the start of June – sometimes , it ’ s best to let compounding do its work . However , professional investors don ’ t always have this luxury . Smeaton adds : “ If a share price rises significantly , it starts to disrupt the shape of the portfolio . The fund may not be properly diversified and its manager may have less margin of safety and move to investments that they have more confidence in .” Good fund managers always have competition for capital in their portfolios , with the best ideas winning out . Inevitably , this leads to some trading around the margin ,
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