Less share trading is more in the long term

Published in The Sunday Times May 2007

Dale Gillham

They say that too much of a good thing is bad for you and, when trading the share market, this certainly rings true.

Investing for the long term will generally yield profitable results, often in the realm of 10 per cent a year. But, there are many people who believe that day trading will yield even higher profits. In my experience, this is a costly fallacy that often results in major losses.

Recently, I heard of a day trader who had lost $150,000 in the past year despite one the most bullish markets in history.

Unfortunately, this story is quite common. Macquarie Bank research shows that clients who traded more made far less or lost in comparison to those who traded over longer time frames.

As for this week’s market, to say the market is at an interesting point right now would be an understatement.

Since the market fell 7 per cent to the low of March 6 it has risen for two weeks and, while it rose strongly earlier this week, it has since fallen away.

The fact that the All Ordinaries is taking longer to rise suggests that the market psychology is not as bullish.

I believe there is a high probability that the market will peak in the next two weeks, if it has not already done so, with the peak likely between March 31 and April 4.

If this happens, I believe the fall is likely to be at least 9% in price, which would see the All Ordinaries drop to about 5500 points or below.

It is still possible that the market will rise through its all-time high, which would see it continue up until around mid-April.