Investing - You're Damned If You Buy and Damned If You Sell

I know there are active investors out there who do well. And there are plenty of blogs on the subject. But I've personally done much better since becoming more passive. That's not to say that I don't keep track of my investments, I do, but I just don't think I'm going to do any better trying to time the market by buying and selling often.

When investing there are two things you can do, either buy or sell. Knowing when to buy and when to sell is the hard part. Dollar cost averaging, takes the when to buy question out of the equation but you're still left with the when to sell question. If you invest in many stocks then you have to keep track of when to buy and when to sell each of them. Of course you could just buy and hold but this article is about the problems with active trading so I'll ignore the buy and hold strategy here.

I'll give you a couple of examples from my investing life that will illustrate the title of this article.

When I was a much more active investor I bought a stock that I thought was a very safe bet. It was a huge company with a long track record in an industry that I couldn't imagine getting into trouble. When I bought the stock it was at about $70 a share. After I bought it the stock split giving me more shares. Thinking it was going to continue going up (not because of the split but because it was a good company) I bought more.

So what happened? It went down. Not much at first but a little bit. I figured why not buy more since I was sure it would go up again.

Did it? Nope. It continued to drop and then quite suddenly the bottom fell out, leaving me with a stock that was virtually worthless. The stock was Lucent and what a mess it was.

As miserably as I failed on Lucent another stock was a stunning success. From my initial purchase to my first sale I had tripled my investment, that's right, a 300 percent increase. So I sold half my investment. As the stock continued to climb I wondered if things were getting a bit out of hand. Fearing that this was a bubble that could burst, I sold the rest of my shares.

So what happened to the stock after I sold it? It went up from there increasing another 50 percent. The stock was Apple.

So thinking I'd learned my lesson from Lucent, I sold Apple too early. Damned if I buy and Damned if I sell. And this happened more often than I'd like to admit. But all that proves is that each stock is an individual. What's true for one isn't necessarily true for another.

I don't have the time or the expertise to follow each individual stock I own to figure out when it might be a good time to buy and sell so I've left that up to the market as a whole by buying index mutual funds and taking a lazy approach.

And how have I done? Much better. With less aggrevation. To read more about my experiences since changing my investment habits and about other people who advocate a more passive approach to investing check out these links.

Paul B. Farrell, a favorite columnist of mine, often writes about "lazy" portfolios.

Then there is my post Boo-Yah Yeah Boo about the hype of Jim Cramer's CNBC show.

And let's not forget my favorite book The Coffeehouse Investor which outlines a lazy portfolio that has done very well over the years.

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