Buy-and-hold investingisn't dead by a long shot. If you
think the perfect holding period is measured in years rather
than hours, then you're rapidly falling out of touch with the
herd mentality on Wall Street. But that's not a bad thing,
because the temptation to stop thinking about your stocks'
long-term prospectsposes the biggest danger to your
investing success.
A faster world
Advances in trading technology have made it far easier
for short-term traders to implement their strategies than it
was even 10 years ago. The simplistic program trading that
was widely blamed for exacerbating the 1987 stock market
crash has evolved into much more sophisticated
high-frequency trading algorithmsthat are smarter and far
faster than ever before.
Moreover, with information flow growing ever faster,
trying to capitalize on new information is practically
impossible for ordinary investors. The pace at which new
information becomes available makes it easy to reassess
opinions on particular companies, motivating traders to buy
and sell more frequently as their future outlooks on stocks
change.
Nobody's holding anymore
The result with many companies has been a dramatic
increase in trading volume compared with the total number of
shares outstanding. Take a look, for instance, at just how
quickly the entire
floatturns over for
some stocks:
Stock
Shares in Float
Average Daily Volume
Days to Turn Over Entire Float
AIG (NYSE: AIG)
119.7
24.5
4.9
CIT Group (NYSE: CIT)
391.1
76.0
5.1
Palm (Nasdaq: PALM)
115.6
13.4
8.6
DryShips (Nasdaq: DRYS)
229.6
24.5
9.4
Baidu (Nasdaq: BIDU)
34.6*
1.86
18.6
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