Fundamental Analysis and Position Trading: Evolution of a Trader

CHAPTER 1

Introduction to Buy-and-Hold

I started dabbling in the markets by researching companies using their annual reports. I pored over the numbers and checked the ratios to make sure the company would not fold anytime soon.

In those days, I learned to love cash dividends and stock dividends as well. They added to the bulge in my wallet and slowly increased my net worth one share at a time. During the bull market of the 1980s, I had a win/loss ratio of 63 percent and made an average of 39 percent per trade. I achieved that without knowing what I was doing.

For example, I bought a stock called Sparton Corp. This was a wonderful stock that never heard of going up while I owned it, but it paid a huge dividend. That is, until they stopped paying it! I bought it three times and lost 23 percent, 39 percent, and 53 percent of my money.

I grew to mistrust the method of holding a stock forever (well, 3.6 years was my average hold time for stocks bought in the 1980s). I was tired of seeing a stock like ASA Holdings (acquired by Delta), which I bought four times in the late 1990s at an average price of 23.36, more than double to 51 and then drop to 34 before I sold it.

Nevertheless, I still like investing, which is a synonym for buy-and-hold. You can make a lot of money with little work. The hardest part is ignoring the daily rollercoaster movements of the market.

As I mentioned in Trading Basics, Chapter 2, under “Hold Time: My Trades,” my best hold time is between three and four years. ...