Buy and Hold versus Swing Trading

What is a Buy and Hold strategy: Buy and Hold is a passive form of investment strategy wherein one buys stocks and holds them for a long period of time (multiple years), regardless of market price (fluctuations in the market).

An investor who believes and follows this strategy, selects his stocks actively, but once a position has been taken is not concerned with the market gyrations or the technical indicators.

The Buy and Hold was considered one of the best strategies and widely believed to give the best results on the long run. The buy and hold strategy even today might be one of the better strategies but only if the portfolio is substantially big (more than 15 stocks).

Pros of the strategy:
Buy and Hold strategy has broadly the following benefits:
Low on stress: By trading (actively buying and selling) fewer stocks and not looking at the price tickers on an hour-to-hour basis, it is easier on the heart (read less of BP and heart attacks) of an investor.

Taxes: Since Buy and Hold strategies often call for a time horizon greater than 1 year, the rate of tax is much lower.

Brokerage and commissions: Active trading can prove costly. Traders can ultimately pay commissions (brokerages) and government duties in the tens of thousands rupees each year. A Buy and Hold strategy can allow an investor to invest large sums of money with minimal costs (as brokerage and duties are paid only once and over a long period of time).

Cons of the strategy:
The Buy and Hold strategy may give the appearance of a safer investment model, but like any other strategy it is fraught with risks. The buy and hold killer can be bear markets. If a buy and hold investor purchases a stock prior to a market decline similar to the ones in 2002 and 2008, the investor may have to wait 5-10 years to make any returns on their initial investment. The most bitter note for the buy and hold strategy is that you have to buy and hold (for multiple years) and thus no realized profits. Finally, remember Dow Jones has done nothing over the last 10 years (11,722.98 January 14, 2000, to 10,325 on February 26, 2010) meaning over a period of 10 years investors invested on Dow Jones have made a net loss (plus inflation).

Consider these:

COMPANY PRICE ON Feb 26, 2010 PRICE ON February 26, 2009 CHANGE (%)
BSE-SENSEX 16,429.55 8,954.86 83.5%
S&P CNX NIFTY 4,922.30 2,785.65 76.7%
STERLING BIOTECH 8.45 152.95 -35.6%
TATA COMM. 282.55 408.00 -30.7%
SPICE COMMU 57.30 76.05 -24.7%
KOUTONS RETAIL 353.90 448.20 -21%
BHARTI AIRTEL 279.25 325.90 - 14.3%
HIND. UNILEVER 235.75 253.05 - 6.8%
RELIANCE COMM 157.35 158.90 -1.0%

The above stocks shows that blue chip companies like Bharti and Hindustan Unilever can also give negative returns when the overall market has given 83% return for the same period. Worse still would have been the result on a buy and hold strategy investor who had invested his money in 2007 and early 2008 (portfolio likely to be marginally positive or negative).

What is swing trading: This is a style of trading that attempts to capture gains in a stock within a short period of time. Swing traders use technical analysis to look for stocks with short-term price fluctuation. These traders are interested in the price trends and patterns more than fundamental value of the underlying stock.

The nifty has been moving in a range for the last few months (generally between 4700 and 4950). Swing trading involves buying at the lower levels and selling near the higher levels.

Pros of this strategy: Swing trading strategy has broadly the following benefits:
1. Profits: The trader/investor gets quick potential profits without the need to watch the price tickers on a minute-to-minute basis. It is a great strategy for traders who hold a full time job doing something else and can't follow the market on an every second basis. Since swing traders stick with a stock for several days and sometimes a week or more, the transactions are lower and hence less commissions (brokerage) and government duties. Swing trades can be done on the downside also (i.e., selling short) and thus volatility can be used to one’s benefit.

Cons of this strategy:
1. Loss: The swing trades might go wrong, i.e., the previous range can break up or breakdown, so the trader needs to keep stop loss for each of his trades and thus can make limited loss (extent to the stop loss), although the profit can be unlimited.

While both of the above strategies have their advantages, the Buy and Hold strategy will give best results only when one has a bigger corpus and multiple stocks, so that the laggards can be compensated by the leaders and the portfolio give a better result. The swing trading strategy is for more active traders (less active than daily traders) and can give higher percentage yields over the longterm (when the trades are done in conjunction with technical analysis).

Power Ke Liye Kuch Bhi Karega

A democratic government means a government by the people; a form of government in which the supreme power is vested in the people and exercised by their elected representatives under a free electoral system. The representatives are elected on the basis of their party’s ideology or in some cases without any party affiliation (independents).

A political party is an organization that seeks to gain political power and form a government by participating in elections. Parties often adopt an expressed ideology or vision reinforced by a written manifesto with specific goals.

India has around half a dozen national parties and 100s of regional parties that are all fighting amongst themselves to represent Indians in the parliament.

Today, (May 13, 2009) the last day of voting for the 15th Lok Sabha is coming to an end and India has elected its representative for the 15th Lok Sabha (although results are yet to come out). The early projections which are coming from the media indicates that we are going to have another hung parliament and thus no political party or pre-poll alliance will get the mandate to govern.

In this election ideologies of all political parties are set to be thrown out of the window and every sort of combination is possible to grab power (barring perhaps BJP and Left, Congress and BJP, and BJP and Indian Union Muslim League) or perhaps Power Ke Liye Kuch Bhi Karega.

If indeed this is true and the post-poll alliances like Congress led UPA is supported by the Left front again, does voting really matters? The MPs from Left Front predominantly comes from the states of West Bengal, Kerala, and Tripura. In all these three states, Left Front and Congress are the principal opposition, either alone or in alliance. How does the mandate of the people matter if these two parties come together? A person voting against Left will feel cheated if the Congress forms an alliance with the Left and similarly a person voting against Congress will feel cheated if the Left supports Congress.

In Bihar, NDA (BJP and JDU), Congress and the Yadav Front (Laloo, Paswan and Mulayam) are fighting against each other. In this state also there are talks of party's crossing over and thus making the process of going to the people redundant.

Same is in the case of Uttar Pradesh where BJP, BSP, Congress, SP are fighting each other and post-poll BSP and SP might go to support either of the 2 alliances (UPA or NDA). Now the voters have every right to feel cheated as their votes really does not matter.

Tamil Nadu presents another peculiar situation where the Congress and DMK are pre-poll partners and AIDMK is the main opposition. The DMK is going to do badly in the elections, if the media reports are to be believed, and there are talks of both BJP and Congress making an attempt to woo AIDMK. If the Congress succeeds in getting AIDMK under its fold and dumping DMK then does the voter matter?

I think India should move to a 2 coalition formation politics and anti-defection law should come into force if any pre-poll alliance party crosses over to another formation post-poll. Otherwise, the entire process of voting becomes an unnecessary exercise where millions of rupees are wasted and many of our policemen and paramilitary men have to make the supreme sacrifice in the Naxal belts and other poll related violence, and yet the mandate of people is manipulated by the political parties to bring themselves into power.

Fake IPL Player and Buzz Marketting

The latest buzz in the IPL II is not about the cricket but the Fake IPL Player who is writing a blog and claims himself to be a member of the KKR.

The Fake IPL Player claims that he is a member of the team of KKR. He describes himself as a “perennial no hoper” and he goes on to say “there's one thing I do very well. Serve drinks. And that's what I am expecting do in South Africa” and promises (throughout the IPL, I will be bringing to you the "aankhon dekha haal", right from inside the dressing room, meeting room and players' bedrooms.)

He goes on say in a later post how the team management is searching for him and he is posting the post when his “rommie” is sleeping and via SMS from his brother back in India because laptops have been banned in the hotel.

I believe the Fake IPL Player is not a cricketer because no cricketer would ever risk his entire career in cricket for writing a stuff from which he would not benefit in anyway. The language flow, the use of punctuation, the use of satiricalnesses goes on to show that the writer is writing the blog with lots of time in his hand and not writing in a hurry as he claims to be. Finally, no cricketer or support staff would be a poet and our Fake IPL Player has even composed a poem in his blog titled “BubLee aur Babli.” The writer, to my mind, is no doubt a professional satirist.

But the question is this Fake IPL Player also gives some facts about the team that looks to be correct and also the weather conditions of South Africa before the day of the match. This does prove that this guy is in South Africa and doing all the writing from there. The KKR team site writer that Fake IPL Player is a "poison pen of the dirtiest variety."

Buzz marketing or undercover marketing is an unconventional strategy that is used to attract end users (consumers). It is where the consumers do not realize they are marketed to. The goal of any undercover campaign is to generate a buzz about a product. The largest appeal of undercover marketing is that it offers free word of mouth publicity that can reach huge number of consumers for free.

Now, look at the recent controversies around KKR which has made the team to be in limelight for quite a long time now.
1. Removal of Kolkata from the jersey and putting only Knight Riders. This act was an instant controversy and the team got free air time on TV, and newspaper.
2. Once this controversy died, there was the multiple captain controversy. This one was a bigger hit and again all TV channels (news and sports) gave coverage to the event and there were so many discussions about the same. This issue again gave the team unlimited coverage for free. Once the matches started there were no multiple captains, although the captain was changed.
3. Fake IPL player is the mother of all controversies that has been created around the team KKR. We have newspapers devoting an entire page to this controversy and television again giving free air time discussing the issue. I am not sure, now that Fake IPL Player has created the hype, if we are not going to get any more of the “aankhon dekha haal” from him.

From all this controversies KKR, the team, has gained huge interest among the teams playing the IPL. I won’t be surprised if with all these controversies KKR matches are getting more TRP ratings than other matches. As the team comes on the minds of the audience so does the sponsors supporting the team.

I wonder if the team management feels Fake IPL Player is a "poison pen of the dirtiest variety" why they did not approach Google and got the blog deleted. Google has in the past deleted many a fake Orkut IDs, when complained by the offended party. In my mind there is not even an iota of doubt about who is behind the “Fake IPL Player” and who is benefiting from him the most.