Trading requires a healthy dose of judgment. The better you know the stocks you are trading and why they are moving, the better execution you will be able to get. In our experience, certain actions and behaviors are generally beneficial:
- Utilize limit orders to buy and sell securities at a price you deem to be acceptable. Many of the stocks in the 2CHYP portfolio will be small cap and therefore somewhat illiquid. Market orders can move the price of the stock causing shares to be bought or sold at an undesirable price.
- Exercise judgment in trading. If a stock has moved materially since our action is it still a worthy trade? Sometimes it will be and other times it won’t.
- There is an inherent tradeoff between waiting and buying now in which the patient investor hopes to get better pricing and risks missing out on the opportunity if the stock takes off before it is bought. In our experience, patience is generally better.
- Limp into positions and trim out. This diversifies cost basis and affords capturing some of the benefits of market noise.
- Pay attention to the taxation of trading. If a stock with a large gain is approaching the 1-year mark of ownership, consider hanging on to it a bit longer to get long-term capital gains treatment. Similarly, consider deferring gains until after the end of the tax year.
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