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I’ve had some very profitable swing trades.
But, I think in most cases, this strategy is severely flawed.
For context, I made 300% in just a few months on Meta stock. I recently made 150% on Toll Brothers stock. There are many more picks with between -40% and +40% returns. When I swing trade, I look for a margin of safety where the P/E ratio is low, and there is a healthy balance sheet.
For a long time, I thought this was value investing.
However, as Warren Buffett says, “the best holding period is forever.”
The goal of value investing is to look for a company with a durable competitive advantage.
With a company that is positioned for long-term advantage, you get a couple of distinct benefits compared to swing trading:
- Minimizing Tax Burden: By holding a company for many years, you can delay capital gains tax. For example, Warren Buffett held The Washington Post for decades and made 100x returns before paying a cent in taxes.
- Choosing Better Companies: By looking for a company with a durable competitive advantage, you will disqualify many more stocks than you would with swing trading. Thinking in decades instead of months gives you better decision-making criteria.
Play the long game and you will go farther.
