If you ever doubted that there are powerful market forces that are financially motivated to get you trading as often as possible, the headline of an article in Fairfax media today 'Traders get busy as markets get crazy' should leave you in no doubt.
It's not just retail investors either, as 'Equities desk heads said the key was to keep chief investment officers and portfolio managers trading as (sic) shuffle in-and-out of post results meetings with management teams this week.'
On the one hand, it's not surprising. Annual results from companies like Woolworths Limited (ASX: WOW) provide a chance to check in on a company's performance, to see if it matches the fund manager's needs or investing thesis and the results allow them to buy or sell as necessary. On the other, investors should ask if it's really necessary to trade in and out of stocks every year, or every quarter.
Equity brokers have a bad rep for encouraging shareholders to trade as often as possible, and the proof is in the constantly changing 'buy' 'hold' 'sell' recommendations that they have become known for. It's occasionally rumoured that an equity analyst who puts a 'sell' recommendation on a stock could lose his job, and this could well be true given the dearth of 'sell' recommendations in the market.
One broker recently raised WHITEHAVEN COAL LIMITED (ASX: WHC), that long-term destroyer of shareholder wealth, to a 'Buy' with a price target of $1.75 stating that: 'On a 12-month view, we think thermal coal is a stable commodity; however, it carries longer-term downside price risks, mainly from the ongoing expansion of unconventional gas supply.'
In another 12 months – more likely sooner – there'll be another recommendation, maybe a hold this time, citing some other change in market dynamics. I would suggest that Whitehaven's price is low because it is a loss-making business with no pricing power, which doesn't necessarily make it a buy. More terrifying is the implication that a business with a tough future (due to 'longer-term downside price risks') could be a sound purchase.
The really crazy thing is that market data shows that volumes rise when the market falls, which means that a whole bunch of investors are spurred to trade their stocks by market volatility. Stocks which weren't a sell a week ago suddenly get sold as fear reigns supreme – as we saw just last week.
If you're investing the right way – in the right companies, for the long-term – you really only need to make one trade, and that's your initial buy.
