This month: Marcus Padley

Investors who try to make a killing from constant trading are likely to pay a high financial and emotional price

Tell me I’m wrong but from relationships to the stock market, there is no long-term progress in being short term. Maybe the high-frequency traders would disagree but for the mortal man pursuing short-term goals at the expense of a long-term investment is a big mistake.

One of the clearest examples was a stock jobber I used to work with in London post the financial “Big Bang” in 1986.

He was one of your typical East End characters. He trusted no one and carried cash because the banks were a conspiracy. You would not want him to come home with your daughter. He was a hooligan, more at home lobbing darts into opposition supporters at a Millwall game than attending a corporate fly fishing day on the Test.

He was one of the many stock jobbers who had to adapt to the move from the stockmarket floor to “life upstairs” where prices were typed into computers and not called out. But when your cultural background is making cash on a market stall in Brick Lane, market making with a live profit and loss was Brick Lane on steroids and he loved it.

At the price-making, bartering end of the stockmarket, there was none better. He became an expert short-term trader, the master of stampedes, the exploiter of lemmings and a devilish manipulator of both fear and overconfidence. He would watch small stocks intensely, sometimes for long periods (two hours). He could dominate a day’s trade, create breaks, start collapses. He was always one microsecond ahead of the herd. We were in awe.

Eighteen years later I went back to London. He was still working a desk and was still trading short term. But now he had a facial tic, had been bankrupt, was a gambler and an alcoholic, still carried a wedge of cash instead of a credit card, still didn’t trust anyone, looked 40 years older and had yet to find the time to “settle down” with a girl. He had not progressed professionally, financially or emotionally. I still see him on Facebook although the exclamation marks against his commentary about the girl he has just met get a bit limp at the age of 56.

Thanks to technology, we all risk being sucked into the short term as well, because we can, because we can trade in milliseconds, make decisions on phones and be bombarded by constant “trade bait”. And our financial time frame is only going to get shorter and shorter – it’s progress.

I have done my time being short term. I have looked for the rockets under rocks, I have not “invested” and I have traded. So take it from me, your self-managed super fund is not going to progress in the long term if your focus is on the short term. It is all about consistent returns over long periods of time, not making a killing today.

If you are trying to make money today, every day, not only will you exhaust yourself in the vigilance that requires but you will expose yourself to significantly more risk over a longer period with an inevitable result. Not to mention the costs: dealing costs are irrelevant these days but you need to value your time, the most precious commodity on earth. Your time lost in watching and administering is a very expensive indulgence.

Then there is the cost of your peace of mind as you go to sleep worrying about the risks you are taking and the overnight performance of the markets. That also has a price, one that your family, spouse, partner and friends are more likely to recognise than you are.

On the ground, in front of your screen, this means lifting your gaze to the horizon. It means picking stocks – which, by the way, is the only thing that matters – that have integrity, stability, a history, a permanence, a predictability and are themselves focused on long-term not short-term goals.

Read the book Market Wizards by Jack Schwager. All professional traders start out trading by the second, the minute, the hour but after years of experience they work out that the only time frames that reliably pay off are months and years. Plan to succeed in the end. Not tomorrow.

And if some rocket chaser should dash past you in a Porsche, give them a wave and wish them well. They are one of the tiny minority who stand on the mountains of invisible hopefuls who didn’t make it. Don’t be one of them.