Temper That Trading

QI’m thinking of investing in some volatile stocks. Would it be effective to sell them after they go up a bit and then buy them again after they drop, holding them for a few weeks or months at a time? — S.L., Pleasanton, California A That’s risky. For best results when trying to build wealth through the stock market, aim to hang on for many years, not weeks. Remember, legendary investor Warren Buffett has said his favorite holding period is “forever,” and that he would be fine if the stock market opened for trading only once a year. Some stocks will rise relentlessly for a stretch, and if you exited them, you could lose out on a lot of gains while waiting on the sidelines for a dip in price. Also, frequent trading will rack up lots of trading commissions. Even if you’re paying just $5 per trade, trading 20 times a month will cost you $1,200 a year. Meanwhile, while gains from stocks held more than a year get a lower tax rate (15 percent for most of us), shorter-term gains are taxed at your ordinary income rate, which could top 30 percent. It’s better to invest in companies you believe in, aiming to hang on for years. Otherwise, you’re just guessing. *** QI want to invest in fastgrowing stocks that are priced below $10 per share. Where should I start? — J.C., Gainesville, Florida A Don’t focus on a stock’s price. A $5 stock can be worth 50 cents (and may fall to that soon), while a $200 stock can be a bargain that will triple in value over several years. Seek healthy, profitable companies trading for less than their shares are worth, and be patient. Want more information about stocks? Send us an email to foolnews@fool.com.