I have this image of cryptocurrency investors chasing day-to-day movements in Bitcoin prices, hovering ready to buy or sell at a moment’s notice. And I compare that with patient, long-term Foolish investors, carefully choosing what companies to buy and hold for decades.
But recent evidence suggests I have it wrong, and I’m doing crypto enthusiasts a disservice.
Marcus Sotiriou at GlobalBlock has been examining Bitcoin movements. We are facing high inflation, rising interest rates, and war in Ukraine. Perfect for day traders looking for quick gains?
Actually, no. Sotiriou’s analysis shows that long-term cryptocurrency holders are dominating the market.
Foolish investing
Investing for the long term is the core of the Motley Fool approach — it’s what we call “Foolish” investing. The idea is that we’re likely to do better holding quality shares for decades than trying to time the short-term ups and downs.
There’s an old investing saying that time in the market beats timing the market.
But what’s the danger in trying to get the share price timing right? Well, every time we buy or sell an investment, someone takes a cut.
There are broker charges, and a buy/sell spread. And the government charges 0.5% stamp duty on every buy.
The charges add up
My broker charges £12 per trade. So investing £1,000 in a stock today and selling sometime in the future would cost me £29. That’s £24 in charges, plus £5 stamp duty. With heavily-traded FTSE 100 stocks the spread is very low, so I’ll leave that off.
To just break even, I’d need my shares to rise by 2.9%. Over a timescale of a decade or more, that has very little effect. But what if I buy and sell once per month, trying to catch the ups and downs?
After 12 months I’d have spent £348 in charges. I’d need a total gain of almost 35% to just break even, and I’d need to repeat that every year.
Even if I only bought and sold twice per year, my investing costs would still take 5.8% of my investment cash. That’s like buying Lloyds Banking Group shares and throwing the annual dividends away.
Lloyds is on a forecast dividend yield of 5.6% now. So if I invest £10,000 today and earn that every year, after 10 years I’ll have a little over £7,000 in dividends. But if I trade in and out twice per year, I’ll lose all of that and more in charges.
Fat Foolish dividends
There are some big forecast dividend yields out there now. British American Tobacco, for example, is on 6.6%. Rio Tinto is on 9.4%. And Persimmon has those two beaten at 10.6%.
I also invest in stocks offering more modest yields today, but with progressive long-term dividend policies. I’m thinking Unilever, National Grid, and companies like that.
Dividends are never guaranteed, and all of these shares face individual risks. But what is certain is that I won’t enjoy any dividends if I trade too often and have to hand them all over in charges.
No, it’s long-term, Foolish investing for me. And it seems crypto investors’ strategies aren’t as far away as I’d thought.