VT - buy and hold vs CTP

OK, So the comparison looks like the buy and hold crowd have me beat...but do they really? Let's de-construct the final numbers and see what we see. Keep in mind that I am working with a $5,000 initial capital investment.

I am on a bit of a bandwagon here as I have had some online discussions with active traders and investors and everyone tells me that I cannot produce the returns that I say I can. I don't generally spew inflated numbers, on the contrary, I will always fudge the trades against me and understate the figures. For the trades I have listed here I believe that I likely could have pulled another $25 - $75 per trade ($200 - $ 600 or an extra 4 - 12%) while watching the stock price action and placing the trades. I only used the chart that you saw in the previous posts so it is rough.

This stock is uptrending so well that it actually is in favour of the buy and holders' numbers...so I thought it might be a good example.

Buy and Hold results

There could be two buy and hold methods applied here. The first being the addition of shares along the way which would appear to minimize the risk somewhat and make it easier to get started as only 100 shares are bought up front. Final cost is higher though.

• Start with 100 shares
• 6 trades
• 600 shares today, average cost of $11.58
• yesterday's close = $14.73, paper profit = $1890.00
• capital used for this = $6948.00, the entire capital plus some margin (borrowed money)
• Return on investment...on paper = 37.8% over 10 months, annualized that would be 45.36%
• Potential loss at the start = $150 and it remained so until right near the end.

Buying 600 shares right off the bat would have gained = $2838 BUT the potential loss off the bat would have been $900.00. It would have also required $6000 up front.

• Start with 600 shares at $10.00
• 1 trade
• yesterday's close = $14.73, paper profit = $2838.00
• capital used for this = $6000.00, the entire capital plus some margin (borrowed money)
• Return on investment...on paper = 56.76% over 10 months, annualized that would be 68.1%
• Potential loss at the $900 or 18% of the initial capital. the break even time would have been about late December.

CTP Strategy


I used the same buy in numbers for both styles and for the shorts I applied, more or less, the same fudge factor. This makes it as even as you can get when comparing different strategies.

• Start with 100 shares, and only ever trade 100 shares of this stock
• 8 trades
• yesterday's close = $14.73, paper profit = $173 (only 100 shares still active)
• Realized gain = $1075.00
• capital used for this = $1450.00 at the most
• Return on investment...on paper = 24.92% over 10 months, annualized that would be 29.9%
• Potential loss at the start = $50 and it was only ever that at the beginning of each trade

Ok, so they have me beat unless you consider that I could have bet the farm just like the buy and holders did...plunk $5K down and run the numbers again. I will do one trade and then just give the numbers for the entire run.

• 1st trade - 500 shares @ $10.00, stop at $9.50
• P/R = 4:1 still, potential loss = $250.00
• stop out at $11.50, realized gain = $750.00 (that's already a 15% return)
• the previous gain can fund the next trade at $12.50 without using margin
• final total gain of the trades = $5375.00
• Return on investment = 107.5% over 10 months, annualized = 129%

Hmmmm....makes one wonder.

I am not a gambling man so betting the farm is not in the books so instead I know that I can afford about 4 active trades of 100 shares each. The return might not be stupendous per trade but it's the percentage return that is important. Even if half of those trades had gone wrong, and not the small ones, I would still be up $2500.00 or 50%. I like those odds better then having the one single trade go wrong and loose accordingly.

The other advantage is that this stock is going up...buy and holders either lose money or sit on cash while the stock goes down...I trade it and make money even in the rough times. So a downtrending stock can be at least as profitable as an uptrending one.

Had the buy and holders used only the 100 shares to invest like I did then the numbers are much different. Something like a 10% gain overall. Even spread over the 4 or maybe 5 active trades if they all went in their favour might produce 50%....I think it unlikely though as the stock does not consistantly move like this one has over the very long term. That and I may have a few bad trades but they are less of an impact as there are profits taken often.

Having said all that there are some stocks that are real gems and they are super performers...trying to pick them is the key ...and a very elusive one at that. So I do not try to pick them, just trade the charts, take some profits and maybe keep my eye out for a stock that might take off to concentrate on.

I hope this was, at the very least, entertaining.

JD.