In this episode of Industry Focus: Consumer Goods and as part of our “Never Will I Ever” theme week, the cast continues its discussion of the relationship between big opportunities and corresponding trading costs, and why long-term investors have the advantage.
For a more detailed breakdown of how commissions and bid-ask spreads can erode your returns, check out this video.
A full transcript follows the video.
This video was recorded on July 11, 2017.
Vincent Shen: The challenge for so many day traders, as you mentioned, you’re looking for these stocks that will make significant short-term moves so that you can earn quick profits, but these are the very stocks that tend to have those larger bid-ask spreads. In this case, only $0.07 doesn’t seem on the surface to be that much for Decker Outdoor. But having that larger spread means the smaller profits that you do make get eroded right off the bat by the higher cost. Whereas, in a situation where you’re taking that longer-term outlook, as a Fool recommendation with this company, you buy it once, and regardless of what size your stake is, you buy it once and maybe you add on to your position a few times throughout the year, if you’re trying to average out your cost. But in the end, you’re only essentially paying that vig that you mentioned a handful of times versus dozens and dozens of times in a week or two-week period.
Asit Sharma: Absolutely. So your money is really going to work for you, instead of being eroded by this frequent trading, which seems so innocuous unless you start paying attention to what it cost you in a year’s worth of trading. And, by definition, day trading is, for many people, either a hobby or a career, and you’re doing it frequently, you’re doing it throughout the year, so you’re turning to that capital.