Frequent Online stock market trading can lead to selling your best stocks way too soon. Buy and hold blue chip stocks as we recommend to make more money in the long run

It’s all too easy to sell a blue chip investment that looks like it’s headed for a downturn, only to buy a hot stock that is headed for a collapse. For that matter, if you make a habit of selling whenever you feel the market’s risk has gone up, you will wind up selling your best stocks way too early.

This is especially the case for those engaging in frequent online stock market trading.

You can always find a rationale for selling. Market commentators are continually thinking up new ones, based on recent market strength or weakness, historical market patterns, political or economic predictions, changes in tax policies—the list is endless. Before you act on a selling rationale, take a broader look and consider facts about the blue chip investment, your investment goals and temperament.

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Hold high-quality stocks for success with online stock market investing

Many investors wonder how often they should sell investments they own and buy new ones. The answer is simple: With quality stocks, do it as rarely as possible.

That’s because portfolio turnover cuts into your profits. You face three main costs every time you buy and sell a stock:

1. Human error. You won’t likely sell at the top, nor buy back at the bottom. But you may do the reverse.
2. Taxes. If you sell at a profit in your taxable account (outside of your RRSP or tax-free savings account), you are liable for capital-gains tax.
3. Brokerage commissions. Every transaction you make in your portfolio involves brokerage commissions or similar costs, even if these costs are hidden or built into the price you pay or receive.

Beware of the allure of low costs in online stock market trading; hold on to stocks with high investment quality to make more money

The apparent ease of online stock market trading may prompt conservative investors to take up short-term trading or day trading. That’s just another danger of trading stocks online—there’s a large random element in short-term stock-price fluctuations that you just can’t get away from.

This random element can be profitable for short periods. But you can’t reliably profit from it over the long term. In fact, most short-term traders wind up losing money. By the time their beginners’ luck fades, many are trading in dangerously large quantities.

Frequent trading can also lead you to buy lower-quality, thinly traded stocks. The danger arises from the fact that the bid and ask spreads of many of these investments can be so wide that the share price will have to go up significantly before you’ll even begin to make money on a sale.

It is far more important to focus on high-quality, well-established companies and how they fit in your portfolio. The longer you hold these stocks, the greater the chance that your profits will improve.

Look for blue chip stocks with a history of profits to improve the long-term outlook for your portfolio

Companies that have stood the test of time and pose less risk to an investor even in the worst financial crises are top blue chip companies.

The best blue chip stocks we recommend have a history of earnings and, in most cases, a history of sustainable dividends. They have established their value over the long term. Like all stocks, they can fluctuate widely and many suffer in a long-term market downturn, but they offer a higher probability of long-term gains. The blue-chip investments we recommend have a history of profits going back for at least 5 to 10 years. Companies that make money regularly are safer than chronic or even occasional money losers.

The best blue chips offer both capital gains growth potential and regular dividend income.

Short-term online stock market trading strategies can cut your long-term gains. Instead, build a portfolio that focuses on high-quality blue chip stocks for a superior investment portfolio

Of course, there are a variety of ways to build an investment portfolio. Some work better than others.

We start by applying our three-part Successful Investor philosophy:

1. Invest mainly in high-quality, well-established companies, with a history of earnings if not dividends;
2. Diversify across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
3. Downplay or stay out of stocks that are in the broker/media limelight. This limelight raises investor expectations to dangerous levels. When stocks fail to live up to those heightened expectations, share-price slumps can be swift and brutal.

We advise selling particular stocks when we feel the situation has changed and they no longer qualify as high-quality investments. We also sell if we decide that a stock isn’t as high-quality or well-established as it needs to be to cope with the challenges it faces. Of course, many of our sales are due to a successful takeover of a company’s stock, which generally results in a major profit for our clients.

How tempting has online trading made it to sell even blue chip stocks in a period of slow growth?