Set up a pool for short-term trading

Buy and hold strategy has its place in investment. Investor builds up a portfolio of stocks that are kept for longer term, exceeding one year. Income from this approach is mainly dividend payout. One does not trade on these shares in a short term.

If investor wanted to trade shares frequently for capital gains, he can set up a pool of money just for this purpose. This pool of money is what one can afford to lose if stock market declines drastically. It has upside potential and downside risk.

Since building up a sizeable stock portfolio (and I believe in these listed companies on a longer term basis), my trading activities on the stock exchange dwindled. Therefore, we have decided to put aside a pool of money for more active actions in the stock market.

At the start of this month, we began acquiring new stocks (still blue chips rather than penny stocks). One of them is SembCorp Industries bought on 15 Nov at $4.83. We sold it today (29 Nov) at $5.05. The capital gain after accounting for transaction costs was 3.3% on initial cost. This 3.3% gain was made over 14 days and is significant on an annualised basis. We also bought Singtel on the same day at $3.14 and sold off today at $3.28 giving a gain of 2.6% on cost over two weeks.

For every successful transaction, there are also bad deals. So it is not always a sure bet to gain on stock trading. Tread carefully if one wanted to adopt this approach. You must also have the time to watch the stock market.

Copyright © 2012, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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