In a previous video, we explained why the size of your stake is so important to frequent traders. But the real takeaway? If you're an investor, you can be agnostic to your stake size.
In this segment from Industry Focus: Consumer Goods, Vincent Shen and Asit Sharma close out their discussion of the pitfalls of day trading by covering how even large, mature companies can produce long-term results for buy and hold investors that are so difficult to replicate when trading.
A full transcript follows the video.
This video was recorded on July 11, 2017.
Asit Sharma: All this is leading up to our point that it's much better to invest. Now, what does investing have to do with trading in this example? Well, investing is agnostic to trade size. Vince, will it really matter if I have $1,000 if I invest versus $10,000, if I'm investing versus trading?
Vincent Shen: No, not a difference at all. And I think that's the big advantage that you have, taking this longer-term approach to it.
Sharma: Sure. We've been talking about, you and I, McDonald's, Starbucks, and Nike over the past year or so of doing these podcasts. I know we've talked about these stocks on several occasions. I pulled up some charts the other day, and looked at holding Starbucks and Nike and McDonald's, and the total return of holding those for just five years. And I found out that in each of those cases, even if you just had $1,000 and you put it into any of these stocks, you would have had over 100% return on your money. So, you would be doubling your money every five years. That's a very fast rate to double your capital. If you stretch that out to ten years for any of these stocks, it gets even more interesting. McDonald's, Starbucks, Nike, hold any of these for 10 years -- or, let's say you've held them for the last 10 years and invested the dividends, your return in each case would be at least 300%, which means you're making 30% on your money year after year after year. And that's extremely hard to replicate in a trading environment.
Shen: I think the big thing to point out there is, just the names that you mentioned, in terms of McDonald's, Starbucks, these aren't extremely risky companies in the tech sector or biotech or something where there might be a lot of volatility, or some decision, or a single year of growth that will send these stocks flying and then they might come back down. These are very stable businesses. In the end, in the consumer and retail sector that we talk about all the time here, companies like these can still provide really strong returns, if you invest and hold with that long-term perspective.
Sharma: Yeah. I would say the edge in this case is, the companies have the edge, you just have to find them. They're out there, they're big, they're ubiquitous, they have a market-leading, dominant position, and they're companies that have very strong fortress-like balance sheets and have shown this ability to grow year after year after year. That's why we love stocks like Starbucks, because they keep growing. They do the work for you, and the edge lies with them, not in your ability to determine, maybe if Starbucks is going to be up $0.50 in the next hour, should you buy it now and try to turn it around. Maybe it won't. Maybe it'll be down a week. But over the long-term, you're going to win if you can hang on and keep that stake invested.
