For years we have been told that buy and hold is the preferred investment strategy.  According to the experts you should buy quality blue chip stocks and hang on to them until the end of time.  I have always struggled with this philosophy and I abandoned it a number of years ago.  Frankly, it never made sense to me.  In today’s investment environment it makes even less sense.  I challenge you to walk up to any investor who has held on to GM and Ford for decades and ask them if they are happy with their returns.  For that matter ask anyone who have invested in the banking or insurance areas if they are happy with how their portfolio has performed.  Giants such as AIG, Citigroup, Goldmans Sachs, Bears Stearns and Banc of America have seemingly been thrown on the trash heap.  Merrill Lynch, Fannie Mae, Freddie Mac make those who invested their hard earned dollars in them shudder everytime they hear the names of the company.

Recently in the market collapse that we experienced I witnessed co-workers in a near panic over their 401k.  Despite all of the warning signs that preceeded the collapse they still stuck to their guns.  They watched in horror as 10, 15, 20, 25 years of hard earned investment in their 401k evaporated before their eyes.  I remember recently speaking to my boss.  He no longer wanted to look at his 401k because he became physically ill when he did.  40% of his 401k that took 28 years to build disappeared in a matter of months.  Why did he let it happen?  Because he and so many other had been conditioned to believe he should just hang in there and not panic; eventually all quality stocks will go up.  In hindsight that has been foolish advice.

You see the reason that the investment gurus gave such advice is because they had been conditioned by the longest bull market in history.  They obviously thought that the bull market would always be around.  Every investment decision was predicated on this faulty premise.  I have spoken to many people in the last couple of months who want nothing to do with the stock market.  They are afraid to touch it with a ten foot pole.  I believe had they employed a sensible trading strategy, most people would have weathered the recent market storm without too much in the way of loss and they wouldn’t be fearful of investing again.

The funny thing is that if you look at the life of any company you will find that the majority of its long term returns are accounted for in relatively small segments of its trading history.  Please do not misunderstand me.  No one is saying that you can catch the bottom or the top with any trading system.  However, even the most basic of trading systems will allow you to be in a stock for a major run up and most likely out of the stock for any prolonged market collapse.  Following a well thought through trading strategy will allow you to make solid returns year after year.  I believe that this is where your focus should be.

If you want to only invest in blue chip stocks I can understand that.  I may not agree with it but I understand your point of view.  However, I would have you think it through carefully.  If you came to the point where you agree that a trading strategy is the way to go, what difference does it make what you trade.  Why not trade penny stocks tht give you a greater potential for returns.  Many folks are looking for returns of 10% per year.  Many penny stocks return this in one day.  It is not uncommon for penny stocks to make 30 – 40% move in very short periods of time.  They give you more bang for your buck.

If you haven’t considered them in the past, I would encourage you to give penny stocks a closer look to see if they might fit inside you trading/investing strategy.  Whichever course you use to build wealth I wish you well.