Reader: “I was reading your column today and got to this part:
This is a reason to buy and hold for the long run, rather than try to catch short-term swings. Not only do you save on taxes (and commissions and spreads), you largely eliminate this little-guy disadvantage. Someone may know something you don’t about Compaq’s upcoming news release, but its next 10 years will be based on bigger trends.
“Being a novice investor, I do understand the commission advantage but I do not know the tax advantage nor the spread advantages. Thanks, R.M.S., St. Louis, Mo.”
Andy: If you trade a lot, you pay a lot of taxes (if you have gains). And every time you trade, you pay not just the commission — which has become blessedly trivial thanks to firms like the one sponsoring this column, and others — but generally also face the spread between bid and asked; e.g., the stock is “twenty-one to an eighth,” which means you get 21 if you’re selling, 21-1/8 if you’re buying.
Thanks to the SEC these last few years, as well as to some good old-fashioned ingenuity and competition, even the spreads have narrowed significantly in many cases. But they’re still there. And on the less-frequently traded stocks in the backwaters of the market where I particularly enjoy troving for value (frequently reeling in an old shoe, but that’s another story), the spreads can still take a very big chunk out of your trading dollar.
Quote of the Day
Triumphant wife to down-and-out husband: I've consolidated all our bills into one missed payment.~Frank Cotham cartoon in the October 11, 1999, New Yorker
Request email delivery
- Feb 22:
Corruption On A Scale Never Previously Imagined
- Feb 21:
What A Field!
- Feb 20:
And Yet You Still Don’t Turn The Lights Off When You Leave The Room
- Feb 19:
Power Walking With Chris Christie
- Feb 18:
The Inspiration YOU Need?
- Feb 15:
NYC. UK. Canada.
- Feb 14:
If Republican Officials Go To Prison . . .
- Feb 13:
The National Butterfly Center Is Taking A Stand
- Feb 12:
Home-Schooled For Christ. And Pence.
- Feb 11:
Russian TV Thanks The GOP (And Don’t Miss Bill Maher)
- Feb 22: