Why is frequent trading unsuitable for defensive investors?

Okay, let’s talk about this topic.

Imagine you're an orchardist growing fruit trees, not a vegetable vendor hustling every day in the market. That's the fundamental difference between a defensive investor and a frequent trader.

Why Defensive Investors Shouldn't Trade Frequently: A Simple Analogy and Practical Reasons

Hi friend, that's an excellent question – it gets right to the heart of "defensive investing." Let's discuss in plain language, without complex formulas, why Graham emphasized that if you position yourself as a "defensive investor," you absolutely shouldn't get itchy fingers constantly buying and selling stocks.

The Analogy: Growing Fruit Trees vs. Trading Vegetables

Defensive Investing = Growing Fruit Trees You carefully select a fertile plot of land (good companies), acquire high-quality saplings at a reasonable price, plant them, and nurture them. What you do next isn't constantly digging up the saplings to check their roots. Instead, you give them sufficient time, sunlight, and water, patiently waiting for them to grow, eventually flowering and bearing fruit. You care about the health of the tree itself, not whether today's apple price went up or down by a few cents in the market.
Frequent Trading = Trading Vegetables You go to the wholesale market early every morning. Based on the day's market conditions, you buy a batch of cabbage cheaply, hoping to sell it at a premium before noon. You don't care how the cabbage was grown; you only care if there are many buyers today and whether prices are fluctuating. This requires extreme sensitivity to market sentiment, quick reactions, and carries the risk of produce rotting in your hands if you can't sell it that day.

You see, these are completely different games, requiring entirely different mindsets and skill sets. The defensive investor is that grounded orchardist.

Now, let's look at specific reasons why the "orchardist" shouldn't try to do the "vegetable vendor's" job:

1. Fundamental Philosophical Clash: "Seeking Peace of Mind" vs. "Looking for Trouble"

The core purpose of defensive investing is to achieve a "satisfactory" (not "spectacular") return with the least amount of effort and the lowest possible risk. It aims for "avoiding big mistakes."

Frequent trading, however? You have to watch the market constantly, study charts, guess market sentiment, and predict tomorrow's movement. This is inherently high-intensity, high-stress, and extremely prone to errors. If you think the market will rise today and buy in, only for it to crash tomorrow on bad news – what then? Cut losses or hold on doggedly? This completely violates the defensive investor's original goal of "peace of mind and safety."

2. Real Costs That Eat Away Your Profits

Frequent trading is like driving a car with a leaky fuel tank; the more you drive it, the more you lose.

Trading Commissions: Don't underestimate these. You pay a commission (fee) to your broker every time you buy and every time you sell. Although commissions are generally low now, they add up. All your hard work and effort might just cover the fees, essentially working for free for your broker.
Taxes: This is a big one! Most countries' tax policies encourage long-term holding. If you sell a stock you've held for less than a year for a profit, it's considered short-term capital gains, subject to much higher tax rates. Holding for over a year typically qualifies for lower long-term capital gains rates. Frequent trading means every small profit gets diced up, with a big chunk immediately going to the tax authorities.

3. You Probably Can't Outsmart "Mr. Market," That Crazy Partner

Graham had a classic metaphor, imagining the market as a partner named "Mr. Market." He's emotionally unstable – sometimes wildly optimistic, offering a high price for your shares; other times deeply pessimistic, desperately trying to dump his shares on you for a song.

The Defensive Investor's Approach: Ignore his ramblings. Only when his price is absurdly low (offering a margin of safety) do you consider buying from him; when it's absurdly high, you might consider selling a little. Most of the time, just go about your business.
The Frequent Trader's Approach: Trying to predict whether Mr. Market will be happy or sad tomorrow. This is incredibly difficult! You think he's happy today and might be even happier tomorrow, then suddenly he flips. For an ordinary person, trying to profit by predicting market sentiment is essentially gambling. And gambling is clearly not what "defensive" investing is about.

4. Missing the Grandest View: The Power of Compounding

Einstein reportedly called compound interest the eighth wonder of the world. Your investment is like a snowball rolling down a long, wet slope. The longer it rolls, the bigger it gets.

Frequent trading is like picking up that snowball repeatedly before it has gained much size, only to toss it out again. You not only interrupt the roll (the compounding process), but you also melt a little off the snowball each time you handle it (trading costs and taxes). Conversely, the defensive investor finds that long, wet slope (good companies) and simply lets the snowball roll on undisturbed.

To Sum Up

So, for a defensive investor:

Your strength lies in patience and common sense, not in market-predicting wizardry.
Your goal is to be a shareholder in businesses, sharing in their long-term growth, not a trader profiting from price fluctuations.
Your weapons are a margin of safety and long-term holding, not stock charts and technical indicators.

Remember, as a defensive investor, your success stems precisely from your "inaction." While others are panicking over market volatility and trading incessantly, your ability to remain a calm and composed "orchardist" is a tremendous advantage in itself. Consider locking away the "trade" button. Pick up a book, spend time with family. Look again in a few years, and your orchard might be bursting with ripe fruit.