Delayed or Instant Gratification

People nowadays yearn for and work towards ‘instant gratification’, which to us, means the fulfillment of our needs and wants in the present or immediate moment. Delayed gratification works by fulfilling the needs and wants at a later stage, presumably with a greater rewards or outcome.

Smashed piggy bank with coins - Investor Monkey

People nowadays yearn for and work towards ‘instant gratification’, which to us, means the fulfillment of our needs and wants in the present or immediate moment. Delayed gratification works by fulfilling the needs and wants at a later stage, presumably with a greater rewards or outcome.

In stock investing, most of us hope that we can be trading for a living with profits they earned from each trade is able to replace their salary of their existing job. However, when we started investing, most of us want to use investment to build our retirement funds so that we can retire earlier.

Today, I shall be using Apple Inc (AAPL) stock price for the last two years as our example to show you the benefits of long term investing or “delayed gratification”.

Apple Inc stock - Investor Monkey

A long term investor may choose to enter the market when the 50 days simple moving average crosses the 200 days simple moving average and exits the market when the moving averages crosses again.

With that, the long term investor will only have entered a trade on 18 September 2013 and currently still holding on to that trade.

Entry Date Entry Price Current/Exit Price Profit/Loss
18 Sept 2013 $64.472 $125.80 95.12%

A short term investor, however, may have entered and exited multiple trades during the same period.

Apple Inc stock chart with entry/exit

Entry Date Entry Price Current/Exit Price Profit/Loss
14 Oct 2013 $68.915 $75.238 9.18%
21 Nov 2013 $74.266 $75.238 1.31%
19 May 2014 $85.193 $114.618 34.54%
21 Oct 2014 $101.626 $114.618 12.78%
22 Jan 2015 $111.958 $108.711 -2.90%
10 Feb 2015 $122.02 $130.415 6.88%
23 Apr 2015 $129.67 $130.56 0.69%
Total Profit 62.47%

Although the short term investor may see an instant gratification, the total profit a short term investor may not match the profit bagged by a long term investor.

Of course, this is just a simple calculation. There are other factors which will pull the differences in total profits apart.

  • Commission. Every trade made comes with a commission. Though it may be a small amount compared to the trade size, it actually eats into the profits of the investor.
  • Dividends. This only affects stocks that pays shareholders dividends. Because short term investors enter and exit a trade frequently, they do not wait for dividends to be recorded before they exit the trade thus they may miss some of the dividends paid to the shareholders.

Bottom Line

Instant gratification may seem to be more attractive to most of us as the profits from each trade means cash that we can use immediately, unlike unrealised profits. However, the funds that we are trying to build through investing is likely to be used for retirement in the future, thus even if instant gratification is received, reinvesting the profits would be a wiser move so that you will be able to build a bigger retirement fund.

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