Average stock ownership: 22 seconds

In fact, don't bother clicking here is the whole text of the 'article':

"What, you bought a stock one whole hour ago? And you still own it? That stock is practically a dinosaur in Wall Street's new reality.

The average time a stock is held is 22 seconds. But that's an improvement from a year ago, when it was 20 seconds, according to analyst Michael Hudson, an economics professor at the University of Missouri.

It's all because of computerized split-second trading. "The financial sector is short term," Hudson said in an interview. "They talk as if they're long term."

Wired has an excellent overview of how computerized trading has taken over Wall Street. It's so bad now, in fact, that computers now read news articles at lightning speed, searching for key words that will help them buy stocks. "The machines aren't there just to crunch numbers anymore; they're now making the decisions," Wired reports. Computerized high-frequency trading makes up about 70% of all trades, experts say.

How can the individual investor compete with that?

To see how this plays out, imagine a hypothetical financial world that looks like this:

Firm A has $100M under management and makes a transaction every 10 seconds (total: 3 million trades). They make a return of 10%, $10M. Each trade is for 10,000 shares (average 0.03 cents/trade profit).

Firm B has $1B under management and makes a transaction every 3 months (total: 4 trades). They make a return of 10% ($100M). Each trade is for 10 million shares ($2.50/share profit).

The remaining 100 firms have a total of $100M under management and make one transaction per firm per year. They make a return of 10% ($100,000 each). Each trade is for 1000 shares.

(Ignore how everyone makes a profit in this supposedly closed financial system...we can just chalk it up to the Fed injecting money into the economy.)

If you average the holding time of each stock by transaction, you have (3 million trades at 10 seconds + 4 trades at 7.5 million seconds + 1,000 trades at 30 million seconds) / 3,010,004 trades = 1019 seconds. That's an average holding time of just under 20 minutes.

If you average the holding time of each stock by volume, you have (30B shares at 10 seconds + 40M shares at 7.5M seconds + 100,000 shares at 30M seconds) / 30,040,100,000 shares = 9,976 seconds, or an average holding time of about 3 hours.

If you average the holding time by firm, you have 1 firm at 10 seconds, 1 firm at 7.5M seconds, and 100 firms at 30M seconds, for an average holding time of just under 1 year.

If you average the holding time by firm, weighted by capitalization, you have ($100M * 10 seconds + $1B * 7.5M seconds + $100M * 30M seconds) / $1.2B = 8.75M = about 4 months.

Note how different the results are depending upon how you perform the average. The article sounds like it's averaging by transaction (i.e. taking the total number of trades and dividing it by the time period they're traded in), which is method 1. I'd argue that a better metric is method 4, averaging by firm weighted by capitalization, which indicates how roughly how long firms with lots of money at their disposal are choosing to hold stocks. In a world like the hypothetical one above, where you have a few high-frequency trading firms, a few giant fundamental-investing firms, and a bunch of retail investors, the results for that are wildly different.

Newsflash for everyone thinking about being involved with the markets: the reason they work is because there are participants with different motiviations and ideas on how to make money. Period. By definition, the "plankton" of the markets are the market makers (both designated and implied, read passive HFT). These guys provide immediacy. They do that with the express intent of continuously trying to manage their inventory of any particular stock to 0 (with constraints of their pricing model). This directly implies they have a very high turnover and a holding period that is minimized as much as possible.

Why do they do this? Market makers provide a valuable service: immediacy. They supply to other traders an OPTION to trade with them by displaying liquidity on the standing limit order book. Therefore, they must deal with adverse selection (trading with counterparties who are more informed than they are). A market maker is there, ready to trade, and when someone lifts their offer or hits their bid they want to turn around and lay that position off as quickly as possible, ideally via another limit order being matched with a market order. This is the way they earn their living: by making the spread.

"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."

Quite a contrast.

A: Don't try. Holding stocks a long amount of time insulates you from the market-timing nonsense where the day traders are fighting tooth and nail for fractions of a percentage point of profit.