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Has anyone here known anyone who got wealthy via active investing or trading? If so, what strategies/methods did they use, and how long did it take?
Thanks
I don't know anyone personally....but I do know someone who was a programmer who frequently comments on a personal finance blog called Free Money Finance
He goes by the name of Old Limey. He was an engineer who retired in 1992 at the age of 58 with ~300K plus a pension. Several years later he learned about some software and wrote some of his own. This somehow helped him predict the tech crash of 2000-2002 and the crash of 2008 as well. he got out of stocks in 2007 and is completely in municipal bonds now and has about $7.9 million.
However, he will be the first to tell you that he could not replicate what he did in the past. He said it's gotten even more complex. He also mentioned that writing this software took him working 12 hours per day 7 days per week for almost 2 years. He said it almost cost him his marriage.
Point being, it's extremely difficult, not just as far as the knowledge goes, but also psychologically/emotionally. Most people are better off keeping their expenses as low as possible, and saving the difference in a broad stock index fund, target date retirement fund, or one of the better paying balanced funds.
Extreme savers like Mr. Money Mustache and Jacob at Early Retirement Extreme had good, but not great incomes, and lived very basic lifestyles. Typically involving riding bikes to work instead of driving and focusing on efficient spending in all aspects of life (no eating out except maybe 1X or 2X per year like people used to do in the 1950s), living in a smaller house, going to the library instead of buying books/DVDs, and learning to fix things and do home projects themselves (often from books borrowed from the library).
If you can save 50% of your after tax income and invest the difference in a solid, low cost mutual fund, you can be financially independent in 17 years.
I know one person that became a multi-millionaire by buying options in a few big name companies during the bottom of the stock market crash in 2008/2009. It didn't take long for it to happen either.
Investing? Yes, sure, thousands of examples, including Warren Buffet, but it takes time, as in decades.
Trading is another story. I have heard stories of commodity traders in Chicago and have to some degree personally known currency and interest rate swap traders who shine for several years at big brokerages and banks, then fade; some have been astute enough to hold onto their bonuses during their shining-star years and then carry on independently or move up in the organization, others drink it away or blow it up their noses, some rogues even get prosecuted.
Generally speaking, wanting to make it big as a trader is analogous to wanting to make it big as a rock star or professional sports hero; millions will try, a select few will succeed, even fewer survive and prosper long term.
I think it takes guts, physical and mental stamina, some sort of natural sense for intra-day market timing, some recklessness, and good luck, all supervised with a good dose of common sense and astuteness.
There are plenty of gimmick seminars and products that will claim to teach you a method, just as there are plenty of gimmick methods and products to learn a foreign language.
You can dream and try it on your own, why not, if you have some $10,000-$100,000 to risk on a margin brokerage account, see how long you last.
But I believe that most who do make it start off on a trading desk at a big bank or brokerage company, usually as market-makers in currencies, commodities, interest rates (including bonds), maybe sometimes equities and various indexes, including spot, forwards, futures, options, future options, swaps, and swaptions.
If you can manage to get yourself hired to work at a trading desk for a big bank/brokerage, then maybe you have what it takes. If you try it on your own, most likely you are shooting darts.
I'm surrounded by millionaires that made their money investing in farm land and ranch land. It's a sure investment over time.
Of the 100's of people that I know that have invested in the stock market, I don't know one that has become wealthy doing it. Traders do even worse. I did OK investing in the tech boom of the 90's and then getting out 6 months before it went south. Some of my stocks went from $150 to $2 and to this day have never recovered. I was the only one of my friends to get out and they were all saying I was nuts and that the boom will continue for several more years. They were wrong!
Every (without exception) casino gamblers that I know always wins every time according to them. People that trade in the stock market are the same types of people and if you ask them they will tell you that they win on every trade. Investors have a better chance of making money in the markets, but even they can lose if you factor in inflation and taxes.
Are there people that make money investing and trading? Yes there are! But for every one that gets rich there will be 20 that make a little money or lose money.
Investing in equities is the best way for most people to really build wealth over time. How many people get rich? Depends on a few things.
1. What does rich mean to you?
2. How much can said person invest in the market over time?
3. How well thought out is their investing plan
4. Do they stick to #3?
Traders? I don't see very many of them get rich and the ones that hit it big on a large options trade or something of the sort normally give it back over time. But I have seen thousands of people amass 7 figure portfolios over 20-30 time frames even if they never made some ridiculous amount of money annually
If you can save 50% of your after tax income and invest the difference in a solid, low cost mutual fund, you can be financially independent in 17 years.
What? You do realize that not everyone is paid the same amount. 50% of minimum wage not only is not feasible but also not going to grant any financial independence in 17 years...
Has anyone here known anyone who got wealthy via active investing or trading? If so, what strategies/methods did they use, and how long did it take?
It is fairly routine in the United States (particularly on the east coast) for people to reach a net worth of $1 million or more by investing in the stock market over the course of their working careers.
We did. Remember buying Microsoft early on. Wish we had bought more. Now we are securely retired with a healthy index porfolio and a 60/40% cash allocation.
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