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The basic dilemma is regarding confidence in our own prowess, vs. confidence in history. My confidence in history is high. Depressions, wars, stagflation,... the market always comes back. Individual companies come and go, but the aggregate remains vigorous. But my confidence in personal skill, attentiveness or good sense, is low. Systematically I make blunders and miscalculations. If it's a stop-loss, I'll fat-finger it, setting the wrong amount. Or just by accident even buy the wrong symbol. The reason to not-trade, is partially a healthy skepticism of one's own faculties.
I am a fanatical devotee of the Efficient Markets Theory. At heart a theoretician, my affinity is towards mathematical models of nature, of the resulting equations and their solutions. But as an engineer, I recognize that these models are simplifications, and often glaringly so. The boundary-conditions for the differential equations are also only approximate. Complicated or "stiff" problems can rapidly diverge from the modeled solutions, even if the initial conditions and the equations are accurate. Thus I like EMT as a holistic explanation, but don't rely on quantitative finance as a model for trading.
Then comes raw animal belief. My belief is that if an objectively good opportunity exists, then a legion of smart and perspicacious people will seize it, whereupon the goodness of the opportunity dissipates. The corollary is that there are no good opportunities! The only exception is when a market is inefficient, which means that buyers and sellers are too sparse or too shielded from each other. An example is buying a classic used car from a little old lady. Because the car is hidden in her garage, buyers aren't aware. Because she's unaware of the car's value, she'll relinquish it at a steep discount. I, as a buyer, would be taking advantage of her... so there's the moral dimension. But that aside, the market becomes inefficient, and one can seize an opportunity. But in the stock market, good deals aren't squirreled away in closed garages. And the owners aren't uninformed little old ladies (or not little, or not old, or not ladies... it's just a convenient archetype). If buyers know what they're doing, and sellers know what they're doing, then the price is always fair... always! And if all prices are fair, then there is no opportunity to make an outsized profit, whether as a buyer or a seller. This is my raw animal belief.
With combination of this belief system, and the dual assessment that personally I lack awareness while impersonally the market eventually always rises, the logical consequence is perpetual buy-and-hold, of broad funds (probably of the index-sort).
Agree. The fierceness and quality of competition you mention is another one of the major drawbacks. You have to be exceptional and get better and better and adapt just to keep pace or to chase a diminishing difference. It’s like pro sports. You’re fast? Great. Everyone is fast. You’re strong? Cool. You’re smart and can see the game a move ahead? So can half the people you’re playing against.
When talking about trading, you don't want to buy the stock nobody wants. You are essentially buying stocks that are being accumulated by institutions and others. You can be "wrong" more times than you are "right" and still have results double digits or even triple digits. If your average loss is 5% and your average gain is 15% (example), you can be wrong more than right and still come out way ahead. You can change the numbers around to anything you want as long as your average gain is more than your average loss, typically you want to aim for at least 2:1 because this builds in failure. A market crash is no big deal because all your stops should trigger and you'll be 100% cash with most of your returns. You can then wait out for market conditions to improve, you can use progressive exposure to take a couple trades that setup with a small amount of your portfolio to test the waters and get fully invested again only if your other trades are performing well and have profits. If there ever was an event where we get a massive crash in the stock market or the US no longer becomes the top dog for whatever reason or we get into nuclear war, whatever you scenario you want to enter... you will be in cash very quickly, maybe instantly. You use positions sizes and stop losses, so a stock could have a black swan event where it crashes pre-market 20% and it won't have a big impact on your portfolio or if all of your stocks trigger their stop losses at the same time, your overall account, won't suffer major damage. Position sizing, stop losses, progressive exposure, buying stocks at proper setups, selling stocks at small losses... is why trading isn't a high risk, high reward thing IF properly done. Even for the sake of argument, let's say we are in a bull market and a stock has a 50/50 chance on going higher or lower. If you say well any stock that I buy that goes down 5%, I'll sell it, any stock that goes up, I'll let it ride and raise my stop to protect the gains... that alone is a winning situation. Now you add charts, technical analysis, fundamentals such as stocks that are growing earnings, sales, margins, only buying them in a bull market, only buying them when the stock itself is in an uptrend, cutting losses early, allowing gains to go high... you can see how trading is a profitable business when done right. I'm probably rambling or repeating, but you get the point. Oh and a 5% stop is just an example.
Lots of good information.
I started my career as a stockbroker trainee (many years ago). I knew lots of brokers whose personal accounts were vastly different than their client's accounts. A majority of them did well and continue to do well for themselves. Their clients do just fine. I also know quite a few financial experts who are very "market" adverse/conservative with their own funds. They invest mostly in real estate. There are lots of ways to make money. The best way is the one that works with your personal conviction.
My first mentor was an options trader. He made a crap ton of money for his clients. I never traded in options but I did trade in commodities for a couple of years. It's a great way to make a lot of money if you can keep your emotions in check and stick to your rules. I've seen some trader friends lose so much money on a gap down/gap up that I threw up for them. LOL
Anyway. Thanks for sharing. I am always interested in learning other POVs. You have a lot to offer this community.
I’ve posted the study here before, but it’s from JP Morgan wealth management. I think over a 20-30 year investing horizon, there’s 20 days that drive 50 percent of your return. Finding the right series of levers to pull in what you just described sounds a lot harder to do than simply staying invested. The best days tend to also cluster within 2 weeks of the worst days. So as you’re selling and stop lossing, the person who did absolutely nothing not only caught the key 20 days (I think there’s 35 days that drive 80%+) but they don’t have to invest their time.
You might catch the 20 or 35 days out of the 7000-10,000 days. Or you might not. I know I will.
Also, let’s say we both start with $100,000. My index turns it to $115,000. You turn yours to $120000 or $125,000 but you spent 10 to 20 hours a week setting up that array of research and trades. Let’s say for simplicity an hour of my time is worth a conservative $100 to me all in for pay/benefits/future career climbing/leisure to recharge. 15 hours a week, 52 weeks, $100 an hour….how much further are you actually ahead with that effort when factoring in opportunity cost? And that assumes you always have the discipline to beat me and not make mistakes or emotional decisions.
Nobody professionally trades to beat the market by 5%. I don't know why you are trying to make a case out of this, but to keep it short and simple, all I can say is I'd have a tiny fraction of my current net worth if all I did was stick with my day job and put any left over savings into the SPY. And I honestly don't think I could improve my work/life situation any more than what it is now. If I won $100M lottery tomorrow, I'd still look forward to screening for stocks and waking up for the opening bell. The last thing I'd want to do is have to put on a suit, commute to work again and ask permission if I want to take a vacation or take time off from work. However, there are many people who prefer that lifestyle and the sense of stability it brings. I'm not here to talk you or anyone for one or the other.
I started my career as a stockbroker trainee (many years ago). I knew lots of brokers whose personal accounts were vastly different than their client's accounts. A majority of them did well and continue to do well for themselves. Their clients do just fine. I also know quite a few financial experts who are very "market" adverse/conservative with their own funds. They invest mostly in real estate. There are lots of ways to make money. The best way is the one that works with your personal conviction.
My first mentor was an options trader. He made a crap ton of money for his clients. I never traded in options but I did trade in commodities for a couple of years. It's a great way to make a lot of money if you can keep your emotions in check and stick to your rules. I've seen some trader friends lose so much money on a gap down/gap up that I threw up for them. LOL
Anyway. Thanks for sharing. I am always interested in learning other POVs. You have a lot to offer this community.
Thanks, appreciate it! And yes as you say there are many ways to make money from the market and it depends on your goals, wants, needs, personality, current financial health, etc. Some people just want to have money for when they retire, some want passive income, some want super performance, some want minimal draw-downs, etc and some people are very emotional, some are very risk-averse, etc.
Nobody professionally trades to beat the market by 5%. I don't know why you are trying to make a case out of this, but to keep it short and simple, all I can say is I'd have a tiny fraction of my current net worth if all I did was stick with my day job and put any left over savings into the SPY. And I honestly don't think I could improve my work/life situation any more than what it is now. If I won $100M lottery tomorrow, I'd still look forward to screening for stocks and waking up for the opening bell. The last thing I'd want to do is have to put on a suit, commute to work again and ask permission if I want to take a vacation or take time off from work. However, there are many people who prefer that lifestyle and the sense of stability it brings. I'm not here to talk you or anyone for one or the other.
I think trading attracts a certain type of personality and I think that has more to do with it than having a high IQ. I always knew the corporate world wasn't for me, and I also felt that it was less stable than working for yourself. Sure, trading can be super difficult, but it's something you can work on and improve for yourself. If you don't like what the market is doing? Don't trade. You have pretty much no control when you're working for someone else. I've seen and heard of way too many people getting fired and replaced from their job of 30-40 years by someone younger and cheaper. You could get hired to work for one manager you liked only to have them leave and replaced by a crappy manager. Your position could get cut, etc. etc. Companies are always looking for ways to cut back and they do that through their employees because they know they have the upper hand. To me, it's a losing proposition.
Trading was never about getting rich quick for me. I don't believe in that. I was attracted to the freedom of working for myself and (IMO anyway) I think it has made me a better person, being more open-minded, patient, more analytical, better decision making, taking complete responsibility for all my actions, etc. I get that there are other ways to work for yourself but I don't know, I'm attracted to trading for some reason. Someone said it's like solving a puzzle and I can relate with that.
There's always going to be someone better and faster than you at everything but I don't think that's a reason not to do something. Another thing I like about trading, just focus on what you're doing, your own goals, etc. I can't speak for other people but I can be a bit of a loner and an independent spirit. That might be another thing that attracted me to this.
I can see why this wouldn't be for most people. But yeah, do whatever works for you.
I don't think I could handle the worry of not having a "steady income" to pay bills being a trader. Maybe if I was single and didn't have any children. I still think you'd need a decent amount of money to start with in order to be a full time trader, as you're still needing money to pay monthly bills.
And maybe I'm just too optimistic, being fairly young still (mid 30's), as I like my job and feel I am compensated fairly. I enjoy going to work most days and I think being in healthcare helps, as I do get to help people each and every day. I like my staff and I think they like me. It would be nice to work for yourself though, and I can see that being a major draw.
But I am very type A and if I decide to do something, I am going to try to be as perfect as I can at it. I was like that through college with grades. I have been and still am like that with weight lifting/bodybuilding. I picked up gardening as a hobby when we bought our hose 7 years ago because I wanted our backyard to look nice and I didn't want to pay anyone to do it, so I decided to learn about gardening after never having grown anything in my life. Our yard now has 50+ variety of trees/shrubs from fruit trees, tropical trees, roses, cactus, flowers and vegetables. The biggest compliment I get is when people come over and say our backyard is an oasis. I get people asking me all the time to help them with their landscaping (and I'm just self taught!).
So when I finally started to get serious about wealth building, I realized I needed to learn and learn greatly before attempting anything. I really thank BMW and this board for some very good information. It gave me good starting points and I read for months and paper traded extensively before using my real money.
A long story to get to this but I feel anyone can learn to make money in the market but you do have to spend time learning. After learning, you then have to define your rules and be disciplined. I think the biggest mistake people make is not learning enough first but instead jumping in right away. They maybe get lucky to start (maybe not), but because they aren't relying on any technique or analysis, they don't know how to replicate anything they've done.
My schedule isn't great, but I MAKE time to be successful at this. It also helps that I enjoy it. I enjoy preparing each day for possible trades. I enjoy the strategy. My daily schedule is up at 4 a.m., gym 5-6:15, check the market open 6:30, work 7:15-4, 4-7 with my family/dinner. 7-9 is time to myself. I try to make 30 minutes for myself to do stock related things in this 2 hour window, but most of my stock screenings are done on the weekend and then I make watchlists for the week to follow charts while at work. Most people don't get good at things because they make excuses for not having enough time to get better at them (yet they still watch hours of TV every day!). It would be easy for me to just watch Neflix for those 2 hours I get to myself, but instead I use it to get better at something, and it is something I enjoy.
As I'm learning more about the stock market, I realized it has some interesting things about it I wish had been compiled in a book. I learned these here and there so I thought it would be nice to put these together. It's a mix of trading + investing btw but I won't be adding anything about technical analysis. Anything you'd like to add?
-the gold and dollar are generally inversely correlated but it isn't always the case
-tech seems to be inversely correlated with value stocks and inflation
-the SPY generally tends to be inversely correlated with the VIX
-if a stock is doing well, you can look at the sector as a whole for other up and coming plays
-the news are generally priced in
-over the long-term, the SPY has gone up but when things are bearish it can seem a lot worse
-I heard this saying from a trader and I liked it a lot. He said that bulls take the stairs and bears take the window. It really helps keep things in perspective when everything seems to be in the red.
-sector rotations can and will happen
-anything can happen!
1. Preserve your capital.
2. If you can't read the financial statements, buy an index fund and go back to sleep.
3. Never buy any stock without understanding the business.
4. Never buy any stock without knowing its value vs. price.
5. Preserve your capital.
I think trading attracts a certain type of personality and I think that has more to do with it than having a high IQ. ...
Evidently so. I find much consonance in personality-types between those who pursue stock-trading, those who flip houses, those who start their own businesses, those who are self-taught and so on. It is rare to find aspiring traders among those who get an ROTC scholarship, retire as Lt Col from the Army, and then go to work for Boeing. Or among people who get a JD, join a mega law-firm, and are content with staying a staff-attorney and never trying to reach partnership-level. And so on.
Persons who rose on the conventional ladder of higher education (I mean grad school and the like); those who favor order, institutional membership, systematic employment and so on, are rarely attracted to trading - let alone succeed in it. Trading is for the swashbuckling sort. Those with such tendencies, would be bored in something more quotidian. Those lacking such tendencies, would be (and should be!) reluctant to dabble.
I think trading attracts a certain type of personality and I think that has more to do with it than having a high IQ. I always knew the corporate world wasn't for me, and I also felt that it was less stable than working for yourself. Sure, trading can be super difficult, but it's something you can work on and improve for yourself. If you don't like what the market is doing? Don't trade. You have pretty much no control when you're working for someone else. I've seen and heard of way too many people getting fired and replaced from their job of 30-40 years by someone younger and cheaper. You could get hired to work for one manager you liked only to have them leave and replaced by a crappy manager. Your position could get cut, etc. etc. Companies are always looking for ways to cut back and they do that through their employees because they know they have the upper hand. To me, it's a losing proposition.
Trading was never about getting rich quick for me. I don't believe in that. I was attracted to the freedom of working for myself and (IMO anyway) I think it has made me a better person, being more open-minded, patient, more analytical, better decision making, taking complete responsibility for all my actions, etc. I get that there are other ways to work for yourself but I don't know, I'm attracted to trading for some reason. Someone said it's like solving a puzzle and I can relate with that.
There's always going to be someone better and faster than you at everything but I don't think that's a reason not to do something. Another thing I like about trading, just focus on what you're doing, your own goals, etc. I can't speak for other people but I can be a bit of a loner and an independent spirit. That might be another thing that attracted me to this.
I can see why this wouldn't be for most people. But yeah, do whatever works for you.
I think trading attracts a certain type of personality and I think that has more to do with it than having a high IQ. I always knew the corporate world wasn't for me, and I also felt that it was less stable than working for yourself. Sure, trading can be super difficult, but it's something you can work on and improve for yourself. If you don't like what the market is doing? Don't trade. You have pretty much no control when you're working for someone else. I've seen and heard of way too many people getting fired and replaced from their job of 30-40 years by someone younger and cheaper. You could get hired to work for one manager you liked only to have them leave and replaced by a crappy manager. Your position could get cut, etc. etc. Companies are always looking for ways to cut back and they do that through their employees because they know they have the upper hand. To me, it's a losing proposition.
Trading was never about getting rich quick for me. I don't believe in that. I was attracted to the freedom of working for myself and (IMO anyway) I think it has made me a better person, being more open-minded, patient, more analytical, better decision making, taking complete responsibility for all my actions, etc. I get that there are other ways to work for yourself but I don't know, I'm attracted to trading for some reason. Someone said it's like solving a puzzle and I can relate with that.
There's always going to be someone better and faster than you at everything but I don't think that's a reason not to do something. Another thing I like about trading, just focus on what you're doing, your own goals, etc. I can't speak for other people but I can be a bit of a loner and an independent spirit. That might be another thing that attracted me to this.
I can see why this wouldn't be for most people. But yeah, do whatever works for you.
Great post!
Quote:
Originally Posted by lewdog_5
I don't think I could handle the worry of not having a "steady income" to pay bills being a trader. Maybe if I was single and didn't have any children. I still think you'd need a decent amount of money to start with in order to be a full time trader, as you're still needing money to pay monthly bills.
And maybe I'm just too optimistic, being fairly young still (mid 30's), as I like my job and feel I am compensated fairly. I enjoy going to work most days and I think being in healthcare helps, as I do get to help people each and every day. I like my staff and I think they like me. It would be nice to work for yourself though, and I can see that being a major draw.
But I am very type A and if I decide to do something, I am going to try to be as perfect as I can at it. I was like that through college with grades. I have been and still am like that with weight lifting/bodybuilding. I picked up gardening as a hobby when we bought our hose 7 years ago because I wanted our backyard to look nice and I didn't want to pay anyone to do it, so I decided to learn about gardening after never having grown anything in my life. Our yard now has 50+ variety of trees/shrubs from fruit trees, tropical trees, roses, cactus, flowers and vegetables. The biggest compliment I get is when people come over and say our backyard is an oasis. I get people asking me all the time to help them with their landscaping (and I'm just self taught!).
So when I finally started to get serious about wealth building, I realized I needed to learn and learn greatly before attempting anything. I really thank BMW and this board for some very good information. It gave me good starting points and I read for months and paper traded extensively before using my real money.
A long story to get to this but I feel anyone can learn to make money in the market but you do have to spend time learning. After learning, you then have to define your rules and be disciplined. I think the biggest mistake people make is not learning enough first but instead jumping in right away. They maybe get lucky to start (maybe not), but because they aren't relying on any technique or analysis, they don't know how to replicate anything they've done.
My schedule isn't great, but I MAKE time to be successful at this. It also helps that I enjoy it. I enjoy preparing each day for possible trades. I enjoy the strategy. My daily schedule is up at 4 a.m., gym 5-6:15, check the market open 6:30, work 7:15-4, 4-7 with my family/dinner. 7-9 is time to myself. I try to make 30 minutes for myself to do stock related things in this 2 hour window, but most of my stock screenings are done on the weekend and then I make watchlists for the week to follow charts while at work. Most people don't get good at things because they make excuses for not having enough time to get better at them (yet they still watch hours of TV every day!). It would be easy for me to just watch Neflix for those 2 hours I get to myself, but instead I use it to get better at something, and it is something I enjoy.
Also a great post!
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