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Despite passing Level 2 of the CFA, I've never had more success in investing by actively trading as opposed to passively investing.
I highly recommend you divide you portfolio into 2 portions, 1 passively managed and 1 actively traded, the latter obviously in the minority (i.e. 10-20%). Do whatever risky strategy you want with the active portion and let the passive portion do its work over the years. Periodically rebalance back to your active and passive portions to their target weights.
I strongly advise against this line of thinking: say you make a 50% return day trading one year, you continue risking 100% of your principal AND earnings in your subsequent trades. WRONG. In a perfect world, you can get a nice 50% compounded return over the next 10 years. However, this involves risking everything you've got every single moment the stock market's open over the next 10 years. The anxiety, panic, and frustration you'll deal with over the next 10 years will quickly wear you down. Trust me, if you survive that, $1 million won't be enough compensation for the sheer anguish you'll need to endure.
When you're constantly risking all or most of your wealth in day trading, it becomes difficult to think clearly. Plus, a single bad trade over the next 10 years is enough to wipe out most of the hard work you've put in to grow your wealth.
Instead, risk a small portion of your net worth each year like I said above. Transfer your profits to your passive portfolio (where the vast majority of your wealth is held) each year. Stick with a relatively safe and simple allocation in your passive portfolio (i.e. 60/40 stocks and bonds or the Permanent Portfolio). If you lose money in your day trading portfolio, do not replenish it with your passive portfolio.
Good luck.
This! Thanks man, you are right. Even if I do manage to earn 50% a year, one bad trade can wipe it all away(another flash crash in the wrong direction)..I will definitely take your advice though.
I need to start putting away my winnings into the passive portfolio and pretend I'm back at starting period.
Thanks as well Big G. Is CAPM realistic in the real world? I've been toying around with the idea of creating a new model based on E(r)+standard deviation of an individual security+E(r) based on target % from a technical target as well as %risk based on a technical support level from buying point.
And yes TSLA...hopefully this recent correction brings buying opps for very long plays. TSLA, AMZN , gold....100 years from now, I can just imagine.
Thanks as well Big G. Is CAPM realistic in the real world? I've been toying around with the idea of creating a new model based on E(r)+standard deviation of an individual security+E(r) based on target % from a technical target as well as %risk based on a technical support level from buying point.
CAPM is overly simplistic. The Fama-French 3-factor model, however, is pretty impressive, especially given its persistence. (That is, even 20 years after being made public, it still provides an edge. So much for "rational economic man".)
Technical factors are complete BS - tea leaves and voodoo. That's been pretty rigorously debunked, by deriving in-sample rules, then looking at their out-of-sample results. Might as well go to Vegas.
In general, someone your age should be buying high standard-deviation stocks. But, if you focus on the s.d. of securities without taking into account their market correlation, you're taking on company-specific risk without being compensated for it. You're throwing away the "free lunch" of diversification.
I can tell you the most sure fire way to turn 100k into 1 Million dollars, maybe not EXACTLY by 30, but definitely in a short amount of time. First, take that 100k and take it to an investment firm and have it invested in a growth portfolio. Then go to college and get a degree which has a higher probability of landing you a six figure income, or one close to it, I.E. Med school, Aerospace Engineering etc. Assuming you dont have an already well paying job of course. Then move in with your parents, explaining to them that this is a short term investment plan that will pay off massively in the end. Carry no debt, and buy a cheap car to get to work with. Spend NONE of your money except the absolute basics that you need to live, and invest the rest into your growth portfolio. Youll have close to a million in about ten years. Then you can "retire" and help to support the parents who helped you out. If you marry and your wife helps to pay into this plan then you can do it in an even shorter amount of time. This is probably the ONLY way youll get to a million by ~30. Its actually not rocket science, its just that people arent willing to sacrifice their standard of living this much to get rich, but it is doable.
FYI no I am not following this strategy because I dont intend on retiring THAT early. However I do have several Asian coworkers who are doing it. It is very common in the Asian community to live with your parents, and the younger generation of YUPPIES are taking their extra income and buying investment property/stocks and are making a TON of money due to how much free cash they have every month.
I can tell you the most sure fire way to turn 100k into 1 Million dollars, maybe not EXACTLY by 30, but definitely in a short amount of time. First, take that 100k and take it to an investment firm and have it invested in a growth portfolio. Then go to college and get a degree which has a higher probability of landing you a six figure income, or one close to it, I.E. Med school, Aerospace Engineering etc. Assuming you dont have an already well paying job of course. Then move in with your parents, explaining to them that this is a short term investment plan that will pay off massively in the end. Carry no debt, and buy a cheap car to get to work with. Spend NONE of your money except the absolute basics that you need to live, and invest the rest into your growth portfolio. Youll have close to a million in about ten years. Then you can "retire" and help to support the parents who helped you out. If you marry and your wife helps to pay into this plan then you can do it in an even shorter amount of time. This is probably the ONLY way youll get to a million by ~30. Its actually not rocket science, its just that people arent willing to sacrifice their standard of living this much to get rich, but it is doable.
Pretty much all the "retire early" bloggers have done some variation of this. They didn't live with their parents, but they basically lived lower middle class lifestyles on upper middle class incomes and became financially independent in their 30s.
Some upgraded their lifestyles, but very gradually and if they did upgrade it was to "ordinary nice" not to "upper middle class nice".
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