Why do you trade?
I often ask this question and often I am being asked this question.
Of course, the common answer is - for the money.
Some - for the adrenaline rush.
Others - for a different reason.
For those who trade for adrenaline rush, well, I could only tell you that trading is not supposed to be exciting. Its a business, not a game. And it may cost you if you re merely in for the excitement.
For money heh? Why trading?
The path of a trader is not easy, there is no easy money. Why do you trade?
For money?
There are numerous means for money - from getting an additional part time job to some Multi-Level Marketing (MLM) schemes.
Compare a sure part time income to the risk you re taking in trading. Why trade?
Compare MLMs with their "proven" marketing plans with the risk you re taking in trading. Why trade?
Want to trade for a living? Compare the security of a fulltime job vs the risk in trading - why trade?
Then some would say, trading is easier than others.
Getting a part time job is tiring. After working for 8 hours, its already exhausting. Part time job? You're kidding me!
MLM? Same with part time job. Most people are only free during the nights. So I have to meet them during the night AFTER my 8 hour fulltime job? Then every week, there is some sort of motivation meeting among members? You're kidding me!
Trading is different, every day I just buy some stocks and then sell them at a profit.
Bad news, buddy. Trading is worse than any part time job or MLMs.
I mentioned about plans - having the importance of having a game plan:
Game Plan
Being Bold and Able to Be Bold
That requires time and discipline.
Every single night (or day) without fail, one needs to prepare for the next day's trade.
If you re unprepared, my advice is - don't trade.
Why? The price movements of the counter you ve selected should not surprise you. You do not the time nor the luxury to be surprised. Act. Act immediately. And how could one act decisively if there wasn't a plan made in the first place?
Compare that to a part time job, compare it to a MLM scheme. Would trading really be better?
You would see that trading requires more discipline and is more risky. So I don't get it, why bother to trade then?
I'm curious. Do share your views. :)
22 comments:
The misconception that trading is easy, and that trading is an easy way to riches plus the excitement associated with it, is why people trade. If only they realize the dangers of trading and how smart or intelligent they have to be to win, they will think twice before putting in the money.
money from the market is there only for those who does their due work. y am i in? well i get tired of managing businesses, the people and the assets etc. what is my big surprise when i get serious with the market? well i find that in this business u ve to manage urself and it is more difficult than managing others, because the flesh is weak. all said this business is still my most rewarding, monetary and satisfaction wise. it challenges me more than my other businesses, which i am trying to get out.
There is another way to riches.
Use some layback investment select some good stock buy hold at undervalue basis ie earnings,asset value,cashflow, dividend based on industry within your core competence.
Core competence-If u banker go for banking, insurance and financial sector.
Need to review once a quarter over ten years u can see the value compound.
Ben: Yeap, guess the misconception is there. Trying hard here to clear the misconceptions. I ve also written a previous article entitled - Fast Easy Money - which tries to quell this myth. (The one with Money, Money, Money video clip)
Lsb: Always good to hear the real motive behind trading rather than just for the money ;). Interesting detail too, I didn't know you run businesses. What businesses do you run?
Graham: Yes you re right. Many ways to riches, hence why does one trade, anyways?
Family business in construction, impossible to run with a compulsive gambler elder bro, out already. Wholesaling, 100% financed by me, and given half of the partnership to my bro-in-law. Big mistake, shld had employed him only, getting out but diff collecting my equity.
Family biz was the reason y i left public practice in 1980 n returned to my home town from W M'sia.
Very experienced businessman turned trader/investor. My salutations.
I understand your predicaments with partnerships. I didn't have such good experiences with partnerships either.
Anyways, it looked like you have cut your "losses" in business and let your profit runs in stock market. Congratulations!!! ;)
Max.. if I were to re-read your posting one more time by changing all the words "trade" to "invest", everything will sound healthier. I think most of us wanted to invest our money for a better future.. can't ignore the fact that money can help one to achieve certain goals.. perhaps that's the reason we "invest" in stocks. However, when one don't hv the patience to wait.. they start to "trade" and expose to higher risk.. then invesment become not as healthy as it should sound.
Involve in part-time job? Gosh.. we are still working for the money. I like the idea of money working for us. Being a trader? I feel trader still working for the money because it requires closed monitoring. I am still very new to the market and yet to find out the invesment style that suit me. Believe it or not, I don't like to trade if I could. Is too time-consuming. Miss out a lot of quality time when we spend too much time watching the market trends.
Now, may I ask why Max wants to be a trader instead of an investor? Why bother to trade? :P
Well, an investor would not jump over every small movements in the market - or potential small movements in the market. Judging from the conversations in Ben's chatbox daily, I would say 99% are traders. The only investors are Ben, Jinsim and Lsb (Partially trader though).
Hence, this article.
Good question - why do I trade rather than invest. I ll answer that next round :)
Meantime, lets see if anyone else answers.
I think investment is not trading do not mix this to methods.
Investment is u buy something got value which give u tangible returns.
Trading u buy something that u think can sell to someone at a higher price.
For example in investment u buy a cow for its milk or its meat.
In trading u buy the cow with only one reason that is u think can sell the cow to someone who is willing to pay for it.
See the different!
Agree that investing and trading is different - however, I beg to differ that the methods must be different. There are certain methods which intersects and can be used for both trading and investing.
Trading and investing is an activity.
Methods, are methods, not the activity itself.
There is a difference.
Your explainations seems vague.
Take this analogy.
U drive the car to KL!(TA)
I take the LRT to Kl !(FA)
We are both using different mode to KL everyday.(To make money)
Trading and investment methods are different methods approach and techniques it is not an activity.
Buy a share is an activity but the process or decision in arriving/deciding to buy the particular share is the methods.
Grahamsmun,
What you re saying is effectively - TA = Trading, FA = Investment.
What I am saying, trading or investment has same objective - to make money. But Trading is an activity. Investment is an activity.
One can trade with FA or TA. It depends on whichever method one prefers.
If I buy a stock for 3.00 and dispose it for 3.50 within 3 days time, would it be a trade or an investment?
I would say - its a trade rather than investment.
Note: Method isnt even mentioned.
Buying Rm 3.00 and selling Rm 3.50 make Rm 0.50 in three days time.
Can be Ta can also be Fa !
The most important part is what is the reason when u buy at Rm 3.00 (what is the underlying reason ?)
Ta-I buy bcos the technically the stock is strong and i think should able make some money....After 3 days Now i think it reach the target and technically there is some selling pressure-hence sell to lock in profit.
Fa-I buy at rm 3.00 bcos the stock is undervalue based on the calculation should worth at least Rm 4.00 and dividend Rm 0.15 not bad got yield 5% p.a. Wah.... the stock has risen Rm 0.50 within 3 days although not reach my target but it is better buy stock B at Rm 2.00 as it is a better value Co now, should worth at least Rm 3.50 and dividend Rm 0.12 not bad 6% yield..
FA sell A switch to B.
See the different method employed and thinking is also different between Ta and FA.
Timeframe of 3 days of holding does not matter look at the objective of buying and selling.
"Fa-I buy at rm 3.00 bcos the stock is undervalue based on the calculation should worth at least Rm 4.00 and dividend Rm 0.15 not bad got yield 5% p.a. Wah.... the stock has risen Rm 0.50 within 3 days although not reach my target but it is better buy stock B at Rm 2.00 as it is a better value Co now, should worth at least Rm 3.50 and dividend Rm 0.12 not bad 6% yield..
FA sell A switch to B."
Add one more - intention of buying is to sell in shortest time possible and has no intention of buying into a business or owning a piece of the business.
This is trading with FA.
Trading with TA is not illustrated as I think we would not have problems there.
When Fa buy A he did not know that the price move up so fast to Rm 3.50 within 3 days.
In addition and most important at that time he had not identify stock B offering a better intrinsic value for investment.
As an enterprising FA, he will always go for investment that give the better intrinsic value.
All decision make is driven by rational financial analysis to determine the better value.
In this case the FA is not trading he is intelligently allocating his resources to investment that give a better value based on fundamental financial analysis.
How do u call this trading ?
My friend,
You re changing the scenario. I must object to the unfairness :P
Seriously, take in my scenario.
One uses FA method - valuation then buy the stock without intention to keep long term nor own the business (or part of the business). Intention was to sell as soon as possible.
Coupled with experience in market, etc etc, he knows that there is a high probability that price may jump in a short time.
He buys and sells them. Would this be a trade?
I don't like MLM scheme because after office hour, I'm too tire to go out and asking someone to buy your product, at times it's like begging someone to buy your product which is very tiring.I trade not to get riches, but I like to trade to earn some extra monthly money, average more than 2k per month, which for me its more than enough.
For MLM scheme, someone not necessary must buy your product , but in trading, I can buy and sell as I like it.
Trading is good for me, I do not need to trade daily, good day earn more bad day earn less as long as I have monthly extra income, but sometime when I got confidence that the counter I bought got potential to go up ( after doing some homework ) I do invest for better return.
Yes, I trade for money, the extra money. It's not easy, it's full of worried, excitement and full attention on it. Most important is discipline and cannot be greedy enough is enough , DON'T CHASE TRYING TO GET MORE.
If u look at Graham advice for the investor is to sell a share when u achieve your objective or target or sell your share when u have a better alternative investment.
In this case Stock B has a more superior preposition which has been discovered later.
Hence the scenario to sell A for B based on value is the correct approach for a fundamentalist.
By the way Max,I think both of us has deviated the issue come from BB suggestion to replace the word 'trade' with 'investment'
Which I think this to scenario should be cleary differentiated ?
This two investment & trading scenario should not be mixed, just like some people make associate 'trading' with 'gambling'.
Investor&trader,
Thank you for your comment and glad you have no delusions about trading is easy. By knowing and putting the hard work, you ll do alright. Thumbs up! :)
Grahamsmun,
Part of what Graham explained is actually trading. Even his definition of investment does not distinguish trading and investment.
But you re right about we deviated from the topic.
wow...my mistakes :p hahaha.. when I said change the "trade" to "invest"? Very exciting debates up there. Hmmm.. if I am a FA based investor.. a stock that appreciate RM 0.5 from a RM 3 stock in 3 days? I will probably think of keeping it longer.. since it delievers better results than I thought. First, it proves i made the right choice, 2nd, i must hv under-estimate its potential, since the return is so fast. Now, it boosts my confidence on that stock more than before. Why sell it after three days? Plus Intrinsic value is 4.00 right? Plus, icing with sound dividen? why sell so early? :P
If I am a trader.. scale out slowly!! ( a new term that I just learned from Max today ). Not bad.. around 16% profit in 3 days.. :P
forgive me huh.. Mr Gramham and Max
I was just giving a general perception on the healthiness of the method/activities we use in the stockmarket.. (gosh.. hv to be extremely careful not to touch the word "invest/trade" here :P..)
The level of healthiness :-
Investment> trading> gambling
thank you for all the comments.. show me how an investor and a trader think differently.. I like your examples, Mr. Graham. :P I think Max differentiate trader and investor based on the timeframe of the activities. A 3 days trades/invesment really don't sound like a practice of a fundamentalist.
Bravo - exactly my thoughts. Though I dont gauge level of healthiness.
Like what Kiyosaki said,
Its not the investment that is risky, its the investor.
In this case, its the individual rather than the activity.
Easy.
If you look at financial reports then you are a FA. If you look solely at charts then you are a TA. PE and DY is irrelevant to a TA.
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