Evolution is a process which guarantees the survival of those who adapt to the changing environment. This is true of nature. This is equally applicable to the world of investing.
The readers of this blog come from many walks of life and from different countries. There are day traders, traders who specialize only in emini or options and a vast majority who are not traders at all but simply want to preserve and grow their capital and want to take control of their financial independence in their own hand. These vast majorities of readers are folks who work full time, have 401K accounts, and feel that they are not being served by their financial advisor. Obviously the needs of each group are different and how each would approach their trading / investment approach is also different. For e.g. a day trader who is very active in the market (has to be) can move between positions multiple times in a day. But that option may not be available to someone who is working in the law enforcement and is busy chasing the crooks.
I want to share some of the emails from readers (I have obtained their permission):
Don asked:
I have a question.
I have started Swing Trading, but not very successfully so far.
What is a reasonable expectation of returns after a ramp up period of say a year, if someone works at it diligently?
I recently sold my business and have invested the proceeds.
I find it interesting to observe and explore the patterns I seen in the markets and would I believe be happy spending my time being active in the financial markets by taking advantage of these patterns. This form of "trading" would only make sense if I can significantly outperform the returns I could achieve with index investing. As well I am in my 50's so I am concerned with capital preservation. I should say as well that my spouse is concerned that this form of "speculation" is too risky for us at this stage in our life. And, I of course want to be respectful of her concerns.
Robert said:
grateful if you could add my email to your list.
I have tried to day trade, mainly ES futures but never made money so I need more of your 'relaxed' investor methods
whilst still putting in time on technical, risk/ ETF picks etc.
find your blog and twitter always worthwhile
And they are not alone. Possibly over 90% of the readers will find themselves in that position, of not making enough money, consistently, over long period of time. In the process, the capital pool is depleted and the dream of achieving financial independence and securing the retirement remains just that, a dream.
I have renamed a page in blog as “Relaxed Investor”. There, I have outlined 16 investment strategies of Sir John Templeton: (H/T Ritholtz.com)
1.Invest for maximum total real return
2. Invest — Don’t trade or speculate
3. Remain flexible and open minded about types of investment
4. Buy Low
5. When buying stocks, search for bargains among quality stocks.
6. Buy value, not market trends or the economic outlook
7. Diversify. In stocks and bonds, as in much else, there is safety in numbers
8. Do your homework or hire wise experts to help you
9. Aggressively monitor your investments
10. Don’t Panic
11. Learn from your mistakes
12. Begin with a Prayer
13. Outperforming the market is a difficult task
14. An investor who has all the answers doesn’t even understand all the questions
15. There’s no free lunch
16. Do not be fearful or negative too often
2. Invest — Don’t trade or speculate
3. Remain flexible and open minded about types of investment
4. Buy Low
5. When buying stocks, search for bargains among quality stocks.
6. Buy value, not market trends or the economic outlook
7. Diversify. In stocks and bonds, as in much else, there is safety in numbers
8. Do your homework or hire wise experts to help you
9. Aggressively monitor your investments
10. Don’t Panic
11. Learn from your mistakes
12. Begin with a Prayer
13. Outperforming the market is a difficult task
14. An investor who has all the answers doesn’t even understand all the questions
15. There’s no free lunch
16. Do not be fearful or negative too often
All his advices are worth listening to, but what I like most is point # 2. Invest – don’t trade or speculate. However, Sir Templeton possibly wrote these rules during bull market and we may have to adapt them a bit in this secular bear market. (yes, I think we are in a secular bear market rally, which will end soon)
To elaborate more on point # 2:
The stock market is not a casino, but if you move in and out of stocks every time they move a point or two, or if you continually sell short… or deal only in options…or trade in futures…the market will be your casino. And, like most gamblers, you may lose eventually—or frequently.
You may find your profits consumed by commissions. You may find a market you expected to turn down turning up—and up, and up—in defiance of all your careful calculations and short sales. Every time a Wall Street news announcer says, “This just in,” your heart will stop.
Keep in mind the wise words of Lucien Hooper, a Wall Street legend: “What always impresses me,” he wrote, “is how much better the relaxed, long-term owners of stock do with their portfolios than the traders do with their switching of inventory. The relaxed investor is usually better informed and more understanding of essential values; he is more patient and less emotional; he pays smaller capital gains taxes; he does not incur unnecessary brokerage commissions; and he avoids behaving like Cassius by ‘thinking too much.’”
And a little bit on point # 3:
There are times to buy blue chip stocks, cyclical stocks, corporate bonds, U.S. Treasury instruments, and so on. And there are times to sit on cash, because sometimes cash enables you to take advantage of investment opportunities.
The fact is there is no one kind of investment that is always best. If a particular industry or type of security becomes popular with investors, that popularity will always prove temporary and—when lost—may not return for many years.
The fact is there is no one kind of investment that is always best. If a particular industry or type of security becomes popular with investors, that popularity will always prove temporary and—when lost—may not return for many years.
It is difficult to make money day trading when your only resource is your home computer, some technical analysis tools and an internet connection. You are competing against those bots that are able to front run every order. You are competing against those four massive US TBTF banks that control 70% of the derivative market and can employ the best and brightest to write program for trading. Against those hedge fund genius that trade on insider information and have a wide army of expert network. Above all, your worst enemy is you yourself, your emotions, fear and greed. Very few day traders make money on a regular basis, (over 90% lose money) year after year and those who do, deserve a special salute.
I have been writing about being patient, cash is king etc. Because I have done that mistake of jumping from trade to trade. I have now given up on that and I only trade only when I think it is a long term trend. I would rather not make money, than risk losing it. Capital saved is capital earned. That is why I am not interested in shorting the market for 30 or 50 points any-more nor do I want to go long for that many points. I am waiting for the clear sell or buy signal which will run for 100+ points or more. These opportunities come once in a while but when they come, we are too exhausted or emotionally drained from our failed trades to take advantage of them. The markets are tradable only two or three times in a year, rest of the time; it is not worth the risk. At least from the ordinary investors’ point of view.
There are some sectors, some industries which will go up even when the rest of the markets are down and we have to identify those. I quote this from Josh Brown of reformed broker: The consumer staples sector of the S&P is up 47% since the peak of the S&P 500 in 2007 while the broader market is still down 7% five years later. Did you learn anything? Here's what you should have learned: Even in the very worst of times, people still have to get out of bed, make their kids breakfast and put them on the bus to school. They will die before they stop doing that, no matter what kind of recession/depression/crash you think is afoot. Before I let my kids go hungry, I will work three jobs and then kill a hobo to sell his organs. And you will too. Invest accordingly, end of lesson.
The post is getting too long so I better finish it now. In conclusion, let’s just have a longer time horizon and at the same time be nimble. We are not going achieve our financial nirvana tomorrow and it is going to be a long journey. (We also need bit of luck with us.) Hope I will be able to share the journey with you.
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