Master yourself, then markets

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Comments

  1. Thanks Prince, As someone who jumped head first into the stock market late 2007 (yes 2007 ouch), after listening to the main stream media and newsletter writers/analyst research, then getting badly beaten up by Mr Market, my advice to novice traders is to sign up for a demo trading account and use play money for at least 6 months before you use your money and try to gain an understanding of the BEAST (Mr Market) so he doesn’t beat you up.

    If you happen to make a lot of play money and wish you had used your money instead don’t despair, as long as there is a market there will be an other opportunity’s. Just don’t forget every opportunity you identify to make money is also a potential opportunity to lose money.

    • I slightly disagree, but you’re on the right track, if you want to go down the trading route.

      I would contend that you should purposely start with a small, real money account.

      Say around $1500 or up to $5000 which is what you would spend on seminars, black box software or less than one semester fee in HECS at university.

      Consider spending this money learning the most important thing about markets.

      You.

      Its completely different with paper trading. Its not real at all – your reactions are different and you don’t learn to deal with loss or cope with making profits. You will create a different set of pathways in dealing with stress and when you eventually open your real account, you are likely to fall apart.

      There is no way getting around the fact that the first 6-12 months are a complete write off and you shouldn’t delude yourself that you will make any money during this time.

      Sorry to be so harsh!!!

  2. Devilled Advocate

    +infinity

    Possibly the best articulated most lucid advice I’ve ever seen.

    This should be laminated and given to all financial planners who should be made to rote learn it.

    DA

  3. This is a fantastic article Prince, i’d go as far as saying it should be compulsory reading for anyone looking to get into the market.

    Psychology and risk mgt is where far too many people go wrong and it leads to a lot of the buy-high sell-low decisions that are made. Lets face it, most investors lose money.

  4. For those struggling to access the article…I couldn’t access on my pc but when I switched off mobile theme on my iPhone, login worked fine

  5. Hopefully you’ll get some recognition for ushering in the new Mantra ” The Great Volatility”. You certainly deserve it .
    One point: you chartacterize the professional investor as ” is able to take advantage of volatility opportunities ….” ..but in the era of The Great Volatility surely the amateur has to squarely address this paradigm with new found skill and knowledge.Maybe you will provide it. I hope so.

    • I meant on an ongoing basis as part of their investment strategy, whereas the amateur must be able to do, at the minimum, a hedging strategy.

      e.g for the amateur this could be as simple as a “NOT LONG” hedge, where you are only in the ASX200 on certain technical conditions and you adopt a tactical asset allocation technique when re-entering to minimise risk.

      The next step up could be direct hedging a particular stock, without selling the underlying, but using a CFD or option to capture real gains on the downside.

      For the pro, this would extend to shorting the market outright, or using more advanced option strategies to capture volatility, but doing so quite a lot of the time and across different markets.

      But it could be as simple as going long the US dollar vs everything else (dollar index basket) or shorting various market indices (e.g DAX, Nikkei) amongst currency hedging strategies (which I hope DFM will outline in future posts!!)

      • Most of this went way over my head, being an amateur investor myself. Can you recommend any resources to explain these hedging strategies?

        I look forward to your future posts.

      • eg. “The next step up could be direct hedging a particular stock, without selling the underlying, but using a CFD or option to capture real gains on the downside”

        By this I gather that you mean if you have a stock that is trending downwards (but you’re confident in the strength of the stock) you buy options that have it at an even lower price, so that if it bounces you buy the optioned stock and sell for a quick profit or dump the options if the price dips even further?

      • Something like that Jason – I’ll go into more detail later.

        Options are tricky – even for the professionals – whilst CFD hedging is easier to understand (if not the same risk…) – both have their place.

        The simplest hedge is not being exposed to a downturn i.e NOT LONG and switching from equities to cash.

  6. Spot on Prince! Brilliant! Thanks for shining the spot light in my financial darkness.

    I so need this type of straight, no nonsense, basic survival kit framework that addresses my biggest risk, my own head space, status quo type thinking and financial gullibility and naivity—-where I could potentially trip myself up because of my greed and my fears in the the pending financial storms ahead.

    I so appreciated your comment to Petervm and thank you both for your direct honesty because I desperately needed that type of a jolt to wake me out of my financial and psychological complacency.

    This is good pain when compared to the pain of being financially unprepared in what is lining up to potentially be the perfect economic storm ahead.

    Jasmine 🙂

  7. Prince, a great piece, thanks. I particularly like your rational focus on the approach, for many it’s hard to see structure amongst both the noise and the volatility. Bookmarked in the “MB Classics” folder.

  8. Great work Prince. All top notch, but especially those Strategy bullet points.

    I don’t know how many people would truly know themselves before they start trading or investing. But, it is important that people consider those questions, and at least have a starting point idea.

    Gotta say, for me, trading has been a great way to get to know myself, over more than ten years. In fact over time getting to know myself has become one of the three main attractions that trading holds for me. The other two being financial reward, and playing the greatest game on earth.

  9. StroppyTheWonderDog

    “Move quickly, or not at all”.

    You have to pay attention to move quickly.

    The best thing I did was to start to pay attention. Don’t have to act all the time (better if I act less but act better), but first you have to pay attention. Wish I had started sooner. The “not at all” camp hasn’t been much chop the last 10 years.

    • I deleted a bunch of complaints about the registration system (which have been registered and are being addressed) that were on this post so it’s possible your comment got caught up in that general flush.

      Happy to repost if you care to redo and apologies.

  10. Interesting point about using a small amount of real money first – I was about to start playing the ASX Demo Game tomorrow, thinking this would be a great start to my education. But its true, without ‘skin in the game’ (to thrown down some annoying jargon :D) I would behave very differently to the real thing.

    Maybe I’ll start playing it anyway just to get a feel for how the market moves, bearing in mind that I’ll be under the influence of loss-immunity. Then when I’m ‘satisfied’ with that experience, do the real deal beginning with <$10k and see how that feels.

    Top notch article by the way.