Sometimes, with all the noise, all the complexity, all the trading rules...simple is where it is at. Jeffrey Strain recently listed 5 ways on Yahoo Finance where patience can help you achieve wealth. Sure, some of it is the standard issue stuff we all should know, but his points are good reminders.
1. It helps forgo instant gratification: Being patient allows you to wait until you have the money to purchase the things that you want. But it's not easy to show patience in a society where instant gratification is advertised as being the norm and credit is easy to obtain. If you aren't patient, however, it means that you will likely use a credit card to pay for things you don't have the money to pay for. This is how people get into credit card debt, which will deteriorate savings and hinder your ability to become wealthy.
2. It helps you save: Part of being able to save 10% of your take-home pay is making sure that you spend your money wisely. Having the patience to wait until a product's price comes down will go a long way toward helping you build wealth. People who have to have the latest gadgets the instant that they appear end up paying a premium. When the technology becomes more mainstream, its price becomes more reasonable. Having the patience to wait before you buy often is the difference between having 10% to invest and not having it.
3. Patience helps avoid "get rich quick" schemes: Whether it is the lottery or some hot stock pick, the urge to try to get rich quick is glorified in the media. The problem is, most people who are rich don't get there the quick way. Most have built their wealth over time. While the media glamorizes the few who do get rich quick, most people who try that route don't end up wealthy.
4. It helps you stay on your wealth-building plan: Wealth doesn't usually appear instantly and doesn't present itself unexpectedly. It usually takes a well-thought-out plan over a long period of time. Taking the time to build a solid plan and then sticking to it will ensure that you have a much greater chance of creating and keeping your wealth than if you try to make your fortune instantly.
5. Patience helps you look long term: Even if you create a solid wealth-building plan, there will still be bumps in the road. When these bumps occur, it's important that you have the patience to stick to your plan instead of panicking. If you end up abandoning your plan at the first sign of trouble, you will likely end up much less wealthy than if you have the patience to stick to your plan the entire time. Stocks fluctuate over short periods of time, but they usually go up over a long period of time. It's important to take a patient, long-term view in wealth creation.
Article source : http://www.michaelcovel.com/archives/cat_psychology.html
Showing posts with label money. Show all posts
Showing posts with label money. Show all posts
Tuesday, July 31, 2007
Tuesday, July 17, 2007
Trading as a business
Charlie Wright of Fall River Capital offers some pearls of wisdom about trading as a business:
"Thinking of trading as a business has helped me enormously as a trader. It puts everything into perspective and helps me deal with my own psychological difficulties with trading execution. Once I stopped viewing trading as speculation, my trading improved. Once I realized that I was not going to get rich quick, that trading was not easy money, my trading improved. Once I realized that almost no businesses are successful overnight, my trading improved. Once I realized that I had to make an investment in the business, both in terms of my own education and in equipment and working capital, my trading improved. One concept that is commonly taught in business schools is that of 'barriers to entry.' This is a very simple concept that has important ramifications as you consider trading as a business. The basic principle is that the higher the barriers to entry in a business, the higher the investment to establish market share but ultimately the higher the margins and profits. A good example is the beer business. Controlled by several large breweries, it would be financially very difficult to start up a new brewery and acquire significant market share. When Phillip Morris bought Miller, they spent over a billion dollars to acquire the business and do the advertising and promotion necessary to obtain market share. But Miller was successful, and when they achieved the share of market they wanted, the profits were outstanding. The reverse is also true. If an industry has low barriers to entry, and there is a relatively small up front investment, there is much competition for profits and lower margins. This is the case for many service businesses, real estate brokers, securities brokers, cleaning services, etc. Restaurants are also a relatively low investment business. All you need is some decent space for tables and some cooking equipment and you are in business. However, the competition for customers is intense and thus the margins are low. There is no good or bad when analyzing barriers to entry for a particular industry. If the investment is low, the stress comes from being smarter and superior than everyone else at making money. If the barriers are high, the stress comes from taking the large financial risk and the uncertainty of obtaining the target market share. Either way, the business is always difficult. Trading is a low barrier business. You basically need a computer, a broker, and a modest amount of capital and you are in business. But because of the low barriers to entry, the competition for profits is very high. There is no such thing as gaining market share. Many people wrongly conclude that low barrier businesses are easy to start and trading is no exception. Many new traders think that trading will be easy and they will get rich quick. Experienced traders know that this will not happen. Trading is as difficult as any business I have ever been involved in. The main point to remember is that trading is a business with low barriers to entry. This means that the competition for profits is very high and you will have to be smarter, more disciplined or more creative than the majority to make money."
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
"Thinking of trading as a business has helped me enormously as a trader. It puts everything into perspective and helps me deal with my own psychological difficulties with trading execution. Once I stopped viewing trading as speculation, my trading improved. Once I realized that I was not going to get rich quick, that trading was not easy money, my trading improved. Once I realized that almost no businesses are successful overnight, my trading improved. Once I realized that I had to make an investment in the business, both in terms of my own education and in equipment and working capital, my trading improved. One concept that is commonly taught in business schools is that of 'barriers to entry.' This is a very simple concept that has important ramifications as you consider trading as a business. The basic principle is that the higher the barriers to entry in a business, the higher the investment to establish market share but ultimately the higher the margins and profits. A good example is the beer business. Controlled by several large breweries, it would be financially very difficult to start up a new brewery and acquire significant market share. When Phillip Morris bought Miller, they spent over a billion dollars to acquire the business and do the advertising and promotion necessary to obtain market share. But Miller was successful, and when they achieved the share of market they wanted, the profits were outstanding. The reverse is also true. If an industry has low barriers to entry, and there is a relatively small up front investment, there is much competition for profits and lower margins. This is the case for many service businesses, real estate brokers, securities brokers, cleaning services, etc. Restaurants are also a relatively low investment business. All you need is some decent space for tables and some cooking equipment and you are in business. However, the competition for customers is intense and thus the margins are low. There is no good or bad when analyzing barriers to entry for a particular industry. If the investment is low, the stress comes from being smarter and superior than everyone else at making money. If the barriers are high, the stress comes from taking the large financial risk and the uncertainty of obtaining the target market share. Either way, the business is always difficult. Trading is a low barrier business. You basically need a computer, a broker, and a modest amount of capital and you are in business. But because of the low barriers to entry, the competition for profits is very high. There is no such thing as gaining market share. Many people wrongly conclude that low barrier businesses are easy to start and trading is no exception. Many new traders think that trading will be easy and they will get rich quick. Experienced traders know that this will not happen. Trading is as difficult as any business I have ever been involved in. The main point to remember is that trading is a business with low barriers to entry. This means that the competition for profits is very high and you will have to be smarter, more disciplined or more creative than the majority to make money."
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
Tuesday, July 10, 2007
Top 10 Ways To Lose All The Money In Your Trading Account In 30 Days Or Less - Guaranteed!
I came across the list below from 'Craig' here. It is a great list:
#10 - Put all of your efforts into finding the perfect technical indicator. Once you find this magical indicator, it will be like turning on a water faucet. Go all in. The money will just flow into your account!
#9 - When your technical indicator says that the stock is oversold, BUY IT RIGHT THEN. Always do what your technical indicator says to do. It takes precedence over price action.
#8 - Make sure to visit a lot of stock trading forums and ask them for hot stock tips. Also, ask all your friends and family for stock tips. They are usually right, and acting on these tips can make you very rich.
#7 - Watch what other traders do and be sure to follow the crowd. After all, they have been trading a lot longer than you so naturally they are smarter.
#6 - Pay very close attention to the fundamentals of a company. You MUST know the P/E ratio, book value, profit margins, etc. Once you find a "good company", consider going on margin to pay for shares in their stock.
#5 - Forget about developing a trading plan. If you see a good stock just buy it. Don't worry about when your going to sell. No need to get caught up in the details. Besides, you'll probably get rich the first year of trading anyway.
#4 - Buy expensive computers and trading software. While your at it, buy a couple more TV's so that you can watch CNBC on multiple screens! You NEED all of these gadgets in order to trade stocks successfully. Then watch the money roll in!
#3 - Always follow your emotions. They are there for a reason. If you feel nervous, sell the stock! If you are excited, buy more shares. This is the best way to trade stocks and fatten up your trading account.
#2 - Don't worry about using stop loss orders. When the time comes, you will be able to sell your shares and take a loss. Your emotions won't even come into play. Besides, stop loss orders are for sissies!
#1 - Absolutely, without a doubt, FORGET about managing your money. Don't worry about how much you can lose on a trade. Only think about how much loot your gonna make. Then start planning that trip to Fiji
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
#10 - Put all of your efforts into finding the perfect technical indicator. Once you find this magical indicator, it will be like turning on a water faucet. Go all in. The money will just flow into your account!
#9 - When your technical indicator says that the stock is oversold, BUY IT RIGHT THEN. Always do what your technical indicator says to do. It takes precedence over price action.
#8 - Make sure to visit a lot of stock trading forums and ask them for hot stock tips. Also, ask all your friends and family for stock tips. They are usually right, and acting on these tips can make you very rich.
#7 - Watch what other traders do and be sure to follow the crowd. After all, they have been trading a lot longer than you so naturally they are smarter.
#6 - Pay very close attention to the fundamentals of a company. You MUST know the P/E ratio, book value, profit margins, etc. Once you find a "good company", consider going on margin to pay for shares in their stock.
#5 - Forget about developing a trading plan. If you see a good stock just buy it. Don't worry about when your going to sell. No need to get caught up in the details. Besides, you'll probably get rich the first year of trading anyway.
#4 - Buy expensive computers and trading software. While your at it, buy a couple more TV's so that you can watch CNBC on multiple screens! You NEED all of these gadgets in order to trade stocks successfully. Then watch the money roll in!
#3 - Always follow your emotions. They are there for a reason. If you feel nervous, sell the stock! If you are excited, buy more shares. This is the best way to trade stocks and fatten up your trading account.
#2 - Don't worry about using stop loss orders. When the time comes, you will be able to sell your shares and take a loss. Your emotions won't even come into play. Besides, stop loss orders are for sissies!
#1 - Absolutely, without a doubt, FORGET about managing your money. Don't worry about how much you can lose on a trade. Only think about how much loot your gonna make. Then start planning that trip to Fiji
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
The Ten Trading Commandments!
One man's Ten Commandments (PDF). An excerpt:
"Discipline trumps conviction. No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always try to define your risk and, above all, never believe that you're smarter than the market."
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
"Discipline trumps conviction. No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always try to define your risk and, above all, never believe that you're smarter than the market."
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
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