The Art of becoming a
I donít like these cold, precise,
perfect people who, in order not to speak wrong, never speak
at all, and in order not to do wrong, never do anything.--
Henry Ward Beecher 1813-1887, American Preacher,
According to the low of paradoxes one never gets what one
desperately chases or needs; one only gets it by seeking it.
Desperation blinds the mind from being able to function
optimally and therefore failure is all but guaranteed.
Everyone enters the markets thinking they are going to win
yet only 10% or so win in the long run; despite knowing
these statistics there is never a shortage of new entrants.
Trying to win 100% of the
time is another sure fire way to make sure that you lose
almost all the time. Perfectionists usually have some deep
rooted psychological fear which probably has to deal with
some form of rejection earlier on in their lives. They try
to compensate for this lacking (usually this is not real but
just a false perception) by going overboard and trying to be
perfect in every thing they do.
It is a given fact that
long term traders by far win more often then short term
traders; the reason is simple they are relaxed they have
more time to analyse their moves, have patience and
generally are much more disciplined then their counter part
short term traders.
We are going to list 6 of
our 13 investment rules below:
1. Divide your money into
10-15 lots. When you add additional funds to your account,
divide the new money by 10 or 15 or create a brand new lot.
In other words if you currently have 10 lots (lets assume
each lot is 500 dollars) and you add an additional 500
dollars to your portfolio; divide the 500 by 10-15 and
spread the money equally into each lot or create a brand new
2. Each holding should
have the same amount of money assigned to it. Never invest
more in any one recommendation; this way if anything should
go wrong you wonít be blown out of the water. Most investors
tend to lose not because of bad choices but because they are
found to be lacking in the area of money management. The
fastest way to lose is to spread your money unevenly.
3. Never dedicate more
than 10% of your entire portfolio to options investing. Of
this 10% never invest more than 2-3% per position. If you
are options professional you could dedicate up to 20% of
your portfolio to options (but do not invest more than 2-3%
of this 20% per option play)
4. Remember that no one
can win all the time. The market operates in cycles. Some
quarters it is very easy to make money and some quarters are
a struggle just to stay alive. Do not fight these cycles;
the market always goes through these phases. What you have
to do is recognize them and act more conservatively during
these very volatile and nerve racking times.
5. Have a goal, 20%, 30%
etc; when your entire portfolio has hit your mark, consider
taking a break or better yet risk only some of your profits.
Just because you are paying for a service or services does
not mean you need to try to squeeze the maximum out of it.
If you hit your targets earlier consider it as surprise
bonus and take time to enjoy the other simple things in
6. Try not to let your
emotions influence the way you trade. There is no room for
emotions when it comes to investing. Emotional traders
almost always end up getting buried before their time.
Some more random thoughts
on becoming a better investor:
The long term Investor
looks for a trend and buys early in the trend; he/she then
rides the trend till it ends.
Letís deal with the topic
of Trading vs. Investing. Short term traders look for rapid
gains, they prefer to extract the maximum profit they can
from a stock, option, future etc. At least thatís the
concept behind trading. Unfortunately most traders end up
losing more than they win, and even when they do win, they
usually end up making less than the long term investor.
A few traders do extremely
well; these chaps fall into the 2%-5% category of overall
players. Their gains are huge, but for the rest of the
players loss is all they can hope to look forward to. The
investor on the other hand, looks for a new trend and
usually tries to get in right at the beginning of the trend.
If he/she is more aggressive they try to get in when that
particular market is putting in a bottom and has been
trending sideways for sometime, indicating that the worst is
Another error that is
often made is to confuse long term investing with the rather
falsely promoted policy of buy and hold. Long term investing
is getting in early and selling when the trend is over. A
classic example was the Internet mania of the 1990ís. The
time to buy was in 1995 and 1996 and the time to sell was
late 1999 and early 2000, when many of the Internet stocks
started violating their main up trend lines. Those that
bought the buy and hold lie, ended up poorer then when they
opened their initial positions in these stocks.
To be clever enough to get all the
money, one must be stupid enough to want it.--Gilbert
K. Chesterton 1874-1936, British Author