I started blogging in 2004 and had a blog on sify ( see here)
I was just browsing through my old blog to see what i had written then and see how my thinking has changed since then. I came accross this post which i had written then (more in jest than anything else). This was the time i think the market had just crashed.
Wednesday, May, 19th, 2004
trader or investor ...who should i be ?
Let me see .....
trader
-> read the papers every day
-> watch cnbc full day for each development
-> sit in front of the trading screen watching the price ticker
-> try to see which party may get elected ( depend on the exit poll ??!!!)
-> have the courage to watch the market fall by 500+ points ( and go nearly bankrupt)
-> then watch the market go up by 200+ points ( and wonder what will happen next)
-> have the courage to lose big money or the courage to bet big
-> has a strong stomach for this kind of swings
investor
-> read annual report at leisure
-> analyse the company and industry over a long term
-> make a piddly 20 % p.a but not lose more that 5 %
-> less blood pressure
-> more time to watch other channels other than cnbc ( maybe discovery ??)
guess i am not cut out to be a trader .... dont have courage to bet big / lose big , like to sleep peacefully at night , politicians make my life miserable enough ...dont want them bankrupt me ...naah ...not for a lazy guy like me
5 comments:
hey appreciate the work put in.
also some interesting statistic related to your trader/investor blog.
for a trader to make a higher return than an investor over a long term( say 5 yrs) the trader should predict the market more than 70% of the time.. this is highly impossible unless your an oracle..
and a piddly 20% pa is better than a 100% profit the first year and a 50% loss in the second.
a 20% pa compounded for two years will give you a 44% return on initial investment. in the second case you'll end up where you started. no gain.
Trading is a profession and usually involves going full time on it. Investing, on the other hand, tends to have inflows from other income sources.
But yes, psychological traits make the trader or the investor. Trading is a mind-game rather than an "art" - it requires a different kind of mindset. Some people thrive in it - some people who run hedge funds have returned more than 100% every year for the last five years. Many others leave it for other stuff - even Wikipedia's Jimbo Wales was a trader before WP.
But intersting thoughts on this. Everyone has to make that call one day or the other.
yes it requires a very different mindset to be a trader. also i remember reading somewhere that there are very few successful long term traders than investors.
i think trading is inherently more difficult and time consuming. very few individuals like rakesh jhunjhunwala are good at both due to the differing mindsets required
But do not we indulge in both? Trading may not necessarily be Day trading only. As I see it when we take position in a stock/index/Fund/IPO for listing gains only based on the price of the security and have a clear exit point in mind whether target price / or Stop loss, it is trading.
When I am investing, i am buying for the long term there is no stop loss. As Warren Buffett says "Coca Cola became public with an offer @ $40/ share. Within one year it was trading at $19/ share. Between then and now we went through the Great Depression, World War II, Sugar Rationing, 9/11. But after all these, 1 Coca Cola share bought @ $40 in 1919, is worth $ 5 Million now."
If stop loss were being used that $ 5 Million would be in air now.
hi kaushik
i have never done trading on an index,IPO etc based on price action. the main reason has been that i do not have the comfort or the skill to do it.
let me illustrate - my investing criteria is generally a 40-50% discount to intrinsic value. so if i see an ipo selling at say a pe of 25 and almost at instrinsic value, i have no idea if the ipo will open above or below the ipo price. also i never follow recommendations from others and prefer commit my own mistakes :)
so if i cannot analyse a trade confidently to be an opportunity and have to rely on others for a decision, i will not have the confidence to hold it when the price drops.
finally, i do not look at the time horizon too closely ...if the stock touches the intrinsic value in a week, then i will liquidate.
in a nutshell i have a valuation based approach than a price action approach
unlike you, i have found it diffcult to reconcile both the approaches in my head and practise them at the same time
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