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New Traders would do better if they changed their first year trading goal from get rich to not losing their trading account.
#Knowledge : Important for our golden life.
FIVE rules which an INVESTOR should follow:
Rule#1: Use Banks for financial transactions, short term cash management and credit management.
Rule#2: Use Insurance to cover your Risk and Balance Risk in your Complete Portfolio
Rule#3: Use Gold to hedge your currency (i.e. Rupee).
Rule#4: Use Real Estate for consumption (Residence/Office/Shop)
Rule#5: Use “Capital market” or “Mutual fund” to create long term wealth.
Unfortunately, it happens other way in most of the cases.
People tend to use Banks and Insurances for investments, Gold for consumption (Jewelleries ), Real Estate for long term wealth creation and “Capital Markets” or “Mutual Fund” for speculation and short term gain.
This is how people they fail to create wealth.
#Knowledge : Most Important points to take care in Trading / Investing.
1) 80% of gains come in 20% of time. So an investor needs enormous patience and conviction to hold stocks for 10 or 20 years.
2) Why not all investors Get Rich? They like to get rich without going through many years of discipline & patience. Process leads to outcome.
3). Prices change frequently. Value change over a period of time. There lies the opportunity.
4). 99% of the time, doing nothing is the best thing to do in the market.
5). You cannot predict or control markets. What you can control is how much you save, investment process and behavior.
6). Investors are human. That’s why markets would never be fully efficient.
7). Markets usually run ahead or fall behind. Rarely in equilibrium. Over or under valuation can last for long time. Don’t time the market.
8). Buying and selling is easy. It is holding on through ups and downs is difficult but ultimately most rewarding.
9). Shelby Davis started investing only at age 38 with $50,000. Died at age 85 with $900 million. 23.2% annual return for nearly 5 decades. Shelby Davis is considered the second greatest (5 decades of successful investing is very rare) stock investor after Warren Buffet.
Shelby Davis story shows starting late is not a big liability, provided you live long.
10). Tiny drops of water make the mighty ocean. Invest regularly. Invest for long term. You can create huge wealth.
11). Not investing in equity is more risky than investing in it. Remember, you need to beat the inflation and retain your purchasing power.
12). If someone keeps reviewing value of his house every day, we may suspect his mental health. But that’s what we keep doing with our equities.
13). Equity investments are subject to behavior risks. Always keep a check on your emotions while investing.
“If you can enjoy Saturdays & Sundays without staring at Stock Prices, give it a try on weekdays also…”
“You’ll Be Richer” – Warren Buffet
#Knowledge : Two Hidden Virtues of Successful Traders.
1) The ability to tolerate uncertainty – Suppose you take any particular configuration of price in a market; say, trading x% above or below a Y period moving average. Then look at what that market does on average over the next Y period. The odds are great that for any value of x and Y, the market’s directional tendency will be swamped by the variability of price within that next Y period. What that means is that, on average, the signal to noise ratio for a directional trader is low.
Given such a situation, the modal opinion of any trader should be “I don’t know”. Uncertainty is itself a view and, in fact, should be one’s base case. When a trader cannot tolerate uncertainty and needs to manufacture conviction, the result inevitably is over trading the objective opportunity set. It is impossible to properly manage risk if you are intolerant of uncertainty.
2) The productivity of time spent away from trading – I consistently find that successful traders spend more time identifying good trading opportunities than actually putting on and managing trades. Csikszentmihalyi conducted a fascinating study with artists in which they were shown 27 objects and asked to arrange a small group of them into a composition and generate a sketch. They had one hour for the task. The artists fell into two categories. One group quickly identified the objects for the composition and spent the better part of the hour refining their sketches. The second group spent most the hour figuring out what to draw.
They selected objects, started sketches, changed the objects, sketched some more, rearranged objects, etc. By the time they found the composition they liked, they spent only a few minutes on the final sketch. The drawings of the second group were rated as significantly more creative by a group of art critics than those of the first group.
The successful artists spent most their time finding compositions worthy of sketching. It’s a great analogy for trading.
Good things happen when these two strengths come together. The ability to accept uncertainty frees the mind to maximize time away from trading and creatively generate sound trade ideas.
-Brett Steenbarger, Ph.D