Fools Gold?

Discussion in 'Professional Trading' started by barnyard, May 20, 2010.

  1. barnyard


    Hi folks,

    I'm trying to decide whether its worth my while investing my time, energy and money to save for my retirement fund (26 years) by investing directly myself using TA or if I'm better off finding a good value passive tracker global market (well diversified) fund and getting on with the business of making money with my existing skills/experience, and living of course.

    This is my story:

    Two months ago, I read Mark Shipman's books and thought, Eureka, an hour a week to follow the buy and sell signals, to achieve returns superior to the markets. Well, that's a no brainer. But then if its that easy why isn't everybody else doing it? So I started reading and researching further and I learned a few things which raised more questions:

    The random market nature of EMH and how on average passive index trackers appear to outperform actively managed funds.

    EMH has its critics and there's evidence for and against as there is with TA. My reading of this is that there is no black and white, that the market has components of both, and these are greater or lesser depending on your view or motivation and therefore your choice of parameters (data-snooping/subjectivity), and of course whether you are looking backwards or forwards.

    Some people earn an income but over the long term I question how profitable it is. I see from the forums I've visited that serious players with lots of smarts make a serious committment and devote a lot of themselves but may never feel truly confident in their abilities.

    The business selling the advice or facilitating the buying and selling are the ones who are making the money. Therefore any business involved in this enterprise has to be biased (newspapers, journals, brokers, forums, etc) to some extent.

    I'm willing to believe that while I may not be able to beat professionals (individual and institutional) but I may beat the ordinary Joe Soap who dabbles in stock picking based on tips and feelings. I felt I have the discipline, the desire and the work ethic to learn how the professionals do it, to get beyond the complexity and learn a few golden rules or home truths that I could follow and with scraps from the masters table, come out with a return marginally better than the standard fund investment.

    However, I notice there is a lot of confusion, opinion and disagreement in TA. I'm willing to bet that for me and possibly a lot of active traders on this forum, would be better generating their wealth from non-trading work, ie using talent, drive and time to develop their career or business and so increase their earning power. In other words, if you can't beat the market then why not join it?

    The bottom line for me is results. How many traders out of all traders make positive returns and to what extent, ie over 10 years what is the annual % return on total capital invested each year? Where is the evidence? Have there ever been surveys carried out?

    Does this story have a happy ending?

    All advice welcome, Bernard.

    Aside: A young bull and his dad are on a hill grazing when the young bull sees some cows in the valley. "Dad, lets run down the hill and ride one of them cows!" Dad says, "Son, lets stroll down the hill and ride them all!"
  2. This is a good question. If you were to ask it on this forum:
    I guarantee they would tell you that you would be better off with passive investing and getting on with your life. For most people this is good advice, and given that you are even asking the question it may very well be good advice for you. I expect that most traders underperform the market just as most mutual funds do. What they won't tell you on that website is that there are traders that outperform the market over time based on skill.

    So the key questions are how much time do you want to devote to trading, and how do you plan to determine what works vs. what doesn't. Many figure out what works based on whether their account goes up or down, and this can be costly. I expect that most traders follow, or at least try to follow basic technical analysis, and yet most traders lose money. I'm not saying technical analysis doesn't work, but apparently it works for some and not for others, and there is a lot of mis-information out there. I test the strategies I use before I put money on them. This is no guarantee that they will continue to work, but I believe that many people trade strategies that NEVER worked. And they wonder why they are losing money.

    A conservative diversified portfolio is a good place to start. From there, there are simple strategies to reduce risk that require very little effort/time. Here's one:

    From there, depending on how much time you want to devote to it, you could pursue more active strategies. I can tell you that I spent a great deal of time learning. During this time I managed to be conservative enough to avoid hurting myself too badly, and actually outperformed the market (not saying much over the past decade). It was risk avoidance as much as the pursuit of greater profits that led me to active trading. Over the last couple years I've made significant progress. While I spend some time on research (my hobby), I only spend a couple hours a week on the actual trading, and yet my trading income is approaching my working income, with much less risk than an equity mutual fund. There is money to be made in trading, but it's not easy.

    PS. Here's an article on some research showing that few day traders are actually profitable.

    That site also has a section on market guru's. Turns out most are about as accurate at predicting the market as flipping a coin.
  3. The Bible reads: "The intelligence of the intelligent, I will frustrate."

    Go easy on yourself and keep it simple.

    When too many TA's clutter your thinking space, your very critical intuitive self gets lost among the thought processes.
  4. Sometimes its hard to have soo much data to analyze and so many infos to balance.. Ask the senior ones...
    sometimes you just have to take the leap.
  5. barnyard


    Thank you folks for your feedback which has helped input to my decision not to trade. I'm going to start a low cost passive globally diversified index tracker pension instead.

    I know there will always be exceptions to the rule (some of the time :wink: ). However, I believe that is the right decision based on my own research and your experienced and independent advice.

    Meanwhile, I'll be busy hanging out with the kids while they still look up to me and looking for the next great business idea.

    Good luck with your own endeavours,