An interesting point of comparison that has popped up in one of the threads here, is: trading business vs hot dog vendor. Of course, "hot dog vendor" is just a metaphor for a simple, small business operation. It could be a small store or restaurant. 1) Cash flow patterns Hot dog: There must be seasonal fluctuations in demand, I guess, depending upon the climate conditions in your location. So you may do well in the summer, not so well in winter. More predictable patters in demand fluctuations, and thus, cash flow. Trader: Not affected by seasonality, probably. Unstable patters, often erratic equity curve. 2) Risks Hot dog: a) competition from other hot dog vendors; b) storage, managing supplies properly. Trader: "substantial risk of loss", as they say. 3) Logistics Hot dog: A hassle, a lot of running around. Buying sausages etc Trader: Almost hassle-free. 4) Operations, units of measurement Hot dogs: 1 hot dog sold. If sold, always a profit (say, 99% probability of profit). I mean gross profit. Trader: 1 trade. If initiated, could result in either a loss or profit (say, 60% chance of profit, 40% chance of loss) 5) Costs Hot dog: equipment, sausages, bread. Trader: PC, software, communications. At the end of the day, unless you're trading for financial entertainment only, the specific area of application of your capital is not so important. Thus, if the hot dog business is a better deal, so be it.
Of course, you can do both: Be a "Hot Dog Vendor" who swing or position trades the markets. The biggest hurdle in trading and the one that causes the vast majority of traders to wash out, is finding a reliable Edge that can withstand the test of time. The vast majority of edges "blow up". That's why, I'm a big proponent of "not putting all of your eggs in one basket". After you are able to make money in trading, you should also diversify into traditional cash cow businesses, limited partnerships, etc.
the big question is what a black swan could do to a hot dog business we know it can wipe out nobel laureates, and even people like victor niederhoffer, a man of many talents (apparently, trading is not one of them) but if it's a plain vanilla hot dog business, based on "mechanics" not "electronics", it may actually be more robust in the face of a black swan
Couldn't agree more. In the hot dog business, your edge is more tangible, it can be achieved through the following: 1) Top quality, buying THE BEST saucages for your hot dogs. or 2) Lowest price, but buying THE WORST saucages for hot dogs. plus 3) Location, location, location. So in the hot dog business, we are dealing with a combination of physical properties (1 or 2 + 3), which are easily established. They constitute your competitve advantage in the "hot dog" battle. But there is a barrier to entry, the best opportunities have probably been seized. In trading, there are almost no barriers to entry, especially nowadays. Connect your PC and you're all set. But here the edge is much more elusive. We are now in the realm of probabilities, nothing is certain. In the realm of hot dogs, you may know that people in a given location can live with a low-quality sausage for the sake of price, and you're making money. This is likely to continue, all other things being equal (e.g., no new competitors). In trading, each of your new "hot dog sale" is in a "new location", and you don't control "the quality of the sausage or its price." That's what I'm saying. I think a mathematician's view of this would be that hot dog sales (e.g., based on the daily sales figure) are probably stationary time series, and stock prices (e.g., based on daily closing prices) are non-stantionary. I don't know, I'm just guessing. That's why I think it's better to combine trading with a "cash cow business", as you say, for example, a limited partnership or maybe even an LLC etc . ..
Let's try a different one. Heating oil delivery service. You need a truck, insurance, driver, customer. Take your truck to the terminal, fill up with oil and make 10 cents a gal or whatever. Or don't buy a truck and trade oil futures. Or keep your heating oil delivery business, hedge with futures. Imo, part of a business plan would be to determine a hedge in your business. --------------------------- Speaking of black swans, recently Dunkin Donuts had a recall on hot chocolate (salamenalla or something) I believe it was on the specialty hot chocolates. The day after the news, hot chocolate sales went up. Not sure if people were looking to sue or get sick, but it is summer and not the season for this product. Go figure.
Wrong! It's called earnings seasons, as well summer versus winter. If you had traded, you would know this. Top trading months are usually October & November. March, April, July & January are the next best, in terms of volume & volatility. June, August, September are the worst months to trade. Seasoned traders usually take their vacations then. I stopped to note this, then I skimmed the rest of your post. I don't understand why you made this thread as you do not know much about either business.
Hot dog vender who buys and sells hot dogs to and from other hot dog vendors and almost nobody is eating them, maybe. But other than that, it's a good analogy.
1 think i can tell you - hotdog vending is a positive-expectancy business. you buy the bun/dog/mustard for about $0.35 and you sell the thingie for $1.5 most people here are playing a negative expectancy game, while they think they are otherwise. They have all these wonderful stuff at their disposal - - Head*Shoulder, Double top etc. - Candle stick patterns - Bollinger bands - MACD - Fibonacci - Pivots - Elliot waves The list goes on. Sometimes randomness smiles on them, make them a firmer believer that they are striving for something positive.... Then inevitably a losing streak hits. They go back, and swear that they will - Have a money management plan, which, per somebody, is THE EDGE - have iron clad imotional control. - will let winner run and cut loss short - will have at least 3:1 reward/risk ratio. So a few days later randomness smiles again, and they say - "see, once I corrected my mistakes, I am winning again!" Until the next losing streak hits..... eventually they admit defeat. The wise ones quit early, while the more stubborn ones believe that if they try hard enough, randomness will smile upon them again. They ponder whether they should go full time, become a professional trader (sounds jazzy eh). Some do, only to crash and burn and throw away the most precious years of their career. Meanwhile, a new pool of suckers are drawn into the game and the cycles go on and on. At the same time, the hot dog guy at the street corner is pulling in the cash day in day out, and will retire richer than 98% of the so-called 'traders'.
I don't like your tone (not the exact equivalent of "I don't like you", but dangerously close). You a are strong candidate for my ignore list. I'm an open minded person, and if you can prove your point, fine, you win. Show me some charts/data, which confirms that a trader's revenue increases during the months you mention, on average, that it's a consistent pattern. I think it is unlikely, there may be outbursts of trading activity during certain months, but the cash flow patterns are non-seasonal. At least not like in a sales operation. The bottomline on all this is that you should stop being a dick and start trading. P.S. change that pathetic handle of yours, you sound like a rabbit trying to be a cobra.
So the hot dog vendor says to the hot dog vendor down the street "If you eat this hot dog I'll give you $1.50!" The new hot dog vendor on the block says "Why not?" So he does and collects the money. Later that afternoon, business is slow and the noob walks over and tells the experienced hot dog vendor. "Now, if YOU eat this hot dog I'll give YOU $1.50." He does and collects the money. Stay tuned....