I think there are two answers to this question. Firstly why do most people do it, and secondly why do I do it? For most people; trading is seen as: - a profession (business? lifestyle? hobby?) requiring little start up capital (wrong, in my opinion, unless you have another source of income) - requires very little experience, skill or training; any that is required can be picked up from reading the right books or attending the right training course (wrong) - appeals to the cognitive bias of illusory superiority; everyone thinks they are better than average (wrong, and because of the skewed distribution most people are actually below the mean). - requires little time, concentration and focus (wrong, unless you automate trading). On the latter point, a little anecdote. A two part documentary on traders was shown in the UK late last year. The second half dealt with retail traders (or rather wannabe's to be precise). One woman wanted to trade so she would have more time with her kids. During school vacation she was filmed ignoring them whilst she focused on her ipad's trading app. So that career decision hadn't really worked out. (Jane is the woman) I'm slightly mystified why more people don't trade succesfully on an automated basis, but also pleased. I guess it is partly because the off the shelf software that exists mostly encourages overfitting and overtrading, because the same biases and issues with manual trading can also bite you on the ass whilst designing a system; and the psychological profile required to accept an automated system will do better than you will is rarer then it ought to be. Real estate is a tricker one. In many ways it shares many of the misconceptions of trading; essentially that people think it is much easier than it is. A similar set of get rich quick snake oil salesman descend on both. Probably more people are succesfull in RE than in trading. However that's mostly been a 'rising tide lifts all boats' effect. I think that it's easier to avoid getting blown up, since its more obvious when you're over leveraged and the banks do limit it (at least in the UK, and now if not in the past). So capital requirements are higher. I think the skills and knowledge to do well in real estate are easier to access and learn. It's harder to make really huge mistakes, and more obvious when you do. So that's the general public. Why do I trade rather than set up a dry cleaning business, or go into RE? I grant you that probably a higher % of people running dry cleaning or any 'proper' business succeed. Perhaps 85% of restaurant start ups fail. Still looks good compared to 95% of traders. Both RE and dry cleaning involve more work than I am prepared to, or need to, do. If properly costed, I could get paid many multiples more per hour if I went back into asset management, a job that at least some of the time I enjoyed. If was able to combine a passion with a business I might go into; but realistically not. I think it would be harder to enjoy your passion if it was also your business. I also have absolutely no 'edge' in real estate. I have no professional background as a builder, estate agent or surveyor. Not sure if 'edges' exist in dry cleaning but I certainly don't have one. I don't think I have an 'edge' in trading, but then with such a high failure rate anyone who avoids making big mistakes will win, so I'm probably better than the average. So it makes no sense to go into a business that I have absolutely no special ability at, at which I'd earn less money than if I did something else, and which I wouldn't enjoy.
Globalarb--- you are institutionally trained-- correct? That can be a serious edge unavailable to most. surf
Correct, about the training. But I'm not sure it gives me an edge. There is nothing I do which couldn't be reconstructed from publically available information. I have almost no secret signals. I say almost because there a couple of things I'm doing which were proprietrary to my former employers, and a couple I developed myself. But without them my backtest SR would only be a couple of bp lower, and they are both very simple extensions of very common ideas. But if not making common mistakes is an edge, then I have an edge. I made a lot of those mistakes whilst working in an institution. Is that training? I suppose so. I don't really see how anyone doing fully automated trading, at the relatively slow speed I am trading, and paying retail commission levels, can have an edge. But institutions do have an edge. For example the place I used to work trades about 300 instruments (ignoring single stocks, which would push it into tens of thousands). I don't have the capital, ISDA agreements, or the middle office capability to do that. Another example, banks sitting in the middle of the order flow have an edge. The edge doesn't belong to the trader though. I've met guys who have edges. People we used for execution; who knew for example the short sterling market inside out, because they'd been trading it since the open outcry days and hadn't stopped. We couldn't build algos that beat them. But thats rarer than you think and I certainly don't have that kind of skill
Possibly, but that's not the driving force behind his wealth creation. It's buying essentially free insurance companies and investing in a manner that makes him a desirable shareholder. Business owners/executives will give up EBITDA multiple turns to be bought by him.
I argue that trading is business in its purest form: abstract bartering. Your inventory is whatever's in your brokerage account (currency or any other instrument you're holding) and you frequently buy and sell some of that inventory, according to what you speculate will benefit you most. (Some retail sales are below cost, such as to clean out inventory or when demand just isn't there, etc. so trading losses do have their brick and mortar business equivalent.) You're right about one thing: you don't need money to sell your time, and that's the only way to make money out of none. However trading is a goods business, not a service business, therefore the correct analogy is with say a store, and getting that inventory up requires plenty of capital, it just sits on shelves instead of at I.B.
Lack of any other viable options, my business isn't scale up able as it relies on the programmer being damn good and understanding the business side, ie me! and lack of demand even if I could find a 2nd me, not seen 1 in a long long time. You've seen my grammer or lack therefore of totally, no chance on a book. Trading is to an extent scaleable, with no limits other than lot size which is still soooo far up there, it's fine, $100 per pt will do me nicely. Trading requires much less start up capital than a real business as I'm growing account from $300 initially I think it was going back 2 years or so. Trading, I can do a long side my other hobbies / business as a hobby while it grows. Really aren't many options out there sadly.
Talking about Buffet is a bit like talking about a WW2 soldier who survived despite all his mates dying, if you wouldn't of survived you wouldn't of heard about him, same with Buffet, if he hadn't like 99.9999% of people made billions then you wouldn't of heard of him.
Then more power to him, he's a genius at pyramids or schemes, whatever it is he made an incredible fortune legally, and that's what its all about, bending the system without breaking the laws.
Hey, similar story here, stayed stuck at 2 senior programmers without enough local demand nor talent to expand further. What environments did you work with? Mostly web-related systems over here.
Business systems, mainly internal using VB6 some over the internet issues for remote depots, no SQL so write my own dedicated functions like a SQL Server. Done some VB.NET web based systems ( HATEFUL ) Data capture via GPS on Android and older Win 6 Mobiles. I used to do, Lean Training and business advising and put software in to improve when required, fell out with 1 contact ( BITCH ) and other got out of that line, so dead also Never going to get rich on your own, 100's of staff working for you, but needs to be simple trainable task not thinking on there feet, maybe. Business is NEARLY dead, might pick up again, but doubt it.