Time is a commodity available in plenty, post retirement. So, one looks for time-consuming activities rather than time saving gadgets or tricks.
Trading in stock , is indeed a time consuming activity. Starting from the time spent on learning about fundamental analysis and technical analysis , one needs to be always aware of the ever-changing macro and micro issues . Ashwini Gujral , a market guru calls trading a dance on moving dance floor. May be a guru can just let the floor do the dance for him, but others have to be constantly moving to keep from falling on their faces.
Trading in stock , is indeed a time consuming activity.
If that be so, how is it that you find so many people with busy schedules professing to be traders and that too successful ones? (Yours truly included in this group till a couple of years back; only now I realize what I had been doing)
I have always been calling myself a long term investor particularly after reading some great investor/authors like Warren Buffet, Peter Lynch etc; it does not matter that this long term investor is yet to see a multi-bagger. In bullish times, when you are sitting on a profit of 50-60 % it is simply too tempting to book profits and thump your chest. The lurking fear is also present that a sudden crash could come anytime and wash away all profits in jiffy. Of course when you are sitting on loss , however small, for years together , it helps to remember the wisdom of Warren Buffet & Co and counsel yourself that long term investors are not easily deterred by short term losses on the book; it doesn’t matter that the short term may extend beyond five years.
All stock market ‘investors’ , including Warren Buffet claim that they were not speculators but investors in a business. Nothing can be far from truth. They are really not investors at all. Everyone in the stock market is a sheer speculator. When TCS came out with a public offer to sell a share of face value Rs 1/- at a premium of Rs 899/- , we investors bought it at such a huge premium hoping that the premium would rise much further in future. Noone bought it for the dividend of Rs 5 /- and Rs 10/- that the company gave every year. So it is all about speculation on capital appreciation rather than for returns through dividends, which alone an investor should be looking for. It is a different matter that the capital appreciation could be dependent on the quality of business; wealth creation is through speculation as to how the market appreciates or discounts a business. very good businesses have given luke warm returns while ordinary companies have given great returns.
Everyone in the stock market is a sheer speculator. When TCS came out with a public offer to sell a share of face value Rs 1/- at a premium of Rs 899/- , we investors bought it at such a huge premium hoping that the premium would rise much further in future. No one bought it for the dividend of Rs 5 /- and Rs 10/- that the company gave every year.
The only time I was an investor was when I put some money in a cousin’s start up. Rs 5000/ in the eighties was large sum. For three years the company gave 20% dividend ie Rs 1000/ per year. The company was not listed in any exchange , so you could sell it to or buy it from only the company . For next 2-3 years there was reduced dividend pay out and one fine day the company folded up.
Fortunately, this long term investor had a short term requirement for money and could sell the share back to the company without any buy back offer. No one who ever held the share saw any capital appreciation or depreciation till the day it just became zero.
Coming back to the world of traders /investors, in my opinion there is only one category Speculators. They may be divided into long term speculators or short term speculators. So wherever I use the word trader it could be read as a speculator.
An average trader buys a stock based on ‘tips’ from colleagues, friends, TV Channels and well just about any source. Many a time it is just a group of letters like ONGC rather than a company with real people and real operations. The normal question is “will it move up, when , how much “etc .Once the stock is bought then you watch the tickers everywhere; on TV and mobile phone. The day you see green , the chest fills out and any red streak on the ticker prompts one to seek assurance from experts, in order to continue being long term investors. Who wants to book losses ? Losses are left unrealized and they keep growing . How else would you hear such queries on business channels, “bought xyz stock at 1020 three years back; should I continue holding it; I am a long term investor”. The stock would be trading around 250/-.
It is always the intellectual honesty that becomes the first casualty . It doesn’t matter what you tell others, but it certainly matters what you tell yourself.
It goes like this .
When booking profits, however small “let me book the profits now; At least I am getting something ;have been holding on for over a month; after all you can’t keep holding on to it for ever ;It might take a nose-dive again to below my purchase price. I am a position trader“
When holding on to a stock at a huge loss “I am a long term trader and I’ll not sell at a loss“
When booking a higher loss on the same stock “you know I need money to buy ABC stock which is sure to go up”
Then you can call yourself, day trader, swing trader, position trader and what have you , to justify the fear , greed, insecurity, need to brag,need to cry and loss aversion.
Fortunately or unfortunately, the very process of trading becomes so random that it becomes difficult to keep track of the profit and loss. Human mind is so smart, the profits remain on the surface while the losses are buried deep into sub-conscious mind ,as Freud calls it.
Today, you have all kinds of reports generated by the web interface of your brokerage company . It is not just the overall profit and loss for the year, but the exact XIRR for each trade done.
So, as I see it, the first requirement of successful trading is , absolute intellectual honesty to understand where you stand.