… that’s just my way of saying hei [hello] to my Finnish readers!
It seems that I have a few because I’ve been tracing some backlinks to my blog and found this one: http://www.taloudellinenriippumattomuus.com/ which (thanks to Google translate) asks if I am one mg/ml of the investors?
Now, this is a very clever way [AJC: if you understand metric measures, such as ‘milligrams’ and ‘milliliters’!] of challenging us to decide if we are the ‘one in a thousand’ investors who can actually make money trading in the stock market [AJC: presumably, this is a Finnish blog focusing on trading stocks?] … in fact, in this article the author is specifically discussing Day Traders; now, day trading is something that I have never attempted!
Probably for good reason …
The author cites a Taiwanese study that found that (after costs) only 0.16% (or 1.6 per thousand) of Day Traders actually made a profit!
So, why do the other 99.84% do it?
Well the author says (or quotes, I’m not sure which):
While day traders undoubtedly realize that other day traders lose money, stories of successful day traders may circulate in non-representative proportions, thus giving the impression that success is more frequent that it is. Heavy day traders, who earn gross profits but net losses, may not fully consider trading costs when assessing their own ability.
Now, this is very interesting because you could insert almost ANY speculative activity (e.g. flipping real-estate, investing in gold and futures, FOREX, options, stock trading, speculative business ventures, etc., etc.) in place of the words “Day Trader” and I think you will be able to draw the same conclusions:
1. The vast majority of speculators lose money,
2. Of those that do make money, most of those will realize that they, too, are actually operating at a loss if they take into account the true costs of their time, money, operating expenses, etc.,
3. However, the ‘losers’ keep chasing their losses because of the VERY FEW real success stories (and, the plenty of fake/scam/exaggerated ‘success’ stories) that become too well publicized and glorified.
For our other Finnish readers, I should probably also acknowledge references to this blog on another personal finance site (actually, a forum): http://keskustelu.kauppalehti.fi/5/i/keskustelu/thread.jspa?threadID=137213&start=15&tstart=0 for an interesting discussion about what to do when your mortgage is finally paid off; it seems that one of the readers has been tracking my ‘rules’ on this subject:
And the capital not used optimally if the housing is free of debt. Harvat yrityksetkään toimivat kokonaan ilman velkaa. Few firms are not entirely without debt. Tällä kaverilla on kaksi hyvää sijoitussääntöä: This guy has two good investment rule:
1) Asunnossa kiinni olevan oman pääoman osuuden tulisi olla < 20% net worthistä 1) The apartment attached to the capital base should be <20% of Net Worth
2) Kaiken muun kulutustavaran (auto, huonekalut ym.) osuus net worthistä on oltava < 5% 2) All other consumer goods (car, furniture, etc.) accounted for net Worth must be <5%
Nämä takaavat sen että >75% omaisuudesta on jossain tuottavassa käytössä, kuten vaikka osakesalkussa tai sijoitusasunnoissa. These will ensure that> 75% of the property is a productive use, such as even though the stock portfolio or investment homes.
Minulla täyttyvät molemmat ehdot, mitenkäs muilla palstalaisilla? I have met both conditions, palstalaisilla How did the other? En edes laske autoa ym. pikkusälää mukaan henkilökohtaisen taseeni loppusummaan. I do not even calculate a car, etc. small stuff “personal taseeni the final sum.
Thanks for a great summary, Jni, Google Translate isn’t perfect, but I’m sure my readers will get the gist 🙂
BTW for those who haven’t worked it out yet, 7 miljoonaa 7 vuotta is how you would say 7 million 7 years in Finland.
First of all many thanks for showing interest on my blog 🙂
My blog doesn’t focus on trading stocks but actually quite the opposite. I try to inform people about the hazards of being too active in the markets. My ultimate goal is to achieve the financial independence and the blog follows my path on this track. As I also study finance in the university I’m also writing about different finance theories behind these things.
As I see it every one of us has the chance of achieving financial independence. We just must start investing early and have to stick with it, no matter of how economy looks like. This is almost quaranteed way of getting rich but as it’s very slow not that many have motivation for it.
Some people will ofcourse argue that timing is everything but academic researches show that we are extremely lousy in timing. We usually sell when we should be buying and vice versa. In the long run when index profits were about 12% investors’ actual profit was about 2% because of this reason. Hence most people are better to stick with indexes and use dollar cost averaging.
Ofcourse some people do get rich fast using high risk (like you?). But as it’s actually very few that are able to do it I can’t personally recommed it. It all basically is just about standard deviation (and variance) here.
@ Kohti – Thanks for the links and for commenting here.
I think you are referring to the Dalbar Study when you (correctly) say: “In the long run when index profits were about 12% investors’ actual profit was about 2%”.
As for me … risk is my middle name, but not in high-risk stock trading strategies.
You can find my story here: