# How do you know if you're ready for full-time investing in the financial markets?



## helpme (25 July 2016)

What are the signs to look out for to know one is ready? Perhaps even more important, what are the signs to look out for to know one NOT is ready? I would like to hear from those who have been there, done that and most probably wiser.


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## luutzu (26 July 2016)

helpme said:


> What are the signs to look out for to know one is ready? Perhaps even more important, what are the signs to look out for to know one NOT is ready? I would like to hear from those who have been there, done that and most probably wiser.




I think you're ready when there is either an additional source of income, or you could earn enough from dividends/interests on your fund, to keep the lights on and feed the family if all your investment goes to heck.

Pass that, and you're ready when you can look at a stock and able to make decisions regardless of what the market thinks. 

Ready there doesn't neccesarily mean you'd be rich and successful at it... but it'll mean you're comfortable enough to start learning and (may) earn something from the business.


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## SirRumpole (26 July 2016)

When you are ready to lose your money.

 Really, only invest if you have money that you can afford to lose.


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## CanOz (26 July 2016)

Agree with Rumpy, if you have the funds that you are prepared to *risk* on a proven strategy, be that a systematic trend following, value investing that you have paper traded or some other method that has some quantitative edge...then start investing/trading.


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## Gringotts Bank (26 July 2016)

helpme said:


> What are the signs to look out for to know one is ready? Perhaps even more important, what are the signs to look out for to know one NOT is ready? I would like to hear from those who have been there, done that and most probably wiser.




I'm not in the category of 'been there done that', but that doesn't matter because the answer is so obvious.

Know how much you need to live on, and exceed that need with your trading profits.  You won't be able to exceed that need if your profits are inconsistent, or if you have large drawdowns.  You want a smooth equity curve with a *closed *profit showing at the end of each month.  Then you need to be able to withdraw a % of those profits into a spending account to live on.

If you hesitated in reading any of this, forget it.  Find a salaried job and work on your trading after hours.


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## skc (26 July 2016)

Gringotts Bank said:


> I'm not in the category of 'been there done that', but that doesn't matter because the answer is so obvious.
> 
> Know how much you need to live on, and exceed that need with your trading profits.  You won't be able to exceed that need if your profits are inconsistent, or if you have large drawdowns.  You want a smooth equity curve with a *closed *profit showing at the end of each month.  Then you need to be able to withdraw a % of those profits into a spending account to live on.
> 
> If you hesitated in reading any of this, forget it.  Find a salaried job and work on your trading after hours.




The definition of being financially ready will vary greatly from person to person. If you have a mortgage and family to feed, then I'd say you should aim to have a 2nd income that comfortably covers all expenses or you need about 2-3 years of expense saved up in addition to your trading capital...

But if you are 21 years old single with no debt and "moving back with the parents" as a back up plan then you are probably financially ready the moment you saved up enough capital.

None of this deals with whether you are ready mentally or skills-wise.


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## Gringotts Bank (26 July 2016)

skc said:


> None of this deals with whether you are ready mentally or skills-wise.




The equity curve alone covers those aspects.  It tells the whole story.  If the curve mainatins a smoothness and steepness over various market conditions and for months on end, then you will _necessarily_ have the requisite skills and aptitude.  It can't be otherwise, imo.

I'm just trying to bring it back to one very objective measure.  The more objective, the easier it is to know if you're ready.


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## CanOz (26 July 2016)

I believe it was Nick Radge who said to me "once you are making three times your annual salary from trading, you can go full-time". 

I didn't do this, but had well beyond three times my annual salary in savings before i started trading as a sole income.

I started trading though, once i had 'risk capital'. Capital i could afford to lose because i had no family and a steady income with accommodation and living allowance.


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## helpme (6 August 2016)

Gringotts Bank said:


> The equity curve alone covers those aspects.  It tells the whole story.  If the curve mainatins a smoothness and steepness over various market conditions and for months on end, then you will _necessarily_ have the requisite skills and aptitude.  It can't be otherwise, imo.
> 
> I'm just trying to bring it back to one very objective measure.  The more objective, the easier it is to know if you're ready.




Thanks for all the replies, especially this one from Gringotts Bank. To have profit for every month is too hard for a medium to long-term investor. Having profit for every year is a more realistic goal.


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## So_Cynical (6 August 2016)

helpme said:


> What are the signs to look out for to know one is ready? Perhaps even more important, what are the signs to look out for to know one NOT is ready? I would like to hear from those who have been there, done that and most probably wiser.




Money is a good indicator i would think, either your making it or your not, if your making enough then you're ready.


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## helpme (7 August 2016)

Here are my own thoughts on this topic.

The 2 essential criteria that better be met before taking the plunge as a full-time investor is;
- Do you have enough money? 
If capital is not large enough, even good returns is not enough to cover the full-time investor's living expense. This will lead to the investor making mistakes out of desperation. His psychology is not right.
- Do you have a good track record?
Full-time job means one has to be competent in the job to earn a living. Without a good track record, the investor may lose his capital, even if it is huge, due to his incompetence. An incompetent salary worker will lose his job but continue to have stable cashflow from his salary. A full-time investor not only loses his job but his savings as well. So, better be sure about the competence level before taking the plunge.

The above 2 criteria is sufficient for success but may not lead to happiness. Money is only one aspect of full-time investing. There are other considerations, mainly social.

- Social pressure
Full-time investing may be frowned by certain segments of society because the investor does not create much social value compared to someone who holds a proper job that contributes to society and the economy. This is particularly so if the investor is young(say, early 40s) and able-bodied. May I ask fellow forummers if they think they will face social pressure if they take the plunge to full-time investing? Maybe I am imagining things that are not really there as I may be too concerned about what others think about me.

- Loneliness
Investing is a lonely activity. Fellow investors/traders will know what I mean. When you go full-time, how do you cope with that loneliness?


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## Triathlete (7 August 2016)

You make some good points usually those that start trading are undercapitalised and so are not in the game long enough.
Lets take a look at some figures for those starting out. 

Lets say you require $50k per year and you have been averaging 20% a year over the last 3 years then a starting capital without leverage would be:

$50,000/.20% = $250,000 starting capital.....not sure if many would have this and that is why some type of leverage would be required.

 There is some good videos on the chartist worth a look.

www.thechartist.com.au/Videos/earn-a-second-income.html


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## helpme (7 August 2016)

Triathlete said:


> You make some good points usually those that start trading are undercapitalised and so are not in the game long enough.
> Lets take a look at some figures for those starting out.
> 
> Lets say you require $50k per year and you have been averaging 20% a year over the last 3 years then a starting capital without leverage would be:
> ...




I think expecting 20% annual returns over the last couple of years may be too ambitious. A more conservative figure would be 8%-10% as the markets may turn bearish and we cannot know how long the bear market would be. A much higher starting capital is required.

In fact, I am not even sure 10% is still too high as incurring losses during bear markets is expected.


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## Triathlete (7 August 2016)

helpme said:


> I think expecting 20% annual returns over the last couple of years may be too ambitious. A more conservative figure would be 8%-10% as the markets may turn bearish and we cannot know how long the bear market would be. A much higher starting capital is required.
> 
> In fact, I am not even sure 10% is still too high as incurring losses during bear markets is expected.




Not if you play both sides of the market


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## minwa (7 August 2016)

helpme said:


> - Social pressure
> Full-time investing may be frowned by certain segments of society because the investor does not create much social value compared to someone who holds a proper job that contributes to society and the economy. This is particularly so if the investor is young(say, early 40s) and able-bodied. May I ask fellow forummers if they think they will face social pressure if they take the plunge to full-time investing? Maybe I am imagining things that are not really there as I may be too concerned about what others think about me.




Participating in financial markets contributes to society. You are facilitating liquidity which smoothens everyday prices. Oil prices, food prices, foreign exchange. All essential to almost any business and household. 

If you trade overseas markets and are profitable, you are bringing funds into the domestic economy from overseas.

Every job gets frowned upon by certain parts of society. Garbage collector is an important job yet is generally looked down on. A church pastor may be frowned to be not contributing anything simply because the frowner does not believe in Christianity.

Most social pressure you get will stem from jealousy. Who wouldn't want to make money with (seemingly) little effort? You are also probably a shareholder of the company they work in.

If you still feel any pressure from this problem - never go full time until you don't feel this way anymore or you will fail.


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## Wysiwyg (7 August 2016)

helpme said:


> - Social pressure
> Full-time investing may be frowned by certain segments of society because the investor does not create much social value compared to someone who holds a proper job that contributes to society and the economy. This is particularly so if the investor is young(say, early 40s) and able-bodied.



I think that if people are making significant money trading securities then others will surely want to. The trouble is the majority can't so the majority that could not then sabotage the prospective newcomers (and present doers) seeking to do well. Like, if I cannot succeed then I will not let you succeed. Saboteurs of success, they're everywhere in life.


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## Value Collector (8 August 2016)

helpme said:


> Here are my own thoughts on this topic.
> 
> 
> - Social pressure
> ...




Those "proper jobs" only exist because investors have put capital at risk and created the jobs.

The economy can not be run with labour alone, in our society for the economy to function you need labour and capital, if you can earn a living deploying capital efficiently as an investor, you are adding to the economy, think about it, if investors stopped investing, and instead directed companies to pay out 100% of earnings which we shipped off to America where we all lived large spending down our capital, Australia's economy would crumble under the lack of investment.


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## Klogg (8 August 2016)

Value Collector said:


> The economy can not be run with labour alone, in our society for the economy to function you need labour and capital




Ultimately, capital is a way of storing and trading a demand on labour (X dollars results in Y hours of labour of this specific trade). In effect, doesn't this mean the economy can run on labour alone, so long as we figure out how to store/trade it?


Sorry, I am derailing the thread slightly, but VC's posts are always quite interesting.


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## Value Collector (8 August 2016)

Klogg said:


> Ultimately, capital is a way of storing and trading a demand on labour (X dollars results in Y hours of labour of this specific trade). In effect, doesn't this mean the economy can run on labour alone, so long as we figure out how to store/trade it?
> 
> 
> Sorry, I am derailing the thread slightly, but VC's posts are always quite interesting.




Lets take the mining industry for an example, it generates millions of dollars in value for Australia every day, in the form of royalties, wages, taxes on wages, dividends etc etc.

Now, is this large amount of value created solely through the labour of the employees? 

Unless the mine workers are scratching at the earth with their bare hands, and walking a hand full of ore to a chinese steel mill, then no its not just labour.

Investors have had to put up the funds (which they could have used to go to Disneyland), to buy the billions of dollars of mining equipment and rail and port infrastructure, to make it possible for the labour to do their job effectively, without the investment, there wouldn't be a mine to work at.

Now the next thing people say is, "But if you are just buying an existing share, you aren't doing anything".

Well would the initial start up investor have invested if he wasn't confident there was a market to sell his shares to later on? No

Also, when you own shares in an operating company, they company is continually reinvesting earnings back into the business, share holders allow this to happen, they could all vote at the annual general meeting to make no further investments, and just have BHP  pay out 100% of all future cashflow and run the mines till they are depleted and then go home.


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## Value Collector (8 August 2016)

Klogg said:


> capital is a way of storing and trading a demand on labour .




I think a more accurate way of describing it would be a claim on "production".

Consider a society 100 years from now where most value is generated through the production done by automated machines, capital would still exist, but it would have little to do with labour.


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## noirua (8 August 2016)

helpme said:


> What are the signs to look out for to know one is ready? Perhaps even more important, what are the signs to look out for to know one NOT is ready? I would like to hear from those who have been there, done that and most probably wiser.




The wisest time to invest is when you have a property, fully paid for, worth $2 million and a few more apartments, also fully paid for, worth $800k each, to rent. A pension pot worth $2 million and $2 million savings, leaving $1 million to invest in stock markets. You may be quite old at that point and leave it all to your sons and daughters, or a charity of course.
Maybe that's your eventual aim one day anyway.

Anything different has to be some form of gamble and investing just happens to be that way.  So you wont ever be ready really until you are mature enough to accept losses. Remembering of course that a paper loss is a real loss and a profit is not a profit until it's banked.

You can have an imaginary portfolio of shares over one year. You could even have a number of different portfolios and see how you go on that. Unfortunately it is very easy to cheat as real investing is that final click on the mouse and that's that.

If you start investing and are uncertain, and you cant afford to lose all the money, stick to the ASX100.


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## luutzu (8 August 2016)

Value Collector said:


> Lets take the mining industry for an example, it generates millions of dollars in value for Australia every day, in the form of royalties, wages, taxes on wages, dividends etc etc.
> 
> Now, is this large amount of value created solely through the labour of the employees?
> 
> ...





But where did that first dollar came from? 

From labour. 

If not from labour, then it was given - by the rich uncle and aunty you were nice to; or from the king whom you helped knock a few heads for (labour).

Say you have $100Billion or Trillion... without labour, those capital will just sit there.

But if a person have two hands, a good work ethic and zero dollar... they will earn then accumulate capital, then use both their labour and capital to employ more labour.


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## Value Collector (8 August 2016)

luutzu said:


> without labour, those capital will just sit there.
> 
> .




Yes, that's why I said this,>>> " * in our society for the economy to function you need labour and capital,*"

(unless of course 99%+ Automation takes over, and then it would be just a capital game mainly)



> But if a person have two hands, a good work ethic and zero dollar... they will earn then accumulate capital, then use both their labour and capital to employ more labour




That's the same thing, at first they use their labour combined with another investors capital to generate earnings.

Then later they take on the role of both investor and labour, they haven't gotten rid of the need for capital investors, they have just taken on a dual role, and should hopefully be compensated financially for both if they are successful.

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## Value Collector (8 August 2016)

noirua said:


> The wisest time to invest is when you have a property, fully paid for, worth $2 million and a few more apartments, also fully paid for, worth $800k each, to rent. A pension pot worth $2 million and $2 million savings, leaving $1 million to invest in stock markets. You may be quite old at that point and leave it all to your sons and daughters, or a charity of course.
> Maybe that's your eventual aim one day anyway.
> 
> .




This is a very silly thing to say, because those things you have mentioned are investments in them selves.

It's like saying you shouldn't start racing cars until you have won at least two or three rally championships.



> Anything different has to be some form of gamble and investing just happens to be that way.




Investing doesn't have to be a gamble at all, if it is, you are probably doing it wrong.


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## Value Collector (8 August 2016)

helpme said:


> .
> 
> - Social pressure
> ?




You shouldn't be ashamed to be an investor, its a great profession, and can be very enjoyable for the type of person who enjoys learning new things and doing research, as long as you have emotional stability and can think clearly through out the various ups and downs, you will find it a very rewarding job, both financially and mentally, look at Warrren Buffett, 80+ and still tap dancing to work.

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Here is a little something to lift you mood, this song is one of the things that got me thinking about investment from a young age,


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## luutzu (8 August 2016)

Value Collector said:


> Yes, that's why I said this,>>> " * in our society for the economy to function you need labour and capital,*"
> 
> (unless of course 99%+ Automation takes over, and then it would be just a capital game mainly)
> 
> ...




Yea. True. BUT... 

Isn't Capital just a way to store Labour? Storing production, you were saying yah?

So it's all Labour if we trace the Capital back to its origin. 

So while it's true that Labour need capital, and capital need labour to get things done... capital is just a mean (through money) to store and pass along the fruit of previous labour.

In the example of labourer doing work paid for with capital... the payment in capital is just a more convenient way to store, then exchange previous labour. So the labourer could, if they want and need, be paid in goods or in gold or silver, or just a paper note backed by real assets etc.


Capitalist and investor tend to get away from that origin because they, we?, got the capital so removed from real productive means we think they're separate and different. But as Value Investor, what Graham and Dodd would tell us, is that money/capital as represented in the share or in the numbers in a bank account... all that capital have to reflect the underlying fundamental value - the productive capacity of the organisation to move and use labour for productive means. 

It's the distancing of capital from labour that we see the playing with financial games, like trading what is really worthless shares or accounting gimmicks and financial engineering etc.... to make "profit" and value. 

but the real value of capital must align to its labour and productivity - not financial engineering.

Deep yea?


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## luutzu (8 August 2016)

Value Collector said:


> You shouldn't be ashamed to be an investor, its a great profession, and can be very enjoyable for the type of person who enjoys learning new things and doing research, as long as you have emotional stability and can think clearly through out the various ups and downs, you will find it a very rewarding job, both financially and mentally, look at Warrren Buffett, 80+ and still tap dancing to work.
> 
> ---------------------
> 
> Here is a little something to lift you mood, this song is one of the things that got me thinking about investment from a young age,






Buffett is quite a boring guy. Smart and all. But boring. 

I actually thought Graham to be far more superior.

But good point about the investor making investment in companies by way of them reinvesting the company's profit. It does make a lot of sense and I never really see it that way. I always thought investors are just there to pick up the fruits of other people's labour... but nope. 

So yea, something to tell the missus and kids when they ask what value I brought to earn what we earn. Sure beat previous answer of "I try to me as moral as I can. But for sure what I do don't kill any body."


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## luutzu (8 August 2016)

noirua said:


> The wisest time to invest is when you have a property, fully paid for, worth $2 million and a few more apartments, also fully paid for, worth $800k each, to rent. A pension pot worth $2 million and $2 million savings, leaving $1 million to invest in stock markets. You may be quite old at that point and leave it all to your sons and daughters, or a charity of course.
> Maybe that's your eventual aim one day anyway.
> 
> Anything different has to be some form of gamble and investing just happens to be that way.  So you wont ever be ready really until you are mature enough to accept losses. Remembering of course that a paper loss is a real loss and a profit is not a profit until it's banked.
> ...






yeaaa... no. 

If a person have all those assets then invest in stocks. Stocks ain't their main source of investment - maybe just another way to diversify. 

Heck, most of us try to invest in stocks so we can afford those other real assets in retirement - not the other way around.


I think that if an investor take stock investment as a part-ownership in the business, stock investing is the safest and most profitable investment vehicle that had ever existed. It is particularly awesome for someone with maybe a few grand from their savings account. 

No other asset class come close to the kind of opportunities presented by stocks. Just like anything, you can't earn enough soon enough with only a few grand... but who could in any other asset class anyway.


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## Value Collector (9 August 2016)

luutzu said:


> but the real value of capital must align to its labour and productivity - not financial engineering.
> 
> Deep yea?




Financial engineering certainly has its purpose, 

I mean take a hippy tilling the field in his 2 acre block he calls an organic farm, he might work many hours and put in lots of "labour", but is not very productive by modern standards.

Then take his cousin, who might take 3 investors capital and buys 200 acres, he all loans money from a bank to buy another 800 acres, and uses a lease to buy farm equipment, he plants 1000 acres of corn and sells it on a futures market locking in a price, and then insures the crops against disaster etc.

He will be very productive if all goes well, much more than the organic hippy.


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## Value Collector (9 August 2016)

luutzu said:


> Buffett is quite a boring guy. Smart and all. But boring.




I guess we all find different things interesting, I would find mowing lawns boring, I think I would much rather drink a coke and do my research than work a jims mowing round, but each to their own.


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## luutzu (9 August 2016)

Value Collector said:


> I guess we all find different things interesting, I would find mowing lawns boring, I think I would much rather drink a coke and do my research than work a jims mowing round, but each to their own.




I didn't say investing is boring. 

Beside, maybe, working on an assembly line where you weld or click some pieces together, day in day out... most jobs are interesting. Not always as financially rewarding, sure.


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## luutzu (9 August 2016)

Value Collector said:


> Financial engineering certainly has its purpose,
> 
> I mean take a hippy tilling the field in his 2 acre block he calls an organic farm, he might work many hours and put in lots of "labour", but is not very productive by modern standards.
> 
> ...




What you described there isn't what I meant by financial engineering. 

FE is more like buying back shares to the EPS (and the CEO's bonuses) looks better; or redefining what are generally considered an expense to be an asset. Or those financial products that really doesn't do or contribute much real value.

Futures and options; even those asset-backed securities they were flogging off... those do serve some value.

---

People don't need to be that productive to make what they do of real value. 

What if the more enterprising farmer with big machines, fossil-based fertilisers are being more productive but also more destructive to the land and the environment?

Used too much pesticides and fertilisers... being more economical and not taking care of waste/pollutant disposals etc.

So more money would have been made, but at what cost to the other stakeholders? What if they grow tobacco instead of soy or wheat? What if he use his influence and get the gov't to subsidise his business or buy his product at higher than market price? 

It will get quite complicated when we want to look at productivity and profit in a broader sense than just the bottom line.

And that does not include the sense of satisfaction from things other than cash.


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## Value Collector (9 August 2016)

luutzu said:


> FE is more like buying back shares to the EPS (and the CEO's bonuses) looks better;.




Share buy backs are a legitimate use of excess capital, especially at mature companies where they are generating cash faster than they find ways to deploy it wisely.

Buy backs are really just like paying a business partner to walk away from the business leaving his share of the company in your hands.



> or redefining what are generally considered an expense to be an asset



. 

I would call that fraud, (unless of cause the expense is actually creating an asset, eg exploration expenses that are actually proving up resources costs associate with growing a pen full of salmon etc)





> It will get quite complicated when we want to look at productivity and profit in a broader sense than just the bottom line.




remember we are just discussing the value of labour, and whether it is the sole source of value.

Obviously, the increased capital intensive economy we now have produces a lot more goods and services than the prior labour intensive one, it may even get to the point where almost no labour is needed, at that point would you still argue that money is a claim on labour? or that labour is the only genuine moral source of earning income?

Any one that believes that labour is the sole source of moral earnings and that the harder you work the better you serve the economy, should spend 1 day harvesting wheat with a sickle and 1 day with a combine harvester, then see which provides the most value.

which would you rather? one is labour intensive and one is capital intensive,


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## luutzu (9 August 2016)

Value Collector said:


> Share buy backs are a legitimate use of excess capital, especially at mature companies where they are generating cash faster than they find ways to deploy it wisely.
> 
> Buy backs are really just like paying a business partner to walk away from the business leaving his share of the company in your hands.
> 
> ...




Share buybacks can be legitimate. It's never black and white. But there are many cases where management are incentivised and abuse such options for short term gains rather than long term shareholder value.

I mean, why would the soon to retire CEO make big and risky investment with payback in years after his retirement when he could just buy back shares and immediately align shareholder interests with his retirement plan.

Accounting standards do leave a lot of room for management to interpret and use their own judgment. Which it ought to in my opinion. Just that if the mgt is creative enough, a cost can be an investment; depreciation are quickly or slowly recognised etc.

----

I didn't argue that hard labour is more noble while capital allocation is not. What am I? A commie?

What I'm saying is that all capital are ultimately the result of labour. And labour here don't just mean the hand and physical human labour... but the brainy and brawny labour and all that results from human creativity and inventiveness.

Capital is merely a convenient way of storing all that. Store in ways of saving it for later use; convenient in that it's easily transferable. 

So there's no difference between money and capital - if you think about it.

That is, an investor with capital/cash are putting in labour in the form of having the cash unleashing its hiring/purchasing power to bring in both machineries and human labour etc; The guy with the bright ideas but no cash bring in his own muscles to the party.

So it's not labour being pure and good... both capital and labour are the one and the same.

This is why some rich people would tell you they don't really care much for money. I mean, as long they can get what they want, who cares for money. If others are perfectly willing to trade their resources for printed sheets of paper or painted gold rocks, money is meaningless - it'd be whatever means technology can make it - as long as the market agree and accept it.


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## Value Collector (9 August 2016)

luutzu said:


> What I'm saying is that all capital are ultimately the result of labour. And labour here don't just mean the hand and physical human labour... but the brainy and brawny labour and all that results from human creativity and inventiveness.
> 
> .




I don't think you gain anything in terms of increasing understanding by trying to blur the lines and join the two words together.

In my understanding and the way I feel the words are used, is labour is work (whether that be physical or mental) and capital is either money or assets. 

Money and assets is different to work, it doesn't matter that you may have got the money from work, once you have earned it, and banked it, it becomes capital, it isn't the same thing as "Work" which is an action, not an object.

 ---------------------------------------------------------------------------

Would you still consider capital the equivalent of labour in a society where 100% of products and services were made by robots and automated machines, and every one in society was just some form of investor owning different portions and varying amounts of the economy?

I think you could get rid of labour entirely and still have the concept of capital, without it being linked to labour/work, Investors and capital owners would still exist, but workers wouldn't, So could you really say money is a claim on labour? I don't think so, that's why I said its a claim on production.

No body cares how much human labour goes into products when they buy them, they care about how much produce/production they are getting, and at what quality.


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## luutzu (9 August 2016)

Value Collector said:


> I don't think you gain anything in terms of increasing understanding by trying to blur the lines and join the two words together.
> 
> In my understanding and the way I feel the words are used, is labour is work (whether that be physical or mental) and capital is either money or assets.
> 
> ...





To me it's more than just academic. 

If it's just capital and that's the bottom line... then an investor could just trade in useless stuff like paintings or paper shares... anything as long as it's buy low and sell high.

But if you ground capital to what it really is - the fruit of human labour and innovation packed in a plastic note.. .then it's no longer just money, but sweat and tears... and a reminder that investing is not the moving of cash around, but of putting it to productive use - for that is how you the investor make more money in a dependable way.

------------

I actually agree with your definition of capital being with production. Just that production is the result of labour [yea, labour and capital, but capital is stored labour so it's all labour]. Riddle me that.


I think people do measure capital/money in terms of labour - mainly their own labour as oppose to other people's.

So if a person earn $500 an hour... a $100 tie or a $1,000 suit doesn't sound at all expensive. Different story to a guy that earn $500 a week. 

And that's why, I think, we see people who earns too much too easily, or who inherit their wealth but didn't inherit any sense... they would buy crazily priced stuff and thought nothing of it [money is just money and they got plenty of it doing nothing].

But for people who see money as tied to labour, even if they're the third richest person in the world, they won't be spending it like it's nothing.


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## Value Collector (9 August 2016)

luutzu said:


> But if you ground capital to what it really is - the fruit of human labour and innovation packed in a plastic note..
> ------------
> 
> .




Unless its the fruit of a robot or machine.

That's my point, you can take human labour out of the question or reduce it to almost nothing, and the capital still exists, its value isn't related to human labour, there is no fixed exchange rate between labour and dollars.



> Just that production is the result of labour




The amount of production is increasing becoming less and less related to the amount of human labour.

Every where in the production and supply chain human labour is being reduced.

1 farmer produces 1000 times more than he did 100 years ago,
1 truck driver transports probably 1000 times more "tonne miles" than he did 100 years ago
same for just about every industry there is, and I don't think its going to stop any time soon.

any way, again I think we might be down to splitting hairs, and I have reading to do.


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## Smurf1976 (9 August 2016)

If I go to work tomorrow to keep the lights on (literally keep the lights on in my case ) then I'm doing something of value to society via my physical labour and thinking.

If I buy shares in XYZ and hold them then I'm deploying capital into something that creates value via producing whatever the company produces.

But if I sit at home day trading shares in XYZ all day then arguably I haven't really added to society. I've put my time and effort into something that whilst it has made me a profit, hasn't changed anything else. XYZ would still be running their actual business with or without me buying and selling their shares every few minutes.

Something that many technical people, and by that I mean not just engineers and the like but anyone technical eg medicine, laments is that we've come to a point where the shuffling of money is now a highly attractive career option for the brightest minds. Whatever money you might make designing, inventing, discovering or simply building things comes nowhere close to what a few are making simply looking at a screen shuffling money around. As a society we'd arguably be better off if the best minds were lured into something else that actually moves us forward.

If every truck driver in Australia walks off the job tomorrow then we've got a massive crisis straight away. Within a fairly short period of time the same applies if every doctor, tradesman or teacher walks off the job and stays out. But if day traders all decide to not bother trading any more then I don't think the rest of society will realise that anything changed unless they hear it on the news. The ASX will still be there, there will still be a market for everything there's a market for today, it's just that there won't be anyone shuffling money back and forth hoping to grab some for themselves.

I'm not opposed to trading by the way, I do some medium term trading as well as longer term holding of stocks, but I've no doubt that simply moving money back and forth hasn't actually produced anything of real value to anyone but me. 

There was far less money shuffling in the days before computers were used to do it. That didn't stop us doing everything from inventing cars and building highways through to putting a man on the moon. And we still had markets for stocks, commodities and currencies too. 

As for the original question, I'd say that someone is ready to do it full time when:

1. They have a proven profitable system and have actually been running it for a decent length of time.

2. They have adequate capital deployed to produce, with a realistic rate of return, enough money to sustain the lifestyle they want.

3. They are no longer interested in working in whatever they do now and are happy with the idea that trading / investing will become their actual job.


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## CanOz (9 August 2016)

Smurf1976 said:


> If I go to work tomorrow to keep the lights on (literally keep the lights on in my case ) then I'm doing something of value to society via my physical labour and thinking.
> 
> If I buy shares in XYZ and hold them then I'm deploying capital into something that creates value via producing whatever the company produces.
> 
> ...




Smurf, thats a little narrow minded isn't it?

Ok, i'm no day trader of equities, but lets use that example:

1.) a trader provides liquidity that allows the other traders and investors to get filled on their exits from their lucrative Buffet like holdings. Sure i might only be trading 100k shares at a clip, but its still volume when you throw in a few hundred of us.

2/) to day trade equities i need a data feed, a platform, research, an internet connection, a PC, and on and on...that provides jobs.

3.) The broker i clear with employs staff to check and process trades, check report runs, maintain hardware and software.

So you see there is a whole industry dependant on punters as well as investors. I didn't even mention all the education and newsletters...

Many of which, truckers included will be totally redundant in 50 years.


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## luutzu (9 August 2016)

Smurf1976 said:


> If I go to work tomorrow to keep the lights on (literally keep the lights on in my case ) then I'm doing something of value to society via my physical labour and thinking.
> 
> If I buy shares in XYZ and hold them then I'm deploying capital into something that creates value via producing whatever the company produces.
> 
> ...





Good points. 

But money shuffling Fund Managers and Stockbrokers were never really the best and brightest. So society doesn't really lose anything


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## Gringotts Bank (9 August 2016)

Smurf1976 said:


> But if I sit at home day trading shares in XYZ all day then arguably I haven't really added to society. I've put my time and effort into something that whilst it has made me a profit, hasn't changed anything else. XYZ would still be running their actual business with or without me buying and selling their shares every few minutes.




I agree with all of your post.  But no one is obliged to contribute to society.  People generally contribute because they get satisfaction from helping make the world work.  Driving a truck (your example) helps others, and we can't do without it.  Since trading offers no such contribution or satisfaction, I honestly don't believe it's attracting all the world's 'best and brightest'.  I find trading interesting but its only real reward is money - nothing else.  It's very solitary and emotionally draining at times.  I'm very glad I have another [non-trading] job to work at.


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## Smurf1976 (9 August 2016)

CanOz said:


> a trader provides liquidity




True but 25 years ago there weren't too many people day trading but there was still an active market for shares, commodities etc.

I wasn't paying attention back then but I don't recall too many people screaming that there was some desperate need to create a lot more trading and liquidity in the market. Shares in BHP didn't suddenly become worthless because someone wanted to sell and there were no buyers. It might have been an issue for small cap stocks (?) but certainly not for anything major.


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## Smurf1976 (9 August 2016)

Gringotts Bank said:


> I honestly don't believe it's attracting all the world's 'best and brightest'.




Agreed it's certainly not attracting all of them but no doubt it's attracting some.

Someone could go to uni and study science or engineering. After a few years and with a bit of luck they'll be earning as much as a tradesman (another thing I find somewhat odd) but they'll never catch their mates who studied finance and who will end up being their boss.  

I just think that, as a whole, in Australia we're placing too much emphasis on moving money around and not enough emphasis on actually creating things in the first place.


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## CanOz (10 August 2016)

Smurf1976 said:


> True but 25 years ago there weren't too many people day trading but there was still an active market for shares, commodities etc.
> 
> I wasn't paying attention back then but I don't recall too many people screaming that there was some desperate need to create a lot more trading and liquidity in the market. Shares in BHP didn't suddenly become worthless because someone wanted to sell and there were no buyers. It might have been an issue for small cap stocks (?) but certainly not for anything major.




The need for liquidity comes with the size of the business, the float, and the average daily turnover. Remember now you have lots of funds involved too, you didn't have as many big players as you do these days.


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## AlterEgo (10 August 2016)

Smurf1976 said:


> If I buy shares in XYZ and hold them then I'm deploying capital into something that creates value via producing whatever the company produces.




No you're not. Well, if you are buying shares in the original float of the company then I would agree with you, however if you are buying shares in a company that has already floated, then your capital is going to the investor/trader on the other side of the trade, not to the company. The company already has the money from the original float. You are just shuffling shares around between other investors/traders. So what you would be doing would be no different at all to what a day trader is doing. Whether your holding period is years, or seconds, is irrelevant.


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## CanOz (11 August 2016)

AlterEgo said:


> No you're not. Well, if you are buying shares in the original float of the company then I would agree with you, however if you are buying shares in a company that has already floated, then your capital is going to the investor/trader on the other side of the trade, not to the company. The company already has the money from the original float. You are just shuffling shares around between other investors/traders. So what you would be doing would be no different at all to what a day trader is doing. Whether your holding period is years, or seconds, is irrelevant.




Exactly, in fact he is also proving liquidity....maybe for the original investors to cash out.


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## Smurf1976 (11 August 2016)

Suppose that nobody held shares in BHP (for example). Would the company still be able to carry on business without shareholders' collective capital? Only if the company had some other source of funding and effectively owned itself, having no external owner as such. 

Now suppose that nobody sits at home frequently trading shares in BHP but that anyone holding the shares for a longer period continues to do so. What happens then?

In practice I doubt the company would even realise anything had happened until someone wanted to know why trading volume had dropped. Apart from that curiosity, it would be business as usual for the company, it's workers and physical production.

The way I see it, BHP is creating value by digging up minerals (natural capital) at a cost lower than the market price of those minerals, thus making a profit through that operation. In contrast I don't see how someone repeatedly buying and selling the stock over and over is creating any actual wealth at all, they're just shuffling it back and forth with no net gain. 

Hold a stock for 10 years and you're intending to make a profit from the underlying business. You intend to receive dividends and/or growth in the share price due to the company's business activities. You or I holding the stock hasn't created wealth, but the deployment of shareholders' collective capital most certainly has (assuming of course that the business is actually profitable). 

Now if a day trader made however much money today, can anyone explain to me where exactly that money has come from? 

At a personal level I really don't care if someone "contributes to society" or not. If we have freedom then how individuals live their lives is their choice and I take no issue with it.

I do however see an interesting economic debate surrounding it. If shuffling money creates actual wealth then we ought to be able to do away with things like mining (hard work and not overly good for the natural environment) and taxation (nobody really likes it) and just replace all that with money shuffling. Employ a few thousand public servants to shuffle the money on behalf of us all and with the wealth produced the rest of us can go fishing (or whatever else you like doing).  

In reality I see it as a zero sum game that can certainly transfer wealth to or from one party to another but isn't creating it as such. Maybe I've missed something here?


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## Macquack (11 August 2016)

Smurf1976 said:


> Now if a day trader made however much money today, can anyone explain to me where exactly that *money has come from*?



Now as you know, I am a dope, but my answer would be that the money made by the day trader is made at the expense of some sucker that sold too cheap (alternatively the 'greater fool' theory)?


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## Value Collector (12 August 2016)

AlterEgo said:


> No you're not. Well, if you are buying shares in the original float of the company then I would agree with you, however if you are buying shares in a company that has already floated, then your capital is going to the investor/trader on the other side of the trade, not to the company. The company already has the money from the original float. You are just shuffling shares around between other investors/traders. So what you would be doing would be no different at all to what a day trader is doing. Whether your holding period is years, or seconds, is irrelevant.




As I explained earlier, shareholders are the owners of all the companies equity, they are happy to let the company keep that equity and even retain earnings and continue using it invest in the companies businesses only because they know when they want money they don't need to extract equity directly from the company, instead they can sell the equity to another investor or trader.

If after the original float it was not possible to sell your shares, and the only way to get your invested funds and profits back was for the company to write you a check, you can bet companies would have a lot harder time retaining earnings, and less new projects and investments would get done.

So yes, the Investors capital is always working in the business.


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## Value Collector (12 August 2016)

Smurf1976 said:


> But if I sit at home day trading shares in XYZ all day then arguably I haven't really added to society..




As a group, the traders are doing the same job as the Investors, except rather than 1 long term owner holding a stock for 10 years, you might have 10 traders playing hot potato passing the shares around each trying not to hold it on a down day, either way the result is the same, you have investors holding stock in the company.

The main difference between the two groups is the way their returns are calculated, the investor who held the shares for 10years, is guaranteed to earn the full profit the shares earned over that time, the traders are not.

Imagine if XYZ company had 2000 shares at $10 each with a 50cent dividend each year, and over 10 years of ups and downs it goes to $20.

The an Investor group owned 1000shares, their profit is going to be the full $10 capital gain + $5 of dividends, without having to do any trading they get the full return the companies shares produced.

The group of 10 traders however also owned 1000 shares, and every second day they traded them between themselves, after the 10 years, as a group they would have done a lot worse than the inactive investors, because a large part of the value generated by the shares got diverted to broker costs.

Offcourse you would probably have 1 trader of the group who was luckier than the rest and got returns far better than the investor group, but his over performance is paid for by the under performance of the rest of his trading peers, every $1 extra he earned is offset by a $1 loss of the other hot potato players (and their losses are even higher due to the trading costs)


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## Value Collector (12 August 2016)

Smurf1976 said:


> If shuffling money creates actual wealth then .




The logical flaw in that though is, you can say the same about any industry in isolation.

eg. if a chef cooking meals in a restaurant creates actual wealth, then we ought to be able to do away with things like mining etc and just replace all that with catering, we can all just cook each others meals each day and all get rich.

In reality you need all sorts of activities happening to keep the economy healthy and productive, there are all sorts of pursuits we could single out and say that they don't create "real value", but generally they do.


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## Klogg (12 August 2016)

Smurf1976 said:


> I do however see an interesting economic debate surrounding it. If shuffling money creates actual wealth then we ought to be able to do away with things like mining (hard work and not overly good for the natural environment) and taxation (nobody really likes it) and just replace all that with money shuffling. Employ a few thousand public servants to shuffle the money on behalf of us all and with the wealth produced the rest of us can go fishing (or whatever else you like doing).
> 
> In reality I see it as a zero sum game that can certainly transfer wealth to or from one party to another but isn't creating it as such. Maybe I've missed something here?




There are many things that don't actually 'create wealth'. If I hire someone to clean my house, how is this really creating wealth? And just because one type of work 'creates wealth', it does not mean we can do away with the other (interplay between various theories/concepts is very important). 
In reality, there's a value assigned to all services, even if that function is allowing someone to cash out their ownership in a business (what an investor does when they buy from the previous owner). 

When you look at the macro picture, it's as if nothing has changed, but each individual's interests were met at the time (one wanted to cash out, the other wanted to buy in).


Now if we're talking about increasing productivity or bettering society, then there are many questionable services/products - but that's a completely different discussion.


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## luutzu (12 August 2016)

I guess answer to whether you know you're ready or not is when you spend spare time philosophising about stuff - instead of sweating over what to read and who to believe.


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## relval (12 August 2016)

I've been trading for over 10 years now full time, here is my 2c:

1. Capital - for longer term investing you will need a lot to be able to survive the lean years.  That's why most full-timers are traders as you can get a higher return on capital and have a high % chance of being profitable every year.

2. Social Pressure - I've met many people from all walks of life.  Some don't understand it, some are jealous, some think it's awesome, some are morally superior and think I'm an evil capitalist.  Does short term trading contribute to society?  I really don't give a f**k.  I pay my taxes and operate within the law.  

3. Loneliness - this is definitely an issue for some  It really is a lone wolf occupation, if you are not comfortable with your own company and operating independently you may struggle.


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