# A Plan for New Share Investors/Traders



## dennisll (9 May 2006)

Hello All,

Got asked by a friend about how he should start in the sharemarket.  I know that there are probably hundreds of books out there that answer this question but instead of pointing him to a book I thought about it and gave him my version (although a bit more fleshed out now that it is written of course).  I thought of sharing it here for other new enthusiasts.  To avoid having to write "investing/trading", I will use "investing" alone but everything should apply to trading as well.

1. *Save*
To enable a fruitful investing career, you must know how to spend less than you earn.  Select a reasonable percentage of your income, say 10%, and as soon as your pay packet comes in move this amount to a high-earning savings account.  For those who still live with mum and dad, try to go for 25% to 40%, as this is the most opportune time for you to save since you do not have a lot of fixed expenses yet (rent/mortgage, utility bills, etc).  Once you are used to a life of spending less than you earn, you will eventually have enough capital saved up to start your investing career.

2.  *Keep Investment Funds for Investing*
Got enough to start your investing?  Great.  Now don't go out and buy the latest hot tip yet.  First you must make a commitment to yourself that the money you have allocated for Investment is for Investment alone.  Open a new investment account with your financial organization to keep it seperate from your day-to-day account.  You must promise yourself that this money is for investment only and not an emergency fund for an engagement ring or a holiday in Bali.  By doing this, not only can you accurately track your progress, you can also ensure that you will get the full benefits of compounding.

3. *Determine an End*
When planning a long drive, you first determine where you are going before you plan out how to get there.  Investing is no different.  Decide where you want to be, and when you want to get there.  Write it down and keep it in plain sight so you never forget.  Don't just say "I want to be a millionaire".  You must say something like, "I want to be a millionaire by March 1, 2015".  Envision yourself achieving your goal, how your life would be like and what you might be doing at the time.

4.  *Learn, Learn, Learn*
Before you set out on your long drive, you must know your car well.  You  must know what to check and when, what problems might arise and how to overcome them.  You will probably also want to know about the weather forecasts, what you might encounter on the roads, and where the petrol stations are.  With investing, you need to continue to educate yourself on what's out there, what the risks are and how to manage them, and how to use the various tools and methods.   New tools and strategies are born constantly (ie CFD's) and the only way you can keep up with everything is to accept that you must be continuously learning.  What are the disaster scenarios and what must you do to if they do happen?  Read the classics by Graham and Fisher to start you off on a solid foundation.  Read Market Wizards or Reminiscences of a Stock Operator if that is more to your liking.  Try Rich Dad Poor Dad or even property books by Jan Somers.  Learn to like reading the AFR (may take some time but you'll get used to it).  Find a mentor you respect and who you wish to emulate and try to talk to him regularly.

5.  *Map out your Plan*
Once you know where you are headed, you can start fleshing out how to get there.  What do you need to do on a yearly/monthly/weekly/daily basis to get there?  If you were driving from Sydney to Melbourne and you wanted to get there as soon as possible, you would probably think of driving non-stop for 10 hours.  Or you could plan for 3 hour stretches with half hour breaks in between and still get there within a day.  Perhaps you wanted to see the sites and plan to travel 5 hours a day over two days.  The point is that since you already know where you are going, you can then figure out how to get there, whether you throw caution to the wind or go slowly but surely or perhaps, more realistically, somewhere in between.  

6.  *Execute*
Procrastination is often our biggest enemy.  There will always be a reason not to start now.  The market is nearing a top, or the market is falling and has not hit bottom.  It could be interest rates, the economy, house prices, etc.  You may have prepared yourself adequately for your investment journey but without taking that first step you will never get anywhere.  Do not be afraid to lose money -- it is part of the journey.  You have a plan, execute it!  Plan dictates Action.  

7. *Review*
To ensure you get to your desired destination, don't forget to take some time to review your progress.  Have you been doing enough to be on schedule?  Is the plan working?  Have you been faithful to your plan, or have you been taking side trips from time to time?  Do you need to catch up?  If so, how?  Does the plan need updating? 

8. and lastly...*Keep on Keeping On*
There will be days when you will feel like nothing is going your way.  You may feel like all your hard work is yielding very little rewards.  Don't worry, most people go through periods of self-doubt as well.  The key to overcoming this and to get to where you are going is to just keep on keeping on.  I remember Warren Buffet once said that to get to a million simply start with a dollar and double 20 times.  Say it takes you a year to double your money.  In the first 5 years you will go from $1 to $32, not very flash and certainly to make only $31 in 5 years seems like a lot of effort for nothing.  The next 5 years are slightly better but still nothing to scream about when you get to a thousand.  Year 11 to 15 gets much more interesting, as you get to $32k in Year 15.  But see how much it then pays off from Year 16 to 20:
Yr 16: $64K
Yr 17: $128K
Yr 18: $256K
Yr 19: $512K
Yr 20: $1,000,000
So really, if you give up within the first 10 years, how can you expect to get to the serious money?

There you have it.  Probably lacking some things but that is certainly the gist of it.  Add, subtract or modify, your thoughts are welcome 

Happy Investing,

Dennis


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## bullmarket (9 May 2006)

Hi dennis

That's all very good advice.

The only thing I find a bit puzzling is the example you use at the end which essentially says that if you start with $1 and then get 100%pa compound return for 20 years you will have $1M after 20 years.......while obviously mathematically that is correct, in reality the stock market has a historical average of ~10%pa return.

While obviously people have made much more than $1M in much less than 20 years in business and/or investing I think your example could give a misleading impression, to newbies at least, that making huge amounts of money in the stock market is easy.

But :iagree: with the rest of what you say.

cheers

bullmarket


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## tech/a (9 May 2006)

Dennis.

All very good.

However you see it time and again.

Stacks of theory and very few take it on to practice. Doubling a $ is easy enough doubling $100K not so easy.
Practical knowledge on how best to Utilise other peoples money,Risk,Compounding as you say,positive expectancy and most certainly the skills required to run your business of wealth creation,and lastly experience can be theorised till your 80---theory abounds when experience is lacking.

Practical implementation of a business plan is way more than a theory/s as to operation.
Books like those you mention fall way short in actual how and what of sound business practices. Plenty of you should/could do *THIS* very little of the practical what *THIS* is.

Many watched the last building boom pass by,and many will look back on this and the dot com boom and lament not having the guts/or accuman to take advantage of opportunity.

Most recognise opportunity
Few understand how to take advantage of it
Fewer actually *DO IT*

No offence just a statement of over 50 yrs of obsevation and practice of business..


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## dennisll (9 May 2006)

Thanks for the replies, bullmarket and tech/a.

I should have clarified that the dollar doubled 20 times example is simply an example to show why we must keep on going rather than one that would estimate your returns in the market.  Even at 10% compound return, which is certainly a realistic figure, 10% of a dollar pales in comparison to 10% of $500K.  The point is to get to the level where your capital, whatever the compounding rate is, will produce significant returns and the only way to get there is to keep on keeping on.

Agree 100% with your comments, tech/a.  Certainly practice is vastly different from theory.  Hence step 6, Execute.  No amount of theorizing will replace the lessons learnt from practice.  The books I mentioned were, I thought, good starting points for a newcomer.  Certainly one requires a certain level of information before he embarks on his journey and the books I chose as examples I regard as having enough information to get you on your way.  I do believe that once a newcomer goes through the process of learning... and trying... and failing... and learning again... and trying... and having some success and so on; he will then find out what *THIS *is for him.  I think *WHAT *we are doing means something different to each person and it is up to us to discover it.  Personally, rather than *WHAT *, I believe the more important question is *WHY* but that's another story 

Absolutely no offence taken   Can't even see which part I might take offence in, even the slightest.

Cheers,

Dennis


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## RichKid (9 May 2006)

tech/a said:
			
		

> ..........
> No offence just a statement of over 50 yrs of obsevation and practice of business..




Agree 100% about the comments about putting theory into practice, damn difficult. Getting into a good habit/routine is the key.

btw Tech, I didn't realise you started observing business that young!


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## tech/a (9 May 2006)

> I didn't realise you started observing business that young!




More so the art of negotiation,something that years later my experience was then able to recognise the inate skills my own kids were using to manipulate me!!

They still do!! (well they think they do!!)


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## ashwalk (14 May 2006)

My problem is that i have got myself into a HEAP of debt. I want to get out of my debt and start investing..

I curently have a plan of attack but the bills etc are still getting ahead of me..

Other than selling my body how can i start getting on top of things and start investing?


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## Julia (14 May 2006)

ashwalk said:
			
		

> My problem is that i have got myself into a HEAP of debt. I want to get out of my debt and start investing..
> 
> I curently have a plan of attack but the bills etc are still getting ahead of me..
> 
> Other than selling my body how can i start getting on top of things and start investing?




Ashwalk,

You may already have sought advice about managing the debt.

If not, you can access excellent free financial/debt/budgeting advice through Lifeline's Financial Counselling Service.  Often the consultants who volunteer with this service (usually retired bank managers etc) can negotiate more favourable repayment terms with your creditors than you are able to do yourself.  You may find it worth a try.

Good luck.

Julia


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## blinkau (16 May 2006)

Very informative post. When I was working and studying I had a plan written down on paper and I was really surprised when you plan just how much better of you are. I had saved alot and had something to show for it. Now iv been out of uni for a few months and working iv spent my money and have nothing its easy to think youll save but it never happens.

Iv done up another plan and im surprised just by saving 50-60% of my income how much money I can have in say 12 months time. Its so easy to spend $100-200 here and there and use up your entire pay check. 

Great post its always great to revist the fundamentals which get you there


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## Realist (11 June 2006)

> Say it takes you a year to double your money. In the first 5 years you will go from $1 to $32, not very flash and certainly to make only $31 in 5 years seems like a lot of effort for nothing.




Complete and utter bollocks.   :swear: 

Anyone that can double their money on the stockmarket in 1 year, had an amazingly good year, mostly from luck, and they should not expect that to happen again.

A 10% return after tax and brokerage fees is a very good return. We'll see how many manage that this year!

To turn $1 into 1 million$ in a lifetime is basically an impossibility. If it wasn't we'd all be bilionaires already. 1 or 2 of us are, the other 99.99% aren't.

Turning $100,000 into $1 Million would realistically take over 20 years minimum, and few investors achieve that.

Also someone earning $50K a year and planning to be a millionaire after 10 years is dreaming.  It doesn't matter if you plan for it or not, you wont get there unless you earn more, live very frugally and save and invest amazingly well being extremely patient, reducing taxes and brokerage fees.

Some of what you have said has merit Dennis, most of it is not correct at all.



> I remember Warren Buffet once said that to get to a million simply start with a dollar and double 20 times




I doubt he ever actually said that. Some idiot pedlling Option trading advice over infomercials did though.  Buffet would have said the first rule of investing is "Don't lose" - trying to double your money quickly is not something Buffet would ever contemplate.

When Richard Branson, owner of Virgin Atlantic Airways, 
was asked how to become a millionaire, he had a quick answer: "There's 
really nothing to it. Start as a billionaire and then buy an airline." 

Sorry to be so rude Dennis, but I'm just stating my mind, and I do disagree with you sorry.


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## crackaton (11 June 2006)

Realist said:
			
		

> Complete and utter bollocks.   :swear:
> 
> Anyone that can double their money on the stockmarket in 1 year, had an amazingly good year, mostly from luck, and they should not expect that to happen again.
> 
> ...





It all comes down to quality of life. If one wants to be a tight ass for 20 years on a meagre salary, then sure it's possible. And actually in todays society you can probably have more fun and a better quality of life by not eating out, drinking smoking driving big cars etc. 

Personally, the quality of food in our society lacks substance. Just my opinion. That's why I'm trying to become a better cook.!!


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## suhm (12 June 2006)

It's just an example of the effect of compounding interest, I mean anyone who would start investing with one dollar is a moron, u can't even buy a scratchy ticket with that and Id say that would be just about the best investment u could make with that little money. Even with $1000 in one stock u'd need 4% just to cover the costs of purchase and sale


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## Realist (12 June 2006)

> It's just an example of the effect of compounding interest, I mean anyone who would start investing with one dollar is a moron, u can't even buy a scratchy ticket with that and Id say that would be just about the best investment u could make with that little money.




Agreed, if you are starting out with $1, a lottery ticket is about your only option. If you can get one that cheap, maybe go in with 5 friends


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## Ageo (12 June 2006)

Realist said:
			
		

> Complete and utter bollocks.   :swear:
> 
> Anyone that can double their money on the stockmarket in 1 year, had an amazingly good year, mostly from luck, and they should not expect that to happen again.
> 
> ...





Realist as much as i understand where your coming from let me put this to you.

Statistics show that only 1% of Aussie's retire wealthy. So that means 99% of the population in frank terms have no idea when it comes to wealth.

I know your stating your point of view which is fine but please watch what you say as people can take your advice, and unless your in that 1% you are in no position to give such advice (like me also!)  

Dennis i tell you what, find someone that is in your position and has done what your seeking and then learn from them. The people that say such things cannot be done are usually the ones that are in the 99% category. No offence peoples but unless you think differently you will end up as the 99% sheep. This is not to say doubling your money is achievable but there are people that have turned small amounts of capital into monstrous bank accounts over the years (using various methods).

I know people want to be realistic but im sorry if so many people have become millionaires over the years than i simply say to myself wtf not!?

Oh hang on here it is: 

"They were all lucky"

        or

"They were born wealthy"

       or

"You have to have a special gift"



If you havent read the book by Warren Bennis (Geeks and Geezers) than go out and buy it. That will explain the difference between young leaders of today and older leaders (mostly millionaires).

Basically it says the young leaders of today are earning wealth 10 times faster (due to the amount of information available).

Times change people so unless you change with it, you will always believe that 5-10% p/a is a fantastic return and be like 99% of sheep.


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## swingstar (12 June 2006)

Can't agree more Ageo 

I'm not happy with 10% a month.


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## dennisll (12 June 2006)

Friends,

Please do not think that I was implying that you can double your money in a year trading stocks.  The point I was trying to make is that to gain the benefits of compounding you have to be in for the long haul, as it takes time before the serious compounding actually starts.  The point is demonstrated simply by the "double your dollar 20 times to make a million" example.  Using a year as the time for the money to double makes the example even more simple and easy to understand.  

In specific situations, doubling your money may take longer or shorter.  The method may be the stock market, real estate, etc.  In any case, the fact remains that if you quit early in the game, you cannot get to the point where you can make serious money.

Cheers,

Dennis


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## dennisll (12 June 2006)

Oh and by the way Realist, Warren Buffet did use that example.  It was both to demonstrate the power of compounding as well as the effect of taxes on your gains.  Basically he said that if you bought a share for one dollar and it doubled 20 times, you would be a millionaire but if you sold every time it doubled, you would be nowhere near the million mark.

Cheers,

Dennis


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## Realist (12 June 2006)

> I'm not happy with 10% a month.




 

10% a month return after tax and brokerage on your total investments is just a plain ludicrous exepectation.  Have you seen a psychiatrist?




> Oh and by the way Realist, Warren Buffet did use that example.




link??

He certianly would never in his wildest dreams expect a 100% return in a year!

I know his yearly returns.

Buffet & Partnership Ltd returns per annum...

1957 10.4%
1958 40.9%
1959 25.9%
1960 22.8%
1961 45.9%
1962 13.9%

Now anyone who thinks they are a better investor than the second richest man in the world, or anyone that can get better returns than his yearly average of 29.5% is a dreamer.



> Statistics show that only 1% of Aussie's retire wealthy. So that means 99% of the population in frank terms have no idea when it comes to wealth.
> 
> I know your stating your point of view which is fine but please watch what you say as people can take your advice, and unless your in that 1% you are in no position to give such advice (like me also!)




Well I aint retired, so I aint in that 1%. Whatever relevance that has to anything I don't know.

If you seriously think taking advice from a wealthy old person is worth more than taking advice from anyone else you are sadly mistaken.

Infact, you advising people to listen to wealthy retired people is possibly the worst piece of advise I've seen on this board.

What piece of information did I give exactly that you do not agree with?


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## professor_frink (12 June 2006)

swingstar mentioned in another thread that he trades options.

hence the higher goals.


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## swingstar (12 June 2006)

Realist said:
			
		

> 10% a month return after tax and brokerage on your total investments is just a plain ludicrous exepectation.  Have you seen a psychiatrist?




I didn't say I expect that, but I'm not happy with less 

Also, that's pre-tax, but including brokerage.

BTW, I think Cynic is a more appropriate username for you.


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## Realist (12 June 2006)

> Basically it says the young leaders of today are earning wealth 10 times faster (due to the amount of information available).




Complete and utter bollocks.

For instance Rockefeller was far far richer than Bill Gates is now if you index inflation.

What examples do you have of young Australian's earning wealth far quicker today than 50 years ago?

The richest people are all old farts or inherited money from what I can see.

Lachlan Murdoch and James Packer for instance - show me modern day examples of young Aussies that surpassed by 10 times what Kerry Packer and Rupert Murdoch did years ago?



> Times change people so unless you change with it, you will always believe that 5-10% p/a is a fantastic return and be like 99% of sheep.




I do not believe 10% is a fantastic return. It is a good return though, after tax, brokerage and fees.

I do believe 20% is a fantastic return

And I believe 30% year after year after all expenses is totally unachievable.

Warren Buffett has not even managed that himself, his average is 29.5%% from what I last saw.

This is from total investments I am talking about!!  Any moron can do a small trade and make 50% overnight.  I am talking about putting all of your available capital into investments and getting a 10% yearly return after all expenses are taken into account - especially tax and brokerage fees. Then doing the same the year after.

26% return after tax each year means you double your money after 3 years.

Good luck doing that with all of your capital!!!

Still dreams are free.


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## Realist (12 June 2006)

> I didn't say I expect that, but I'm not happy with less




You wont be happy very often then I'm betting.



> Also, that's pre-tax, but including brokerage.




Yeah and on small trades too I bet, not on your total capital.  10% on a trade before tax is a fair aim - I have no problem with that.

But..... that is not what we were talking about.

What do you expect as a yearly return after all expenses including tax on your total capital over 10 years?




> BTW, I think Cynic is a more appropriate username for you.




 

Fair enough.


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## professor_frink (12 June 2006)

Realist, a good options trader can double their money annually. I bet they are happy more often than you think. Especially in a market like this.


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## Realist (12 June 2006)

> swingstar mentioned in another thread that he trades options.
> 
> hence the higher goals.




Yep 10% on a trade over a month or even a day is highly achievable. Even after tax and brokerage.

And 10% is a good effort after investing for 1 year after tax and brokerage on your total capital though. 

That is the difference between investing and trading. The amounts.

Traders risk small amounts on trades hoping for high gains, investors put huge amounts into investments expecting small gains.

This thread was about investing, not trading. And in which case mentioning 10% a month is ridiculous.  No-one consistently makes 10% on their total captial each month, few make more than 10% a year!!!


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## professor_frink (12 June 2006)

> This thread was about investing, not trading. And in which case mentioning 10% a month is ridiculous. No-one consistently makes 10% on their total captial each month, few make more than 10% a year!!!




look at the title of the thread- investors/*traders*


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## Realist (12 June 2006)

> Realist, a good options trader can double their money annually. I bet they are happy more often than you think. Especially in a market like this.




Sure it is possible. Of course. Not consistently over the longterm though - impossible.  If so please show me some evidence, a link??


To me it is no surprise that Warren Buffett is the second richest man in the world and not some day trader.


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## swingstar (12 June 2006)

Realist said:
			
		

> Yeah and on small trades too I bet, not on your total capital.  10% on a trade before tax is a fair aim - I have no problem with that.




On my total trading account, I average more than 10%. 

Example: April I hit 20%, May I hit 35%, this month I'm at break even still.


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## Realist (12 June 2006)

> look at the title of the thread- investors/traders




Fair enough.    

Prof Frink, what % return on your total capital after fess and tax would you be happy with after a year of trading?

I'm happy with 10%, I aim for higher of course. But 10% is not bad, I aim not to lose first of all.  And I only buy ASX shares that pay dividends, and it includes dividends.


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## Realist (12 June 2006)

> On my total trading account, I average more than 10%.
> 
> Example: April I hit 20%, May I hit 35%, this month I'm at break even still.




Well I better be nice to you, you'll be the richest man in the world in 10 years.

10% a month. Wow.  You triple you money yearly!!

Jan 1st 2006 $100
Feb $110
March $121
April $133
May $146
June $161
July $177
August $194
September $214
October $235
November $259
December $285
December 31st 2006 $314


How much did you start with as your total capital?

$100 will be worth about $5,904,900 in 10 years time!!

So if you started with $10,000 you'll be richer than Warren Buffett in about 2017.

Can I borrow some money please?


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## professor_frink (12 June 2006)

I get the feeling that I'm about to get challenged to prove whatever figure I say here!!!

Given the current climate I expect 10% a month. So far this year I've done that in every month bar feb.


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## swingstar (12 June 2006)

Yes, I will be up there, if I hit 10% a month, every month, for 11 years. 

But I'm sure I will retire when my capital is in the upper 7 figures, hopefully before 10 years time (I have investments elsewhere that do better than 10% a WEEK, but are short-lived). I'll probably diversify into property actually, as whatever takes less time but brings in the $$$ is my goal. 

At the moment, I spend a lot of time on trading, no doubt about it. 

And no I don't day trade.


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## Realist (12 June 2006)

> I will retire when my capital is in the upper 7 figures, hopefully before 10 years time (I have investments elsewhere that do better than 10% a WEEK, but are short-lived).




Well to me you sound young and new to trading.

Be carefull!!


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## swingstar (12 June 2006)

My system is very mechanical. You learn a lot more when you quit your job and you have to rely on trading to get by. 

Also, my capital could be lower 7 figures for all you know. It's not, but just making a point that you jump to conclusions very fast. Most of the population does that.


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## professor_frink (12 June 2006)

Realist said:
			
		

> Well I better be nice to you, you'll be the richest man in the world in 10 years.
> 
> 10% a month. Wow.  You triple you money yearly!!
> 
> ...




Comparing investors and traders isn't really appropriate Realist.

The only thing that warren buffet has in common with swingstar and myself is that we all buy things with the aim of profiting off them. Different instruments, different timeframes. Like chalk and cheese.


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## Realist (12 June 2006)

> My system is very mechanical. You learn a lot more when you quit your job and you have to rely on trading to get by.




 

If you wanna be rich - get a job or a carerr at least.



> Also, my capital could be lower 7 figures for all you know.




There aint a young newbie trader in the world trading millions of their own money each month. (I hope)



> It's not, but just making a point that you jump to conclusions very fast.




I do jump to correct conclusions fast don't I?


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## swingstar (12 June 2006)

Realist said:
			
		

> If you wanna be rich - get a job or a carerr at least.




Tell me a job that pays a 22 year old $10,000 a month and I'm there!


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## Realist (12 June 2006)

> Comparing investors and traders isn't really appropriate Realist.




They both want to make money, one overnight, the other one in a lifetime.

Is interesting to me the differences.


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## Realist (12 June 2006)

> Tell me a job that pays a 22 year old $10,000 a month and I'm there!




Many, many jobs pay $10,000 a month plus super, expenses, overseas trips,  health insurance, 4 weeks holiday etc.

Not many for 22 year olds I agree.  26 to 28 is probably the starting age for these jobs. If you don't get in on the ground level you wont get there.

Also I'm not sure I believe you will make $10,000 profit each and every month.  How's June looking for you?


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## professor_frink (12 June 2006)

Realist said:
			
		

> they both want to make money, one overnight, the other one in a lifetime.
> 
> Is interesting to me the differences.




It's pretty obvious from your statements here, and on other threads that you aren't a fan of trading. Do you mind if I ask why?


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## dennisll (12 June 2006)

Warren Buffett, in the 1993 Berkshire Hathaway Annual Report...

"Through my favourite comic strip, Li'l Abner, I got a chance during my youth to see the benefits of delayed taxes, though I missed the lesson at the time. Making his readers feel superior, Li'l Abner bungled happily, but moronically, through life in Dogpatch. At one point he became infatuated with a New York temptress, Appassionatta Van Climax, but despaired of marrying her because he had only a single silver dollar and she was interested solely in millionaires. Dejected, Abner took his problem to Old Man Mose, the font of all knowledge in Dogpatch. Said the sage: Double your money 20 times and Appassionatta will be yours (1, 2, 4, 8.....1,048,576)..."

No links.  Easy enough to google yourself 

Again, the timeframe of a year was chosen by me to make the example more simple.  I have said before and I say it again, it does not imply that doubling your money in a year is the norm or even achievable.  

Cheers,

Dennis


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## swingstar (12 June 2006)

Realist said:
			
		

> Many, many jobs pay $10,000 a month plus super, expenses, overseas trips,  health insurance, 4 weeks holiday etc.
> 
> Not many for 22 year olds I agree.  26 to 28 is probably the starting age for these jobs. If you don't get in on the ground level you wont get there.
> 
> Also I'm not sure I believe you will make $10,000 profit each and every month.  How's June looking for you?




You're right, it'll be more, taking compounding into account. 

June, I am only up $1k. Would have been a lot more if I was home Friday. 

Regarding overseas trips, how many jobs allow you to work anywhere in the world, like mine?


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## Realist (12 June 2006)

> Dejected, Abner took his problem to Old Man Mose, the font of all knowledge in Dogpatch. Said the sage: Double your money 20 times and Appassionatta will be yours (1, 2, 4, 8.....1,048,576)..."




Thanks Dennis.

Warren Buffett did not say it though, Old Man Mose did.    




> It's pretty obvious from your statements here, and on other threads that you aren't a fan of trading. Do you mind if I ask why?




Brokerage, tax, stress, false expectations, and too many dreamers.

I am not against trading per se, and I am no expert on it and am very interested to learn more about it.  I find there's all to much bullshet spouted about it though. And many traders are dreamers.  Even infomercials peddle trading to the masses in the States.  People harping on about doubling their money yearly, or 10% returns a month.  It angers me, being a realist I like commonsense, realistic and logical approaches, not get rich quick schemes.

I'm of the opinion most people lose money trading.

And a select tiny few make enough to live off it

What do you think Prof Frink?


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## Realist (12 June 2006)

> Regarding overseas trips, how many jobs allow you to work anywhere in the world, like mine?




Dunno, you are lucky I suppose.

How did you get all your captial to start trading in the first place?

You started with about $100,000 to start with right?

You still live at home? or flatting?


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## swingstar (12 June 2006)

I saved about $20,000 and got a loan of about $20,000 and built it up within a year. I'm also coming into more funds from my mum's property which I'll be trading with soon and be taking a small percentage, so I'll be trading about a quarter of a million. I'll be more conservative and doing less directional trading with that though (ie. spreads). 

I'm still living at home, but I pay board. I'm moving to Prague within the next 9 months, I'm just finishing off uni.


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## Ageo (12 June 2006)

Realist said:
			
		

> If you wanna be rich - get a job or a carerr at least.





LMAO!! Realist please tell me your a financial advisor?


Oh as for Buffet's returns please answer me 1 thing. Whats his capital that he is investing with?

 

And as frink mentioned before Trading is much more flexible with a smaller capital base. When i have a capital base of $10million+ then i will be happy to invest in companies and achieve returns of 10-40%p/a (less risk and less work). Even still thow if my view was strong about a company such as BHP now wtf would i buy shares outright when i can buy CFD's over them?

Using other peoples money can times your return 10 fold. But if you dont have the balls or the patience to learn its limits then i suggest you be happy with your job and 10% p/a

Adrian


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## cuttlefish (12 June 2006)

swingstar said:
			
		

> I saved about $20,000 and got a loan of about $20,000 and built it up within a year. I'm also coming into more funds from my mum's property which I'll be trading with soon and be taking a small percentage, so I'll be trading about a quarter of a million. I'll be more conservative and doing less directional trading with that though (ie. spreads).
> 
> I'm still living at home, but I pay board. I'm moving to Prague within the next 9 months, I'm just finishing off uni.




are you saying that after only a year in the market you're about to punt the equity in your mothers house on your trading skills?


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## swingstar (12 June 2006)

cuttlefish said:
			
		

> are you saying that after only a year in the market you're about to punt the equity in your mothers house on your trading skills?




Yeah, why not? I have a trading system, one that I'm programming so it's more mechanical, it's not like I'm going to trade the whole lot on a call/put option or something.


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## wayneL (12 June 2006)

Tsk Tsk

The ol' investor vs. trader argument again, eh?

The two cannot be compared.

One seeks to earn a profit on stock-holding, much like a grocer seeks to earn a profit on cabbages, cornflakes, chux superwipes, and Womans Day magazines. It is a purely mercantile endeavour, and therefore fits into the catagory of small business.

The other seeks to benefit in the growth of economies and the business itself over a much longer term.

To draw a parallel. There is the business of buying and selling money for profit, as in foreign exchange and the business of lending and borrowing money thereby profiting on the spread.

Then there is investing cash for the purpose of compounding interest.

Same institutions different goals.

Therefore when traders speak of outsized gains, the investors immediatly leap to the compounding argument to discredit those returns. However the professional trader is removing a chunk of those returns for living expenses, entertainment and other frivolities.

He/she will only be compounding a portion of those gains. He/She may even "invest" those gains in longer term investments. There will be a maximum tradable account size, and as a trader learns to use leverage, it will probably be less than seven figures.

However an Investment account size has no upper limit. Therefore a successful trader will become both; a small busnessman AND an investor... just like the successful shop owner.

Therefore when a person decides to be a full yime trader, he/she is in effect opening up a shop for business, and should EXPECT returns far in excess of normal "investment" returns. Otherwise go find something else to do.

The fact that most fail in this endeavour merely reflects the inherent reality in ANY small business; remarkably, the failure rate is similar in both.

Cheers


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## cuttlefish (12 June 2006)

Realist said:
			
		

> Turning $100,000 into $1 Million would realistically take over 20 years minimum, and few investors achieve that.
> 
> Also someone earning $50K a year and planning to be a millionaire after 10 years is dreaming.  It doesn't matter if you plan for it or not, you wont get there unless you earn more, live very frugally and save and invest amazingly well being extremely patient, reducing taxes and brokerage fees.




Person on $50K
_Year 1 _ - saves $10,000
_Year 2 _ - uses the $10,000 to borrow $100,000 and achieves a 4% return after interest and tax, also saves another $10,000.  total at end of year 2 -$24,000
_Year 3 _ - uses the $24,000 to borrow $240,000 and achieves a 4% return after interest and tax, also saves another $10,000. total at end of year 3 - $43,600
_... etc. etc. ..._
_Year 11 _ - total at end of year 11 = $987,000

I know its an optimistic scenario but not completely unrealistic.  Move the returns down to 3% and it'll take them 13 years.


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## professor_frink (12 June 2006)

Realist said:
			
		

> Brokerage, tax, stress, false expectations, and too many dreamers.
> 
> I am not against trading per se, and I am no expert on it and am very interested to learn more about it.  I find there's all to much bullshet spouted about it though. And many traders are dreamers.  Even infomercials peddle trading to the masses in the States.  People harping on about doubling their money yearly, or 10% returns a month.  It angers me, being a realist I like commonsense, realistic and logical approaches, not get rich quick schemes.
> 
> ...




When it comes to trading normal shares, then I agree- 10% a month is hard to do consistently in the australian market. Some may be able to do it, but I couldn't. Leveraged instruments, such as options, futures, etc enable traders to make returns that most investors scoff at, as we have seen with you! But it can be done.
These are definately not for the faint hearted, and should be done after someone is competant trading shares first, and has a thorough understanding of the instruments they are trading.

The issue with traders compared to investors is scalability- it's completely different from investing in that 1 person can only trade so much before they have to diversify and start taking on long term positions. So as an account gets bigger, the returns tend to get smaller.A trader that can make 100% on 100,000, won't be able to do it on 10 million. That's why you won't find any short term traders on the rich list- it's very hard to double up 100 million.

In regards to the B.S out there you are spot on. There is heaps of it! "trading gurus" selling $5000 options courses that promise you the world and deliver very little give trading a bad name, but these courses seem to be the most attractive to the uninformed public who wants to get rich quick.
Most people do lose money trading, but most businesses go bust as well. 

What's the secret? For me it's sufficient Capital, good research, a good work ethic, and a good frame of mind. Once these are in place then the sky is the limit.


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## professor_frink (12 June 2006)

Crap- should have refreshed the screen before posting that. I just said basically the same thing as wayne


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## wayneL (12 June 2006)

professor_frink said:
			
		

> Crap- should have refreshed the screen before posting that. I just said basically the same thing as wayne




SNAP!


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## swingstar (12 June 2006)

Good posts. I don't know what's so hard to understand. 

Agree with the small business analogy. The good thing about this business (if you're an introvert like me), is as mentioned, there are no employees, customers, products, driving hard bargains, competition, you can be anywhere in the world so long as you have a phone or Internet access, etc. It's the best business in the world from my point of view. 

I look forward to the weekdays, so I must be doing something right. I know I didn't when I was working, not to mention I was only making a small fraction of what I've been making. 

Some traders can consistently trade large accounts, although most train employees for them. Not all though, ie. Marty Schwartz. That guy is my hero.


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## wayneL (12 June 2006)

swingstar said:
			
		

> The good thing about this business (if you're an introvert like me), is as mentioned, there are no employees, customers, products, driving hard bargains, competition,




A very good point too.

I'm noy really an introvert, but having done the above in a manufacturing business, I just didn't enjoy it...too soft and too much of an idealist. The thought of sacking someone would upset me for weeks. And dealing with folks who are unethical (as you do inevitably find in business) was depressing in the extreme.

So this business is perfect for me too.

On the other side of the coin, some people love all the cut and thrust of normal business, and wouldn't enjoy what we do.

So it is definately not for everyone.


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## Realist (13 June 2006)

Some good points guys. 

I am an old school Benjamin Graham follower.  I buy the most boring shares you can, and never sell them.  I've only sold 1 share in my life. (highly amusing to you traders I know.) So trading is foreign land to me.

Trading does interest me though.  I can not get my head around it.  I've tried, I read Darryl Guppy's book and thought it was complete bollocks. And went back to reading Ben Grahams book for about the 8th time.

4 quick questions about trading.

1.)  What is the best trading book there is? The greatest of all time?
2.) What is the best thing for a beginner to trade? options, forex, cfd, shares??
3.)  What is the best company or software to use to do trading? Where do you get your info from? I use Commsec now.
4.)  Can you do trade adequately while still working fulltime?

I'm sure these have been asked 100 times, but a quick list of answers would be good.  I'm sure I could do trading, I have a degree in Computer Science and am pretty good at maths, and fairly logical (although soem here would disagree), and fairly ballsy.  I think I have the characteristics,  or do I?


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## professor_frink (13 June 2006)

Realist said:
			
		

> 4 quick questions about trading.
> 
> 1.) What is the best trading book there is? The greatest of all time?
> 2.) What is the best thing for a beginner to trade? options, forex, cfd, shares??
> ...




Good books to start with are IMO-
van tharp-trade your way to financial freedom
alexander elder- trading for a living
mark douglas- trading in the zone

Dunno about there being a greatest book, as every trader will have a different opinion on this.

To start with trade shares. Leverage is not a good idea for beginners!

Software I use for charting is amibroker. Most of the online brokers will do for executing trades. I use medved quotetracker for intraday charting as well.

You can definately trade and work at the same time(obviously depends on your job of course!) Most people still have a job while they trade. For end of day share trading, most of the analysis is done outside of market hours so it's pretty easy to do.


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## professor_frink (13 June 2006)

Realist said:
			
		

> I'm sure I could do trading, I have a degree in Computer Science and am pretty good at maths, and fairly logical (although soem here would disagree), and fairly ballsy. I think I have the characteristics, or do I?




Good knowledge of maths and computers will be a definate plus, especially if you chose to program a mechanical system. It's not absolutely neccessary to go down this path, but there is a pretty strong case put forward for it by some people on these forums. Tech/a has developed a longer term mechanical system and information on it is freely available here and on reefcap if you want to find out more.


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