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

[helpme]

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.

 

[luutzu]

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.

 

[SirRumpole]

When you are ready to lose your money.

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

 

[CanOz]

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.

 

[Gringotts Bank]

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.

 

[skc]

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.

 

[Gringotts Bank]

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.

 

[CanOz]

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.

 

[helpme]

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.

 

[So_Cynical]

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.

 

[helpme]

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?

 

[Triathlete]

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

 

[helpme]

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

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.

 

[Triathlete]

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

 

[minwa]

- 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.

 

[Wysiwyg]

- 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.

 

[Value Collector]

Here are my own thoughts on this topic.


- 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.

-?

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.

 

[Klogg]

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.

 

[Value Collector]

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.

 

[Value Collector]

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.