Most who want to get rich or retire wealthy... have got it wrong

[luutzu]

Bill Gates had an opportunity!
Unlike most of the rest of the world, he recognised the significance of what he saw!
From what I can gather he became wealthy by taking IBM to lunch.


PS Had to research the Waltons, thought to share!

http://gawker.com/the-waltons-are-the-greediest-family-in-the-world-1300311273

I think that if you had invested $1 into Wal-Mart some 40 years ago, it would be worth $100, 000 now.


Sam Walton's autobiography - "Made in America" [I don't think he was referring to the products WalMart sells] was a good read. An amazing story.

Yea, the Waltons could be more generous... but they just do what we would all do - follow the law and keep the wealth in the family.

Obama is going to have a go at trying to tax capital gains passed on as inheritance though. Currently, if a person dies and pass it on, the heirs will not have to pay any capital gains tax for gains made before it was inherited.

As Buffett said, there is class warfare and the rich are winning.

 

[Trembling Hand]

The pointy end of the Forbes 500. Did they get most of their riches:

a. Via salary
b. Via (near term) trading as a supplement to personal exertion income
c. Via compounding their equity
d. Other

If you are using just that list for data,

Outside of Buffet they all made there $'s from a business. So my conclusion would be, as it has always been, if you want to be rich create a business. You can exclude Buffet as insignificant data. 1 outta 25. I would prefer the 24 out of 25 as odds. So it would be b not c. They are trading products; it doesn't matter if its software, mobile phone calls, chemicals, cheap cotton T-shirts or futures contracts. Its all a business that can be ramped up big time if your are smart enough to recognise an early niche and go after it aggressively.

Though I don't think a list of outliers to draw conclusions from is ever the best way to approach this subject.

 

[McLovin]

Its all a business that can be ramped up big time if your are smart enough to recognise an early niche and go after it aggressively.

Isn't ramping up a business just compounding your equity, without the nasty drag of taxation? The guys who started Google have gone from $0 to $29b and all other things being equal haven't paid a cent in tax on that gain. The guy trading assets is getting stung for cgt every other day. I'll take the option (a) which seems like a pretty good head start to me. If anything, the list shows that trading in financial instruments is not a way to get into the top 25.

 

[Trembling Hand]

Isn't ramping up a business just compounding your equity, without the nasty drag of taxation? The guys who started Google have gone from $0 to $29b and all other things being equal haven't paid a cent in tax on that gain. The guy trading assets is getting stung for cgt every other day. I'll take the option (a) which seems like a pretty good head start to me. If anything, the list shows that trading in financial instruments is not a way to get into the top 25.

What about to 26th then,



But no I have never paid cgt on my trading. And my tax paid on profit is much more advantageous than your option A.

 

[McLovin]

But no I have never paid cgt on my trading.

Which is a shame because it's half the rate that you're paying.

And my tax paid on profit is much more advantageous than your option A.

More advantageous than zero? Sign me up.

 

[prawn_86]

I think part of the issue is that people who have had success one way (be it through luck, hard work, whatever) tend to think as that being the only way to do it; for them.

Not everything will work for everyone and most people tend to underestimate the effect luck plays in their life over the long run imo

 

[Trembling Hand]

Which is a shame because it's half the rate that you're paying.



More advantageous than zero?

No its not zero its 30 % which is a lot better than trying to earn a wage which to start off is going to be very capped then split in half once you start earning real money.

But tax is not the point. For a young dude trying to get a kick start what Tech is trying to get to is valid. I know of a few prop guys in their mid to late 20s who are sitting on accounts in the 1-4 mil from trading futs. These guys have got skills that has put them way way out on the earnings curve basically in the first 5 years of their working life. These skills will be with them for life. No matter what they choose to do from here, which at their age and now their capital is literally anything.

Compare that to another group I know. Just about all my oldest friends own business. The most successful of the lot has just sold his to a ASX 20 company for 30 mil he is the same age as me, 42. That by anyone's standard is the successful 1 in 1000. Yet the prop guys are way ahead of him. They didn't invent anything, they didn't work their nuts off managing hundreds of staff and customers and they took close to no business risk. Hell they didn't even risk their own money. They have simply taken advantage of the system we have. That is ridiculous amounts of money moving all around the world in financial instruments.

Its a valid idea. If you have some spare time, a little capital and are tenacious enough to stick to learning a simple yet not easy game you will be put way out in front on the earnings curve.

 

[pavilion103]

No its not zero its 30 % which is a lot better than trying to earn a wage which to start off is going to be very capped then split in half once you start earning real money.

But tax is not the point. For a young dude trying to get a kick start what Tech is trying to get to is valid. I know of a few prop guys in their mid to late 20s who are sitting on accounts in the 1-4 mil from trading futs. These guys have got skills that has put them way way out on the earnings curve basically in the first 5 years of their working life. These skills will be with them for life. No matter what they choose to do from here, which at their age and now their capital is literally anything.

Compare that to another group I know. Just about all my oldest friends own business. The most successful of the lot has just sold his to a ASX 20 company for 30 mil he is the same age as me, 42. That by anyone's standard is the successful 1 in 1000. Yet the prop guys are way ahead of him. They didn't invent anything, they didn't work their nuts off managing hundreds of staff and customers and they took close to no business risk. Hell they didn't even risk their own money. They have simply taken advantage of the system we have. That is ridiculous amounts of money moving all around the world in financial instruments.

Its a valid idea. If you have some spare time, a little capital and are tenacious enough to stick to learning a simple yet not easy game you will be put way out in front on the earnings curve.

Love this.

 

[waterbottle]

Definitely some food for thought in this thread.

I wonder if the possibilites outlined here are achieveable with other instruments. Or if they are achievable with infrequent trading e.g. trading 1x/week. The most suitable instrument seems to be the one that offers high leverage, reasonable volatility and a deep market.

 

[craft]

Its a valid idea. If you have some spare time, a little capital and are tenacious enough to stick to learning a simple yet not easy game you will be put way out in front on the earnings curve.

Potentially - there's certainly no guarantee, even if you strictly control the inputs; education, practice, resources etc , the outcomes are still variable.

.......................

Anything that can increase your earnings above your expenses enables you to build up surplus capital – its compounding your surplus capital that will make you wealthy and produce passive income. The thread title brought out the compounding perspective – At least for me the compounding point is not an argument against earning more income through trading - the two can and should be complementary. The thread title just confused things.

..........................

On the point of increasing income through trading – Be realistic when approaching the possibility (being realistic doesn’t mean you shouldn’t try, by the way)

There are no barriers to entry – nothing to preclude those with natural ability entering (are you one of them?)

There is some very well capitalised and resourced competition.

There is a huge amount of competition.

It is a losers game (zero sum less costs)- this doesn’t just mean that mathematically at least 50% have to lose plus some more to cover costs, the reality is that a few make very good money and the majority lose.

Trading shares long and you will get some leakage from the underlying business performance – so a few more marginal traders can survive but future do not have this benefit.


blah blah blah - don't risk your capital until you understand your trading business's economics and competitive environment.

If somebody who claims to be one of the few who make good money from trading futures wants to help you also become one of the few for a FEE, insist on third party verification of their performance – preferably as a series of tax returns and cross matched broker accounts – the penalties for manipulation of tax returns is really your best insurance of seeing the truth.

..................

If this is a purely a non commercial sharing (some of the posts made me wonder motivation) of views on trading futures to produce income from small capital balances – then let those interested get on with it. (my intention)

ps
change the damn thread title.

 

[DeepState]

Though I don't think a list of outliers to draw conclusions from is ever the best way to approach this subject.

I agree - also for many other subjects.

I was mostly curious to see how people chose to define their wealth creation from the increase in value of their equity. Option b or c. And I was also curious as to what came out of d. Option a is banal.

Is it compounding their equity in the somewhat traditional way? That would be making money off an ever increasing capital base which generates a positive return on investment no matter where that capital base happens to be housed. Or does that increase in equity value come from personal exertion ('trading') which is somehow different from the activity that they get for drawing a salary and yet occurring concurrently.... To me, to start a business, you inject equity. To build it, you generally inject more or reinvest dividends. How different is that to investing in someone else's business? That's capital markets.

If you invest (as opposed to trade in the sense of the fast paced world of securities markets) in someone's business and they make money, it's compounding. Yet if you invest in your own and it makes money it's trading. At the same time, if someone else invests in your company and it makes money they are compounding. ??

Bill Gates pretty much doubled his wealth in the period after he stepped down as CEO of Microsoft. Hard to claim he was 'trading' from that point, I think. Of course, he is just one example. The Walton family got there via genetic lottery. Are they actually getting/staying rich by 'trading' or leveraging off a capital base that was handed to them whose returns are not fully consumed?

Ultimately you can get rich, seriously rich, in a whole lot of ways. Along the way, a lot of people find themselves to be pretty poor as well in a whole lot of ways that fall under b. c. and d. To each their own. I did (have done) all three. I am glad for all of them. However, compounding is what is going to take me to the next world and keep me/us clothed and fed in this one. But, definition is important here. To me, compounding means to save more than you earn and then allowing the savings to earn a return which...compounds. If you earn a return on that capital base via trading, sweet. All power to you. Compounding arises from compound interest. You only get compound interest when you have something to compound. That implies not consuming all of your earnings of any stripe. It also implies that this interest rate is generally positive...

So, I also agree with at least some of what pretty much all of you has said. Such a diplomat.

 

[fiftyeight]

Maybe not the title so much as I do not want to be rich by my definition. But some of the content speaks to my personal situation.

I have about maxed out my current earning potential to fund a property development that will then hopefully snowball (compound) into another planned development and so on. This is my long term plan and wont be taking out any profits from this for about 10+ years.

But this has left me poor now. If I plan on snowboarding anytime soon, I need something that will generate a second income off of a very small capital base. It really wont cost me much money to figure out if I can trade or not so ill have a crack, if I fail ill try something else.

Does it have to be a choice between trading and investing, cant you do both, either or none as life requires?

 

[avion]

The markets are thick enough to when you are starting out small but the bigger road block is dealing with the large $ swings.

TH, are you referring to drawdowns in one's account...?

Its hard enough to stay on the rails getting the odd outlier when aiming for 2k a week. Bump that up to 20 k and you have a recipe for PTSD. (Like a Punch Drunk Boxer on Ice )

Would you say your stress levels are less now given the experience and all or would you say it's the same because you've increased your size?

So I'm sure TH is not aware of the influence he has had on me and perhaps many others.
I thought it appropriate to mention it here.

Thanks Mate.

Same here, THANKS TH!

 

[Trembling Hand]

There are no barriers to entry – nothing to preclude those with natural ability entering (are you one of them?)

There is some very well capitalised and resourced competition.

There is a huge amount of competition. [/B]

It is a losers game (zero sum less costs)- this doesn’t just mean that mathematically at least 50% have to lose plus some more to cover costs, the reality is that a few make very good money and the majority lose.

Trading shares long and you will get some leakage from the underlying business performance – so a few more marginal traders can survive but future do not have this benefit.

Hmmmm....

These comment/sentiments really rub me the wrong way (mainly the bolded bit as a negative). I'm not sure why but they do. I feel that they are wrong to the core. Maybe because they are based on some theory from far rather than practise or maybe I just have a lucky genie who has been showing me a different reality over 20 or more traders every day for the last 10 years..... maybe my 15 thousand hours of trading futs is too small a sample size.....??!!

What you are saying is don't set up your hotdog stand here,



set it up here,



No one is denying its a hard game to trade short term but one thing you must absolutely have is lots of participants. If you haven't got that you are left with small moves that don't cover expenses with no volatility to enter on good R:R trades. What you end up with is the miserable small cap market that the ASX has been post GFC. Its no coincidence one of the most active threads in the last 2 years is Pav's futs thread while the ASX stock thread is relatively void of activity. Its because futs always offer opportunity and therefore there is always something to post. Mean while the stock punters wait year after year for the "good times" to return.

The fact that there is massive capitalised players is a huge positive not a negative. The positive leakage from stocks vs futs is a theoretical furphy. Every year billions and billions of new money is sunk into the futs market from Hedge Funds etc . On average the performance of these players is no better than 0% return true - that is your less than zero sum game theory from a far. But the size of the big players mean they are inefficient in executing their ideas. What that means for a small player in practise is when the hot money is flowing and the whales are going at each other there's more than enough scraps to be picked off. Leaving skilful punters to get fat on what is no more than executing cost for a billion dollar Hedge fund.

Back to the two pictures above. You have a business - what type of environment you set up in will determine your possibilities.

In the second pic you will be the biggest business in town...... but broke.

In the first pic you will be a small tiny insignificant player....... but run off your feet with customers.

I will always choose the market with massive players for my business because there is where the grow for a small player is easiest.

 

[McLovin]

Its a valid idea. If you have some spare time, a little capital and are tenacious enough to stick to learning a simple yet not easy game you will be put way out in front on the earnings curve.

I don't disagree with most of what you're saying. If someone can supplement their income by trading, fantastic. Will they become wealthy or rich by doing so? The odds are heavily stacked against that outcome. And no I'm not saying they shouldn't bother with it, just that they should go in to it with realistic expectations.

 

[craft]

Hmmmm....

These comment/sentiments really rub me the wrong way (mainly the bolded bit as a negative).




What you are saying is don't set up your hotdog stand here,

View attachment 61493

set it up here,

View attachment 61494

You can rub whatever way you like TH.

All that was intended by the post is to say – be realistic about your operating environment. The points were the first few that came to mind, – Blah Blah Blah should probably cover 100’s of other points I didn’t list.

Remora fish don’t mind swimming with the sharks – others get eaten. Well capitalised and resourced competition is just a dot point – I didn’t necessarily mean it as a negative.

I didn’t say don’t have a go.

I said be realistic and aware.

**** it is hard to make comment sometimes without being ascribed beliefs you don’t hold.

 

[pavilion103]

I don't disagree with most of what you're saying. If someone can supplement their income by trading, fantastic. Will they become wealthy or rich by doing so? The odds are heavily stacked against that outcome. And no I'm not saying they shouldn't bother with it, just that they should go in to it with realistic expectations.

I guess it depends on how much time and effort someone wants to commit to it.
"Realistic" is only a term relative to the amount and commitment someone gives to it.
If someone wants to learn a bit about it and take some trades here and there and make a bit of extra income then it's unrealistic to think that they will make hundreds of thousands from it. But it someone is willing to give it everything they've got and do whatever it takes then it's unrealistic to think that they can't make hundreds of thousands from it.

 

[pavilion103]

You can rub whatever way you like TH.

All that was intended by the post is to say – be realistic about your operating environment. The points were the first few that came to mind, – Blah Blah Blah should probably cover 100’s of other points I didn’t list.

Remora fish don’t mind swimming with the sharks – others get eaten. Well capitalised and resourced competition is just a dot point – I didn’t necessarily mean it as a negative.

I didn’t say don’t have a go.

I said be realistic and aware.

**** it is hard to make comment sometimes without being ascribed beliefs you don’t hold.

I don't think anyone is saying just jump in and ride the gravy train to inetivable success.

We are all aware that you need to seriously commit yourself to becoming successful in trading or you will get eaten up.

But to think that any of the factors you have mentioned are any reason not to get involved is incorrect.

There is enormous opportunity there and anyone who is willing to commit themselves can make big money from futures.

 

[McLovin]

"Realistic" is only a term relative to the amount and commitment someone gives to it.

Being realistic is far more encompassing than just how much time and commitment someone gives something. I could practice batting every afternoon with a cricket stump and a water tank but it's highly unlikely I'd ever play test match cricket. You've got to get lucky in the gene pool as well as having determination to succeed. With $20k you can probably succeed with just commitment but can you do that with $20m or do you need a better edge than just turning up to training?

 

[craft]

But to think that any of the factors you have mentioned are any reason not to get involved is incorrect.

DID I SAY THEY WERE REASONS NOT TO GET INVOLVED? ffs.

perhaps I actually said

(being realistic doesn’t mean you shouldn’t try, by the way)

There is enormous opportunity there and anyone who is willing to commit themselves can make big money from futures.

This statement could equally said about many things - Sport, Acting, Arts, Singing, Business ......

There is enormous potential in being VERY good at many things - there are also varying costs of failing to be good enough to make it to the payoff. (time - expenses - opportunity)