What would you need to quit your job and become a professional investor?

VSntchr · 28 March 2011

This has been on my mind for a while. I would like to create this thread in order to get a scope of interest of what other people think is a sufficient amount of capital to get out of the workforce and take on investing as a full time profession.

Whilst traders are welcome to participate in this, I am moreso looking for the opinions of fundamental investors.

In your response it would be a good idea to state your age (if your comfortable to do this), your experience with investing, and of course - the amount of capital you would find sufficient to pursue an investing career.

Me.
21 Years Old.
4th Year University about to complete a double degree in Bus/Comm.
Have been involved in the stock market for ~ 9 years. Although I have only found my niche in the last 3 years.
I have estimated that if I had $250 000 capital I could use my investing strategy to derive a sufficient income. This is based on the assumption that I could achieve a return of 15%p.a. This would grow my portfolio at $37 500 per year and I would also have a divvy income of at least $9 000. Wouldnt take long for compounding to turn this into a nice looking portfolio!
So far I have far exceeded this return over the last three years, I have lowered the expected return however, as I understand that 3 years is not long enough to determine the effectiveness of a strategy.

I understand that some people may find these figures ludicrous, and that is fine...we all have different goals, different standards of living, different expenses etc...but I would love to get an idea of what other people think about this subject!

wayneL · 28 March 2011

The problem with such a low capital base is removing funds for living expenses does not allow for compounding returns...

...and if you go through a period where your system doesn't work (IT HAPPENS), you are drawing down on your capital.

I traded for a living through circumstance for years (injury), but the best use of trading is to build wealth while having a non-correlated income via job or business IMO.

I have been well enough to have an outside income for the last year and believe you me, it opens up a whole new world of compounding returns.

tech/a · 28 March 2011

I dont think you have too.
I dont know that you should (Profitable trading is as boring as hell and doesn't take up a lot of time)--most of it doesn't require screen time.
If you want say $70K a year to live on you'll need to earn 2X that to cover tax etc.
So with say 20% return a year you'll need 600K ish.
Better return less capital.
If you want to grow your portfolio you'll need to return 3X which I think is more around the mark.

Under capitalization is the killer of many a business and this one would be more susceptible than most.

Bill M · 28 March 2011

VSntchr said:
This has been on my mind for a while. I would like to create this thread in order to get a scope of interest of what other people think is a sufficient amount of capital to get out of the workforce and take on investing as a full time profession.

I looked at it in a different way when I retired. It was not important how much I had but rather what income I could get with what I had. My thinking was that I had to have growth assets that would at least go up with inflation and pay my tax. Then I had to get a reliable income from those assets. Now this is very conservative but for me I must clear 5% income from those assets and the growth must look after itself.

I simply times my asset base by 5% for the income (my salary) and the growth took care of itself. During the GFC my asset base reduced and so did my dividends so you have to be prepared for this. I am not a trader. I am a long term property, shares and fixed interest securities investor. I buy and sell stock mostly on fundamentals.

Probably doesn't really answer your question but there is one thing I always do, ALWAYS allow for more. If for example you need $500 a week plan for $700. If you need $1000 then plan for $1200. Then if things go wrong you have some back up, the back up saved my bacon during the GFC. I also try to keep some spare cash for when the markets take a severe plunge, I was 99% invested in March 2009, cheers.

So_Cynical · 28 March 2011

Considering my current yoy return is around 21% and my projected financial year return is 24% and that i would consider 55K to be the absolute minimum to live on (in Aust) and build my capital base then, i would need about 270K in the market to achieve that result.

However i plan on retiring from my real job and being a full time investor in about 7 - 8 years time..in order to have enough capital to do that and buy a reasonably nice place over seas etc i need to average a PA return of around 28%

Julia · 28 March 2011

Why would you have to make a decision to quit your job and rely on your trading/investing skills?

As Tech says, you don't need to get bored out of your mind hunching over a computer all day to make money.

You should easily be able to continue with whatever your job is and look after your investments at the same time, thus demonstrating to yourself whether you can in fact produce enough income and growth from your capital to allow you to let the job go.

I don't think it's possible for anyone to give you capital amounts, income levels etc when the variables are so great. As a young, single person, especially if you happen to still be living with your parents, your outgoings will be minimal, and will bear no relation to someone with five kids and a mortgage.

It shouldn't matter to you what anyone else thinks is necessary or OK.
You simply need to work out for yourself what you need to live on, and what skills you have that you can apply to what capital base to make that happen.

If e.g. you don't have a lot of experience, and only have minimal capital, I'd be surprised if you could survive, but to even say that is to state the **** obvious.

skyQuake · 28 March 2011

If you have exp buy lack capital, prob best to trade for a fund/firm.

- You'll start off on a much larger book which can easily grow faster than ur P/L
- Trading with someone else's money means you are not fighting against yourself to keep expenses low etc. You can spend all your earnings and not have to cut position size.
- Same thing regarding drawdowns.

Trading for yourself entails significant risks as you're always under pressure to perform to pay for food and housing

VSntchr · 28 March 2011

Julia said:
Why would you have to make a decision to quit your job and rely on your trading/investing skills?

As Tech says, you don't need to get bored out of your mind hunching over a computer all day to make money.

You should easily be able to continue with whatever your job is and look after your investments at the same time, thus demonstrating to yourself whether you can in fact produce enough income and growth from your capital to allow you to let the job go.

I don't think it's possible for anyone to give you capital amounts, income levels etc when the variables are so great. As a young, single person, especially if you happen to still be living with your parents, your outgoings will be minimal, and will bear no relation to someone with five kids and a mortgage.

It shouldn't matter to you what anyone else thinks is necessary or OK.
You simply need to work out for yourself what you need to live on, and what skills you have that you can apply to what capital base to make that happen.

If e.g. you don't have a lot of experience, and only have minimal capital, I'd be surprised if you could survive, but to even say that is to state the **** obvious.

Firstly, I would want to can the workforce, because I dont want to spend my time working. I would increase my time spent on investing...but not by a whole lot.

Secondly...I am not using this thread to ask for advice as to what amount of capital I would require, but rather to use it to see what other people would find suitable for their own situations...it is merely out of interest...

tothemax6 · 28 March 2011

What would you need to quit your job and become a professional investor?

A gun to my head.

moreld · 28 March 2011

I second skyQuake's view.

I'll add that working can be absolutely brilliant. I've had two jobs which I jumped out of bed in the morning to get to. Working with super smart, switched on people in fast moving stimulating roles. You learn 10x the speed of school or Uni, have a great time and hey travelling on someone else's dime takes a few years to get boring.

If I was young with a Bus/Comm degree I'd be looking for an exciting opportunity with a great firm. Life is a marathon; one day you'll have kids, or be sick like WayneL or just need some time to reassess your life and then that is a good time to trade for a living. Other times include when retired, or after you've had a few large six figure bonuses or have serious capital behind you.

The best advice I can offer is plan your next 5-10 years. Envision where you want to be and what you want to be doing. Read some motivational books like Think and Grow Rich while you're doing that.

If you really really really want to trade then maybe do Honors and PhD in business/finance while doing so, as then you'll have a terrific qualification for the rest of your long life that will open many doors (it's stupid, but it is).

skc · 28 March 2011

You can project your income/lifestyle based on average return, but you need to calculate your capital base on worst case drawdown situations. Investing is inherently disadvantaged as you often need to exercise patience to get the greatest return. You don't want to under-capitalise and be forced to sell at the wrong time because you have a bill to pay.

If I was aiming for $37.5K from investing full time, I will need ~$350K to confidently go forth. If I was trading however, I can easily do it with $120K. There are so many inherent advantages in trading from a return and cashflow point of view... too bad you are not interested...

BTW $37.5K is such a tiny amount it leaves you with very little to compound your portfolio size after expenses and taxes.

And like SkyQ said, by far the best way to invest for a living is to invest other people's money...

moreld · 28 March 2011

VSntchr said:
but rather to use it to see what other people would find suitable for their own situations...it is merely out of interest...

Yeah I remember being 21. You know everything, advice is not required or desired. That's cool, we all need to live our own lives.

Here's what I found suitable.
I needed a paid off house, $1M+ liquid assets and a partner earnings close to $200k to leave my very highly paid work. I'd been investing for 17 years then, had beaten the markets I invested in 9 out of 10 years and knew business from the inside out. I would not have left work just to invest, but had the added attraction of two wonderful young kids that I could hang out with and nurture. They're older now and I'm looking forward to going back to work.

Good luck with whatever you decide to do.

howmanyru · 28 March 2011

If you are investing instead of trading where is your cash flow going to come from? Unlikely that dividends will make ends meet. Investing long term is fine, if you are good at it one day you will have a nice portfolio worth a few bucks, but you need cashflow to eat, pay the bills, etc. What I would need to become a full time investor is not to need any cashflow from my investments.

AlterEgo · 29 March 2011

tech/a said:
I dont know that you should (Profitable trading is as boring as hell and doesn't take up a lot of time)--most of it doesn't require screen time.

I really don't understand it when people say they would be bored without a regular day job. Do you find weekends boring being away from work? Wouldn't you value more free time to pursue other interests, hobbies, etc? You say it "doesn't take up a lot of time" as if that's a bad thing. Surely that's a positive thing, as you'd have more free time to do all those other things that you don't currently have time for. I don't know about you, but my weekends are never long enough to get even half the things done that I'd like to.

To be able to get out of the rat-race and be financially independent, my own boss, have to answer to no-one, to do something I enjoy (trading), get well rewarded for my efforts and get a great scene of accomplishment from doing it, to not have to be up early every morning for the mindless daily commute, to have more time to spend with family - that would be a dream come true for me. Isn't that everyone's dream? I could imagine nothing better!

tech/a · 29 March 2011

I really don't understand it when people say they would be bored without a regular day job. Do you find weekends boring being away from work? Wouldn't you value more free time to pursue other interests, hobbies, etc?

I cherish my weekends.
But have all my friends and family to share them with.
During the week they're---Working!
Wife doesn't work but seriously 7 days a week I your partners pocket---not good.

qldfrog · 29 March 2011

an alternative idea: try to be your own boss:
consultant, contractor;
our goivernment is doing its upmost to suppress us but it does change your state of mind vs "the boss" who become the customer and helps enduring the daily commute, office policies etc;
usually better paid as well and add A LOT of freedom: so you can stop between contracts as much as you want, work part time, etc;
this way you can play the stock market if you want to but still have the $ for the cash flow that you need at 21;
I am going toward my mid forties, have my aims set and even with home paid, etc I believe I need at least 1M$ to even considering giving up work:
you pay tax on your income and have to match inflation, then need only use the income that is left to live..and change car /pay med expenses, home repairs etc w/o touching the capital;
Very quickly:
on a return of 10% before taxes (remember: you have no luxury to speculate or take much risk): you end up with 70% in your pocket after tax at most; need to put aside 4% for inflation and ensure your capital is untouched-> you can only use 30k a year on a 1M nest ;
My advice: at 21-> keep your job, and if not happy change job but keep one

stargazer · 29 March 2011

tech/a
Re: What would you need to quit your job and become a professional investor?

I dont think you have too.
I dont know that you should (Profitable trading is as boring as hell and doesn't take up a lot of time)--most of it doesn't require screen time.
If you want say $70K a year to live on you'll need to earn 2X that to cover tax etc.
So with say 20% return a year you'll need 600K ish.
Better return less capital.
If you want to grow your portfolio you'll need to return 3X which I think is more around the mark.

Under capitalization is the killer of many a business and this one would be more susceptible than most.

Hi

I have read that investors can just look at EOD charts get there trades ready and invest. Check in once a week and see that all is good.
However with the world events that can happen pretty quickly and a negative impact can see stocks plummeting in a day or so. eg GFC..Japan etc

Cheers
SG

tech/a · 29 March 2011

stargazer said:
Hi

I have read that investors can just look at EOD charts get there trades ready and invest. Check in once a week and see that all is good.
However with the world events that can happen pretty quickly and a negative impact can see stocks plummeting in a day or so. eg GFC..Japan etc

Cheers
SG

Sure
But you manage your stops each morning--in your portfolio and place your buy or sell orders.
These days with platforms like IB you really can trade on auto.

Intrinsic Value · 29 March 2011

Interesting topic.

Personally I don't think you should even be remotely considering retiring or stopping work.

Rather than looking at retirement you should be looking at a job that interests you and suits your lifestyle be that self employed or working for someone else.

As others have stated if you are a fundamental investor then you can still work and invest at the same time as it doesn't really take up that much of your time.

I am an independent SAP Contractor and I work about 9 months of the year and I spend the other three months in Thailand.

If I was to retire I would need about 100k a year income minimum to live on. I always spend more when not working so you do need a fair amount to be comfortable rather than just existing.

How much capital do you need to generate that sort of income? I would say a minimum one million AUD and that is an absolute minimum.

I have made a lot of money over the last 18 months from investments currently around 70percent for that period but that is in no small part due to the fact that there were a few good companies trading at way below their intrinsic value.

I don't see those same bargains around at the moment and I suspect that the next 12 months might be more difficult and would be more than happy if I can get 20 percent for the coming year.

And of course like most people I lost money during the GFC.

nomore4s · 29 March 2011

VSntchr said:
Me.
21 Years Old.
4th Year University about to complete a double degree in Bus/Comm.
Have been involved in the stock market for ~ 9 years. Although I have only found my niche in the last 3 years.
I have estimated that if I had $250 000 capital I could use my investing strategy to derive a sufficient income. This is based on the assumption that I could achieve a return of 15%p.a. This would grow my portfolio at $37 500 per year and I would also have a divvy income of at least $9 000. Wouldn't take long for compounding to turn this into a nice looking portfolio!
So far I have far exceeded this return over the last three years, I have lowered the expected return however, as I understand that 3 years is not long enough to determine the effectiveness of a strategy.

I understand that some people may find these figures ludicrous, and that is fine...we all have different goals, different standards of living, different expenses etc...but I would love to get an idea of what other people think about this subject!

There are probably a few different factors to look at here.

1. Need to to be clear on the difference between investing and trading. My take on investing would mean you would need a very big capital base to provide a decent income to live on, because the nature of investing could mean you are not getting a regular income. For me personally I would Ideally want at least $100k to trade with to produce a regular income and another $50k for living expenses for the first year as well as another say $100k for longer term investing for a retirement fund.

2. With only $37,500 pa + $9k in d/e returns you are better off working for someone else, earning a good salary with super and all the perks etc etc, I personally would want to have the potential (ie skill and ability) to earn at least double what I could earn working for someone else to justify taking on the risks and pressures of trading/investing for a living.

3. At your age the other thing to take into account is making sure you are still employable and attractive to employers, if you say trade/invest for 2 years after limited work history and then find you can't earn enough from your investing you could find it hard to re-enter the workforce.

4. There are a lot of hidden factors and stresses in starting off a business to provide your sole means of income and a trading/investing business is no different. Monthly income revenue, monthly/quarterly/yearly tax payments & paperwork, long term income requirements (ie super), don't be fooled into thinking it will be just an easy couple of hours work each day with no stress - there is a reason the majority of people work for other people in all fields.

5. IMO, whatever capital you think would be enough you would probably have to double to make it work and even then it would require quite a bit of skill and luck to pull it off without failing at least once.

What would you need to quit your job and become a professional investor?

VSntchr

wayneL

VIVA LA LIBERTAD, CARAJO!

tech/a

No Ordinary Duck

Bill M

Self Funded Retiree

So_Cynical

The Contrarian Averager

Julia

In Memoriam

skyQuake

VSntchr

tothemax6

moreld

skc

Goldmember

moreld

howmanyru

AlterEgo

tech/a

No Ordinary Duck

qldfrog

stargazer

tech/a

No Ordinary Duck

Intrinsic Value

nomore4s

Commonsense isn't that common

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