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

[Bill M]

let's be honest here there would be only a small % of the population that would be truly happy with their jobs and not change it if given the opportunity(ie not having to work or compete for said position).

I agree. I've had many jobs in my lifetime with big corporations and government as well as a small 1 man business and in the end only about 1 to 2% of all of the people I worked with were truly happy. The rest wanted out and out as fast as they could, they were ONLY there for the money as was I.

 

[wayneL]

Interestingly and timely, the results of a survey were released today that showed 62% of people were unhappy with their jobs. Many of these were well to superbly remunerated middle to upper management and executive staff... even MDs/CEOs!

On talkback radio, most of the dissatisfaction was down to @sshole bosses... IOW, good boss = happy munchkins.

I can attest to this as I work for over 100 "bosses" (my clients). @sshole bosses are directed to my competitors because they make my work miserable... #### em!

I will put up with a lot of crap in my work if the "the boss" is pleasant.... (particularly if a hot looking female )

I argued for full time trading for a long time, mostly out of necessity on my part, but I'm happy to be out of may cave now and interacting with folk again... and making a few bob on the markets as well.

 

[So_Cynical]

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.

Why not invest via trading, low cost averaging seems to work for me, i get long term exposure to big fundamental moves and dividends by trading to build my portfolio...my 2010/11 financial year projected gross income will be derived from the following sources..

• 65% Day job
• 26% Trading profits
• 9% Dividends and Distributions

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

If your bored in a job --change jobs and do yourself and your employer a big favor.
Most employers would cringe at the thought of employees bored with their jobs.
Sure it happens but you always have a choice regardless of the level of position.

Sorry Tech but that's absolute twaddle, something that would come straight out of the mouth of a case worker or some other type of perfect world delusionary....every time i have to listen to something like that i just cringe.

 

[Julia]

I think you are pretty close to the mark there.

I don't see how anyone can nominate a necessary capital sum without knowing what sort of lifestyle and commitments the investor/trader has.

Some of us, with no debts and a fairly simple lifestyle will obviously require much less than someone with a mortgage, credit card debt and a bunch of kids to educate.

 

[Bill M]

Yeah I know Julia, should have left that one alone, everyones different.

 

[Bill M]

Why not

So_Cynical, please clear your PM box, it keeps coming up as full.

(Apologies for being off topic)

 

[Reasons]

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.

VSntchr, it is an interesting scenario that you propose. I both trade and invest, which takes a bit of self-discipline most times, but you can fit your rules to both and keep it manageable. I am 55, consider my assets to now be my main business and so don’t have time to be an employee, am still learning about investing after 30 years and about trading after 9 years, and hope to continue doing so until I drop off my perch; which I might add my children think should have been some time ago as no-one could be this old.

I am going to somewhat disappoint you and only indicate what you might need to consider in terms of a sufficient amount to pursue an investing career, as that is something you need to decide based on a number of experience and risk mitigation factors.

The bottom line is that I use a disciplined investing strategy to generate baseline cash flow on the majority of my capital and use trading to add the alpha to my baseline return and increase my capital by using a smaller amount (10-15%). I zealously protect the capital on both sides of the equation; if I was to stuff up on the trading side, my loss rules dictate that this financial year I will never exceed 37% loss of my projected (therefore slippage risk) annual cash flow I am generating by investing. (eg, cease trading stupid, whatever you were doing is no longer working). It means you have to juggle 2 strategies simultaneously, but fundamental investing usually has longer timeframes (but I will dump anything in a heartbeat that threatens my capital protection rules) than my trading, which means you can ignore it more often, but my average time in a trade is still 33.56 days to date this financial year. I am not adverse to occasionally doing some property investing, but not at present.

So for example, say you had $500K. You allocate $400K to fundamental investing and you invest in hybrids and other higher return equities and term deposits and get a blended annual return of 9% on your $400K which is $36K (cash flow). Pretty close to your requirements. You use the other $100K to trade with the intention of getting 1% per week compounded (~$1+K), which is about 67% per year, or 0.5% per week, or whatever. Nothing wrong with thinking big and not making it (no use if you take senseless risks to get it either). This is what you intend to use to compound your $36K to get an alpha return on top of your 9% and increase your capital every year hopefully (by applying your money management rules – and all good fundamental investors have money management rules).

Some additional finance gotchas that might help your thinking are:
• The gross tax on $37,500 is roughly $2K
• You should keep adding annual inflation to your $250K, which in the first year at 3% means $7,500 of any gains is not available for your use.
• You have to eat at the same time as investing, do you need additional capital initially for that purpose during year 1.

Some of the share market fundamental investment considerations are:
• How confident are you in achieving 15% in any market. The market since March 2009 has not been in a stronger upward momentum probably since the 1930’s crash. Are your revenue assumptions based on best or realistic historical performance.
• Do you consider that protecting your capital is important. If so, what rules do you have to prevent capital loss should a share price fall below a certain percentage of your total capital.
• How confident are you in achieving the $9K dividends annually. Are you basing your assumptions that you can always hold a share through the ex-dividend price drop and automatically regain the ‘lost’ capital and not have to take evasive action.
• What if the market goes sideways for an extended period; would that affect your ability to get 15%.
• What if the market repeats 2008; how will you make 15% at this time if most shares are falling. What if that fall was for a very protracted period in terms of your cash flow.

Some of the market psychology issues you need to consider are:
• What if you see your capital falling due to adverse market conditions.
• What if you have to sell to protect your capital and have lost 10% (or more).

If I could be so bold as to rephrase it, I think your aim at the end of a year is to have had cash flow to pay your bills, to have replaced capital lost through inflation and to have further added to your capital base, with a target in mind.

It is possible do it with the amount you suggested, but you would likely require a fairly aggressive strategy along the lines I have outlined to achieve it.

 

[AlterEgo]

The market since March 2009 has not been in a stronger upward momentum probably since the 1930’s crash.

What market are you looking at?! Sure, if you managed to pick the bottom in March '09 there was a strong trend until Sept/Oct '09, but since then the market has been flat for the last year and a half. So just 7 months of rally, if you were fortunate enough to pick the bottom, and then sideways ever since.

• What if the market goes sideways for an extended period; would that affect your ability to get 15%.
• What if the market repeats 2008; how will you make 15% at this time if most shares are falling. What if that fall was for a very protracted period in terms of your cash flow.

No meaning to answer for the OP, however both of those market conditions have occurred within the time he specified that he has achieved that return. Ie. He said he has achieved that return over the last 3 years, so that would include the 2008 market crash. And it also includes the sideways market of the last year and a half. Note that the market is still trading well below it's 2008 level, so if he has achieved that sort of return while the Ords has dropped 1000 points or more, I think he probably hasn't done too badly.

 

[GumbyLearner]

Find a tax-free abode outside of Australia and dwell there permanently but tell everyone how they should live there none-the-less and regardless of my own personal benefit and subsequent wealth/FIGJAM contact information. Many more incentives than Canberra or the people that line their pockets like "Whatever it Takes" Graeme Richardson .

Who needs to pay taxes when they flow to you anyway? :

 

[Reasons]

What market are you looking at?! Sure, if you managed to pick the bottom in March '09 there was a strong trend until Sept/Oct '09, but since then the market has been flat for the last year and a half. So just 7 months of rally, if you were fortunate enough to pick the bottom, and then sideways ever since.

No meaning to answer for the OP, however both of those market conditions have occurred within the time he specified that he has achieved that return. Ie. He said he has achieved that return over the last 3 years, so that would include the 2008 market crash. And it also includes the sideways market of the last year and a half. Note that the market is still trading well below it's 2008 level, so if he has achieved that sort of return while the Ords has dropped 1000 points or more, I think he probably hasn't done too badly.

Ah. Rule Number 1; assume nothing.

I have no idea when he allocated capital into the market; was he 1% invested during 2008, was he 100% invested March 2009, did he get out at the top early 2010 and cleverly take the excellent upswing from May 2010, was he overweight to resources, can he invest that way consistently, or did he hold through thick and thin and that is how he got his dividend return, what does it mean if he does not get those same big swings?

I could not tell from his comments and have no idea about the granularity of his investing skills and analysis. But your broad assumptions have assisted with adding more detail to my response.

He asked an interesting question and I responded to him, but what he is considering is a big step, and mine are just broad questions to help him think about that decision and his investing record.

As the market has done a number of different moves over that time, depending on what he was doing in the market at the time, he might have enough data to do his analysis and see how he performs under each of the conditions.

 

[suhm]

I don't think I would ever quit my day job, it gives me more satisfaction than making money and it can talking about annual reports and how I've been looking at volume analysis recently to improve expectancy is not exactly exciting dinner conversation.
I would however probably work part time in the future when I start a family and such as I am making more money from investing than working at present, the tax system is sort of skewed against you making money from a job, the pay is decent and there are a lot of extra deductions we get to claim in the job but I'd probably make more driving a truck in the Pilbara and wouldn't have spent all that time going to uni. Part time work isn't really a possibility for me until maybe 6+ years down the track given the nature of the industry and have nowhere near the capital base to retire.

To quit I'd need the final home I was going to live in or cost equivalent and enough investable assets that placing them in cash would give me a greater income than I would have as a consultant. That would be about 6-7 years down the track if I can compound at the same rate as I have over the last couple of years but I don't think that would be remotely possible, the last couple of years have been pretty good.

 

[So_Cynical]

So_Cynical, please clear your PM box, it keeps coming up as full.

(Apologies for being off topic)

Sorry Bill...done!

(Apologies for being off topic)

 

[rogblack]

Some people (me) really dislike working for bad employers in unstimulating jobs. Even in the most exciting industries there are many boring hours that can be better enjoyed. Freedom is very important to me and the time to explore and learn whatever takes my interest. You can leave your job and start swing trading to give you an income. Yes, keep your living expenses low. Even live in a van and travel if you want. You'd be surprised how little you can live on and how well you can live without rent and living costs. Use libraries and wifi and trade the 4hrly chart.

 

[Value Hunter]

I would personally use a "3% rule". For example if you need $30,000 per annum after tax to live on your net assets should be $1 million dollars. This allows you to invest long-term in shares that are (hopefully) increasing their dividends by a good amount so that over time your inflation adjusted income will rise. For me $700,000 or $800,000 in net assets is enough to retire to a developing country and live off the dividends. To retire in Australia I would want double that amount of net assets.

 

[DeepState]

I would personally use a "3% rule". For example if you need $30,000 per annum after tax to live on your net assets should be $1 million dollars. This allows you to invest long-term in shares that are (hopefully) increasing their dividends by a good amount so that over time your inflation adjusted income will rise. For me $700,000 or $800,000 in net assets is enough to retire to a developing country and live off the dividends. To retire in Australia I would want double that amount of net assets.

I think that's quite a workable rule. If you are older, you could work off a lower multiple of target income. A key risk is that you end up living a lot longer than expected. You shouldn't plan on average outcomes in that regard, but the 'risk' of living to 100 is not remote for most.

A second risk is that, if you can't adjust your expenditure downwards in weak markets, the investment maths works against you because you consume relatively more of your capital at that time, giving less to recover or lower dividend amounts to reinvest. In that event, you need to have a higher multiple as well.

You can get decent info on the expenditure patterns as you age. You don't need to factor in an expenditure rate as a 55 year old indefinitely. You won't feel like going out quite as much when you are 80. Although medical bills do rise, it isn't by all that much. We will spend less on transportation as we age. We also live in smaller places.

 

[skc]

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!

@VSntchr now that you are 27... how have things changed?!

 

[VSntchr]

@VSntchr now that you are 27... how have things changed?!

Wow - what an interesting exercise to go back and read through the thread.
Obviously a very naive post by myself and worth reflecting on.

The goal of living from investment cash flow is still there, however the plan is far more realistic now. I have carved out a business of trading, firstly by gaining an edge with pairs trading and subsequently by developing/experimenting with various other strategies to supplement in times where pairs doesn't perform. Capital is generated from trading to fund my (still) modest living expenses, with the surplus being allocated to my investment strategy.

Contrary to what many in here said about being bored, I actually find this 'job' very exciting and look forward to Mondays
The loneliness issue is certainly real, as is the possibility to take on bad habits as SkyQuake mentioned.

I have found that trading has helped to further instill a value that I have around constant self improvement. Trading requires you to constantly evaluate and improve your process and I think this has certainly driven me to do the same in other areas of my life.

The workaround for loneliness is to force yourself to get involved in online communities and networks. What this lacks in real face-to-face human interaction on a daily basis, somewhat makes up for it in that you are interacting with some of the most motivated and passionate people within the industry...as opposed to potentially someone just showing up for the pay cheque.

Now in my 4th year full time I can say with gratitude that I have been able to get to the stage where I am earning more than I would be if I stayed within my finance profession. The relatively low volatility of equity curve over multiple market conditions combined with a variety of strategies gives me confidence that this is a sustainable business and is not simply based on recent market conditions.
After a year overseas where I managed to keep everything going on 'travel mode', I am motivated and ready to take things to the next level.

 

[rogblack]

My suggestion is different. There are plenty of people who trade forex and travel the world. You don't need a large capital amount to start trading or make a decent return. The most important issue is what are your living costs?

 

[satanoperca]

Thanks Vsnstcher for your great post, I too appreciate the online community

Thanks Joe for admin this great forum and putting in an ignore button for dicks like Mr Forex above

 

[Value Hunter]

I should add that I think my 3% rule should have contingency plans. Here is how I would handle it if I was to retire:

Firstly in good years where you get a big increase in dividends put some of it away into the bank account to support you in the lean years when dividends are inevitably cut (i.e. use discipline to smooth out your income). If you are investing in growth companies that are generating double digit dividend increases this should be easy to do.

Secondly in lean years if necessary you can trim expenses a little (i.e. temporarily reduce luxuries such as meals at expensive restaurants and lengthy holidays).

Thirdly in lean years you could consider going back to work temporarily, (assuming you are not too old too work). Even 15 hours a week doing for example night-fill at the local supermarket, etc could help you get through a couple of lean years.