How do you think of your trading and investing? Is it a hobby? Is it gambling? Is it something you do when Uncle Fred gives you a tip or when you see something exciting about a company on television? Have you devoted time to learning strategies or do you just buy a stock when you "think" or "feel" it is going to go up? Do you have any exit strategy? Are you a buy and hold investor, and if you are, until when will you hold? Do you make your own investment decisions or do you rely completely on someone else? Have you defined certain times that you will devote to your trading or investing?
The bottom line is it is your money and you can do whatever you want with it. As hard as people work to make money, it never fails to astonish me how little time and effort so many are willing to devote to becoming good at investing. It seems like a lot of people I've spoken to about investing over the years do treat it as a hobby or as a gamble. In the sense that all trading involves risk there is some gamble to it, but if done properly, the trader can try to give himself an edge and he certainly can manage risk if he is willing to make the effort. It is beyond me why so many people seem to make no effort to learn or understand investing or even their own investments when the truth is that they are risking hard earned money and have the opportunity to enhance their quality of life and potentially their retirement through sound investment practices.
If you were to open a business, it is likely that you would have done your due diligence. You would have studied the business, formulated a plan, determined where the risks lay, estimated the likelihood and size of potential successes, and decided when and how much time you would devote to the enterprise. Why? Because you wouldn't want to lose your investment and you would want to work to make the business profitable. How is trading any different? It isn't. The investor who treats his investing or trading as a business has an important leg up on most others. It does mean some work as does the creation and development of any business, but the rewards can be fantastic.
In my first book, "Trade Your Way to Wealth", I emphasized the importance of making your trading a business. I set out, in detail, a way to create your own specific business plan and discussed specific elements to include in that plan. I explored risk awareness and risk aversion and concepts of money management. All of these things can help you work to become successful. Who has a better chance to be a successful investor -- the person who has made it a point to learn at least the fundamentals of investing and who has created his own plan or the person who heard something about a company and buys the stock? Anyone can be lucky with an individual stock pick, but it is the knowledgeable trader who cuts losses, applies appropriate strategies, and exercises money management skills who is more likely to prevail in the long run.
Next weekend, I'll discuss a few simple principles that have helped some of my students improve their trading skills.
by Bill Kraft, Editor
Copyright 2008, Makin' Hay, Inc.
All Rights Reserved
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