Why is stock investing so lucrative?

Emotion trading offers really cheap prices and really expensive prices.

Your job is to always calculate the intrinsic value of the business regardless of the size, then compare the value to the price it trades for.

What is Investing?

Graham, Chapter 1: 

Graham lays out his definition of investing right from the start of this chapter. His description is "an investment operation is one which, upon thorough analysis promises safety of principal and an adequate return" (p. 18). He labels anything not meeting these standards as speculation. 

Graham then describes two different approaches to investing: defensive and aggressive. 

Obviously, safety is a big concern for the defensive investor, and that shows in his example of putting half of your money in stocks and half in bonds. He lists other approaches of defensive investing, like investing only in well established companies, and dollar-cost averaging. 

Graham's take on aggressive investing isn't as kind. The three types of the aggressive approach (trading the market, short-term selectivity, and long-term selectivity) are all considered to have less profitability. This is explained by the possibility of the aggressive investor being wrong on his or her market timing.

The Intelligent Investor by Benjamin Graham

Related:

Investment, speculation and gambling

The Intelligent Investor: The Defensive Investor and Common Stocks

The Intelligent Investor: General Portfolio Policy for the Defensive Investor

The Intelligent Investor: The Positive Side to Portfolio Policy for the Enterprising Investor

The Intelligent Investor: A Negative Approach to Portfolio Policy for the Enterprising Investor

Investment Policies (Based on Benjamin Graham)

Ultimately, the best investment ideas will come from doing your own homework. You should not feel intimidated.

Investment success is not synonymous with infallibility.  Rather, it comes about by doing more things right than wrong.

The success in your investment approach is as much a result of eliminating those things you can get wrong, which are many and perplexing (predicting markets, economies, and stock prices), as requiring you to get things right, which are few and simple (valuing a business).

When purchasing stocks, you should focus on two simple variables:  the price of the business and its value.  The price of the business can be found by looking up its quote.  Determining value requires some calculation, but it is not beyond the ability of those willing to do some homework.

The wonderful thing is because you are no longer worry about the stock market, the economy, or predicting stock prices, you are now free to spend more time understanding your businesses.

More productive time can be spent reading annual reports and business and industry articles that will improve your knowledge as an owner.  The degree to which you are willing to investigate your own business lessens your dependency on  others who make a living advising people to take irrational action.

Ultimately, the best investment ideas will come from doing your own homework.  You should not feel intimidated.

Determining how to allocate your savings is the most important decision you, as an investor, will make.

How Investing has Changed Our Lives

The $5,000 Invest Better Video Contest Winner!
By Motley Fool Staff
October 11, 2012

We received many inspiring entries for our first annual Invest Better Video Contest, but one rose to the top to win the $5,000 grand prize.

Meet Edward Bautista and his family, who share their story of how investing took them from sleeping on the floor and eating ramen noodles every day to paying for their daughter's college education. Edward's video inspired us because it shows how even when starting small, patient, long-term investing provides financial security and opens up our options. For example, Edward and his family can now afford to escape their Maui home for trips to snowy spots like Idaho!

And see the honorable mentions below:

• Susan Olson: "Meet Emily Collins, an 8-year-old investor"
• Lydia Cline: "A family's investing journey" (video no longer available)
• Dan Lamoureux: "Investing connects you to the world"
• The Carnett Family: "Creating a vision for the future"

http://www.fool.com/investing/general/2012/10/11/the-5000-invest-better-video-contest-winner.aspx?source=ihpdspmra0000002&lidx=5

Don't Trade. Invest for Long Term

Investing Rules – How to Invest in Stocks

by DEEKSHA on AUGUST 11, 2012

Investment is defined as putting aside certain sum of money with the expectation of gain in future. We invest our money in various financial products like gold, real estate, bonds, stocks with the aim of getting better returns over this money instead of keeping it idle in savings account.

Before Investing we should Ideally

• Assess income and expenditure

Before investing we all should be aware of the total monthly income and total expenditure so that an estimated amount can be calculated. This amount can give an idea about the excess amount or the amount which can be saved.

•  Make Financial goals

It is advisable to jot down the financial goals on a piece of paper so that money can be invested accordingly basis the time horizon.

•  Know Oneself

It is essential to analyze one`s own risk taking capability and financial personality basis which amount can be invested in high risk or a low risk instrument

In this article we shall discuss regarding rules of investing  and stock market basics some of which may be specific to stock market trading whereas other may apply to all investment products.

1. Diversify

There is a common Saying:- “ don’t put all eggs in one nest.”

This rule works with all investment products. Nobody can predict the future as there could be a sudden economic, political or any other change which may lead to huge losses if investment is done in similar products. Thus investing only in equities or investing solely in debt is not advisable.  In case of a mixed portfolio the impact of loss would not be enormous.

Example:-Mr. Ahuja had purchased shares of Satyam Computer services for a total value of Rs.50000 in November 2007 as he received a bonus from his company. He had invested the entire amount in 1 particular company. Everything was working fine in Mr. Ahuja`s portfolio till 2009 but suddenly things began to change as the scam came in place. After the scam, entire portfolio was in red due to excessive purchase of one particular stock.

CBI has confirmed that total loss to investors due to this scam is Rs.14, 162 Crore.

2. Make a Thorough Research

This rule also applies to all investment categories. Before investing one should make a detailed research about the quality of the companies selected. Quality signifies strong management team and a proven track record.

 3. Not To Panic

It applies particularly to stock market investing. It usually happens that in case of crash of a stock market, people get panic and they sell off their holdings the very next day. But instead of selling at the first stage itself one should review his portfolio and then decide if the stock has lost its attractiveness and if more attractive stocks are available in market.

4. Expect Corrections to Happen

It`s been observed that many investors believe in only one sided direction of markets like in case of downturn people loose faith in equity products and stop investing in these products. But in reality markets tend to return to the mean over time which means market extremes never lasts forever be it optimism or pessimism.

Also when there are no more buyers, the market turns lower and vice versa.

5. Know Your Risk Tolerance

As highlighted previously also it is very essential that the investors analyze their risk tolerance level and accordingly select the investment products as some of the products/ stocks are more risky than others. One should figure how much downside one can tolerate without selling

6. Portfolio Monitoring

It becomes very essential to keep a track on the portfolio regularly as nothing is permanent. High return generating products may lead to huge losses for the investors after some years if the company is going through a bad time.

Example:-the shares of Kingfisher Airlines which were attractive once upon a time no longer attract the investors due to crisis within the company.

7. Don’t Follow Others Blindly

When the prices are high a lot of people are actively buying the stocks. When price is low demand is also low as the people are pessimistic and also discouraged. Thus the entire market collapses. We should adopt an independent thinking instead of blindly following what other are following.

Benjamin Graham says” Buy when people are pessimistic and sell when they are optimistic.”

8. Avoid Fear and Greed

Greed and fear are human emotions which create obstacles in the path of successful investing. One should follow a disciplined approach to trading and should be able to figure out time to exit. There will be corrections as stocks go up and down.

9. Remain Flexible and Open Minded

There is no particular investment which remains best throughout. Depending on the situation one needs to switch to different investment avenues. If a planner suggests to shift the amount to bonds or other debt products looking at the volatility one should be flexible enough to support the advisor

10. Invest For Max Real Return

One should take into account the real return after taking into consideration the impact of taxes and inflation.

Real Rate of Return= {(1+ rate of interest)/(1+inflation rate)-1} *100

Example:-if inflation is 6% and rate of return is 10%, the real rate of return equals:-

{(1.10/1.06)-1}*100=3.77%

11. Learn From Your Mistakes

We should not be discouraged from the losses rather earlier mistakes should be taken as a learning experience. We should analyze and check what went wrong previously so that same mistake can be rectified in future.

12. Don’t Buy Market Trends

We should not base our decision on what`s happening now.  The individual stocks can rise in a bear market and fall in bull market. Thus we should study all the factors before taking any decision.

Conclusion

Investors should carefully read all offer documents and do a detailed study about the various products available in the market and should know stock market basics before investing. These rules would also be helpful in making a right investment choice.

http://www.ninemilliondollars.com/2012/08/investing-rules-how-to-invest-in-stocks/

Investing in Stocks - explained in 3 minutes

Why Stocks?

Past performance is no guarantee for future performance.  There are no guarantees that any asset will thrive in the future because it has in the past.

This leaves two choices:

1.  Keep hard cash and save enough during your working years to last your retirement years; or
2.  Take some risks and invest the money in assets that have a reasonable chance of increasing in value over time.

Keeping cash:  Most people cannot save enough to support them in retirement especially when inflation continuously erodes the purchasing power of money.  Therefore, most would not choose this option.

Investing the money in different asset classes:  Here is where the problem of choosing investment options comes in.  It is definitely wise to spread your wealth across various asset classes like stocks, bonds, real estate, art or gold.

Why Stocks
Stocks increase in value faster than inflation decreases the buying power of money.  The best way to have money in the future is to make money in the future.  So, forget about which asset class will appreciate in the future but rather focus on owning a business that profitably sells products or services.  Of course, most do not have the inclination, the money or the skills to start their own business, so the next best way to share in the profits is through the stock markets.

Stocks represent ownership interest in businesses.  When you invest in stocks, you become a partial owner of the concern that will hopefully make money in the future.  Stock ownership will reward the owners either because the stock prices go up or because the firm/s profits will be distributed as dividends.  In the short period stocks may rise for reasons having nothing to do with profitability or dividends.  But over the long periods of time it has been proved that stock prices rise in relation to a company's earnings and distribution of profits to shareholders in the form of dividends, bonus share and rights.  Learn and acquire the knowledge to consistently identify specific companies that will thrive.  In the absence of this ability, employ the services of a professional.

If you don't plan to tap into your long-term savings for a period of at least five years, stocks should probably constitute the bulk of your portfolio depending upon your emotional strength to deal with the ups and downs of the market.  Even retirees who draw their current income from their investments should have a portion of their savings invested in stocks so that their money will grow faster than inflation.

To be a savvy investor, know the difference between investing and speculating.

Are You an Investor?

By Bonnie Biafore, Contributor, BetterInvesting Magazine On July 16, 2012 

Successful investors tend to possess certain characteristics.  Do you have them? What do you do, if you don’t? The first step to successful investing is knowing your strengths and weaknesses in the investment game. That way, you can work on those shortcomings and make better investment decisions.  The MarketPsych website offers free tests you can take to measure your suitability as an investor as well as other aspects of your financial life.

To take any of the tests, you have to register with the site (it’s free). If you’re concerned about privacy, you can register anonymously.

The Investor Personality test helps you understand your personality traits as they apply to investing.  The report you receive gauges your suitability as an investor and offers suggestions for improving any behaviors that could undermine your investment success.   The test takes about 20 minutes and includes 60 questions about your personality followed by 15 questions about what you would do in different investment situations.

The personality questions cover a lot of ground.  Do you tend to think things through? Do you plan? How do feel about change? Are you usually relaxed or easily stressed? Do you like excitement and adventure? Do you enjoy abstract ideas or prefer practical information? Are you confident? Can you juggle several tasks at once? Can you make decisions or do you vacillate?  Do you take others’ feelings into account? Do you react quickly?

The investment questions are a bit tougher because they don’t offer answers for the gray areas we all live in.  For example, one question asks whether you would choose to spend more now and have less in retirement, or spend less now and have more in retirement.  My answer is neither of those alternatives.  Another question asks what you would do if you bought a stock and its price increased significantly over a short period — without any news or information about the company.  Yikes! I’m an engineer, so it’s almost impossible to make a decision without any information. Some of the questions include one possible answer: watch the company in order to determine a reasonable purchase or selling price, and then make a decision.

The report you receive rates your personality in several ways, such as how conscientious you are, how emotional you are, whether you are an extrovert or introvert, and your openness and agreeableness.  Ratings that appear in green (see screen capture, this page) indicate suitability as an investor, whereas yellow ratings are traits that could inhibit your investment success.

The bias section of the report rates your confidence, risk-taking, discipline, thinking, and herding instinct.  For example, the hypothetical results include a below-average score in loss aversion.  You can click the Click here link to learn how this trait might harm your investing.  For example, the Risk-Related Biases Web page discusses the common mistakes many investors make with their investments, such as holding onto a loser hoping for a comeback.  Then, it includes specific advice for high scorers and low scorers for each aspect of risk-taking, including loss aversion, emotional vulnerability, risk aversion, and cutting winners short.  In this case, the explanation warns that low scorers for loss aversion might take excessive risk.

http://blog.betterinvesting.org/?p=2020&utm_source=MailingList&utm_medium=email&utm_campaign=BI+Weekly_7-16-12

My Investor Personality Test Results  :-)

Print

Investor Personality Test PERSONALITY FACTORS Conscientiousness : High  Emotionality : Below Average  Extraversion : Below Average  Openness : Above Average  Agreeableness : Below Average For Details Click here BIAS REPORT Confidence Biases Overconfidence : Above Average Over-Optimism : Below Average For Details Click here Risk-taking Biases Risk Aversion : Above Average Emotional Vulnerability : Below Average Cutting winners short : Below Average For Details Click here Impulse-control Self-discipline : Above Average Immediate Gratification : Below Average Excitement-seeking : Very Low For Details Click here Intellectualism Intellectualism : High For Details Click here Herding Trend-following : Below Average For Details Click here

Equity Investments - Analyzing a Company - Types of Stock

1. Growth Company and Growth StockA growth company is a company that consistently grows by investing in projects that will generate growth. A growth stock, however, is a stock that earns a higher rate of return over stocks with a similar risk profile.
   
   Feasibly, a company could be a growth company, but its stock could be a value stock if it is trading below its peers of similar risk.

2. Defensive Company and Defensive StockA defensive company is a company whose earnings are relatively unaffected in a business cycle downturn. A defensive company is typically reflective of products that we "need" versus "want". A food company, such as Kellogg, is considered a defensive company. A defensive stock, however, will hold its value relatively well in a business cycle downturn.

3. Cyclical Company and Cyclical StockA cyclical company is a company whose earnings are affected relative to a business cycle. A cyclical company is typically reflects products we "want". A retail store, such as The Gap, is considered a cyclical company. A cyclical stock, however, will move with the market in relation to the business cycle.

4. Speculative Company and Speculative Stock.A speculative company is a company that invests in a business with an uncertain outcome. An oil exploration company is an example of a speculative company. A speculative stock, however, is a stock that has potential for a large return, as well as the potential for considerable losses. An example of speculative stocks can be found in the tech bubble, where investors put money into speculative stocks, but the investor could have been hurt financially or made large gains depending on the stock the investor invested in.

Read more: http://www.investopedia.com/exam-guide/cfa-level-1/equity-investments/analyzing-companies-stock-types.asp#ixzz1yf8SKSRC

Why More Ignorant Money Is Lost To Less Smart Money

A.K.A Why there are more losers than winners in the market

Through the years, trading has always been a pipe dream for most who wanted to get filthy rich. With the advancements in technology over the last decade, this pipe dream has been brought closer to home than ever before. Today, it is a very accessible dream to anyone and everyone. All you need is a computer and an Internet connection.

And of course, you need the right kind of market.

This is where the hype starts. We have been over-exposed to all sorts of advertising and promotional rah-rah that makes us believe that it is actually possible to make that fortune a reality. We see ads with winners making really fantastic profits from a single trade and we hear of friends who make a living from trading and living the good life. We see the rich and famous on TV that have made fortunes in the market. We read about people making fortunes from the comfort of their homes.

We believe we can be one of them. Worse, we believe it is really that easy.

What we don’t see in most cases is the real ugly truth. We don’t get to see losers, we never see the many hundreds or thousands that get wiped out and we definitely never hear what happens to the few winners when the market turns.

We never get to see how difficult it is for those successful few to make that living. We don’t see how much studying, hard work and endless hours of practice it takes to achieve that “easy” life. We definitely don’t hear about how much losses were accrued before the wealth accumulation started.

When the market is rallying at full steam, you always get to see new gurus hyping up their courses, authors of all sorts publishing their version of making a fortune from the market and everyone rushing to brokerages to get an account open. Workshops of all kinds will be touting their software that makes profits without the trader having to put in much effort. Some gurus will adapt their classes to ride the trend of the market – if Options is the way to go, you’ll get Options teachers by the dozens … if Forex is the flavor of the trend, then that’s what you’ll get lots of.

The market in itself is hyped. When everything is running up the charts, it is so easy to make money from the market. Everyone seems to be getting in on the action when a bull run is in full steam. The hype worsens as these bull-run winners put more money into the market to help the rally climb even higher. Pretty much like what is happening in our property market today. The “Aunties” and “Uncles” at the coffee shop also seem to have the best tips and everyone in the neighborhood is an expert at stock picking.

Scandals also abound when the market is in full hype. Hedge funds and pillion-trading are two of the many ways these scandals begin. In some recent cases, the owner of the fund starts living lavishly on his clients’ monies even before the fund is profitable. This adds to the hype. We see fund managers driving fancy sports cars and living it up in penthouse condos and sprawling landed properties. Everyone wants that life and the market can give it to you.

So the average Joe, or in our case, Ah Seng, joins the hype bandwagon and puts his hard earned money into a few bets in the market. It makes money for sure. The bull-run continues. So Ah Seng buys more and grows his wealth. He tells his friend, Ah Huat, about it and he joins the bandwagon. Soon, the market is flooded with Ah Sengs and Ah Huats who know little about the danger they just got themselves into.

The fact is the market had already been running up like mad which is where all the hype came from. By the time the new gurus, workshops and books emerge, the rally is almost always halfway there. This is when the aunties and uncles get wind of the easy money and this brings on the Sengs and Huats. Next thing you know, the market is over-cooked. Yet it continues to rally, albeit on suspiciously lower volumes.

The lower volumes are an indication that the smart money is already sidelined and waiting for the inevitable. The smart money knows when to get out and stay out. They know because the ignorant money has started to flood the market.

“When the market is greedy, you should be fearful.” ~ Warren Buffet

Then the inevitable happens – the market stutters and falters … the easy money slows down … volatility begins to rule the market … the ignorant money slowly realize that they have left their asses hanging in the wind without protection. But they’ll continue to live in denial because of the hype.

The market slides south. But not in a hyped-up crash, mind you. The market is a sneaky place that gives you more rope than you need to hang yourself repeatedly. It takes a slow and steady slide with the occasional bull-trap to keep the ignorant money believing that the correction is a “normal” thing in this business. After a brief reprieve to bring hope to those living in denial, and possibly bring in more ignorant money, the market continues its sneaky slide south. This goes on for a while and before the ignorant money realizes it, more than half the investment is down the toilet.

By this time, some of the gurus quietly “disappear” from the press, some workshops cease to exist, software traders start complaining that the systems are not working as promised, fund managers appear in the news for the wrong reasons and my class starts filling out with dozens of traders looking for a fix and a more realistic way to survive the market.

The market gets down to an impossible low. Gone is the hype and all that came with it. In its wake, it leaves a massive trail of destroyed lives and emptied bank accounts. The market is now “a dangerous place” when it was once a dream maker. The market is a “casino” when it was once an ATM. When the hype is all gone along with the money, people get serious and stay away from the market.

This is when the smart money returns.

And this starts a new hype cycle that brings in the new ignorant money.

The question you should be asking is not; “When will the ignorant money start to suffer?” If you thought of asking that question, YOU are the ignorant money.

The only question you should be asking is; “How do I become the Smart Money?”

To get the answer to that question, we commit to the next big mistake – The Education.

Most people know that trading is a stressful and dangerous job. Most also know that it isn’t easy and takes a lot of work and learning. Of course, there are the few who believe that the market can be beaten with a system or with some high-tech software. Then there are those who cling on to the ignorant belief that the market is a place that can get them rich quick.

Let’s not waste time discussing the dreamers and ignoramuses. Rather, lets look at the fellow who knows what it takes and is ready to work for it. Let’s look at the fellow who sincerely wants to learn all there is to know about this business but is unable or unwilling to get a formal education for it. It has been argued that one is able to learn about trading by reading books and obtaining information through the Internet.

So if it is that simple, why do so many still fail? The answer is just as simple; Learning the wrong thing without realizing it.

Most of the books available, either at bookshops or at the library are about INVESTING and very few are actually about TRADING. So what happens is that most people don’t realize the real difference between investing and trading and will assume the two to be the same with slight variances. That could not be farther from the truth.

Investing is much easier to learn – like learning to drive a Honda Jazz. It doesn’t take much to learn it and it is easily understood and put into practice without much difficulty. The trick thereafter is not to crash.

Trading, on the other hand, is a very different skill and mind set. It is akin to driving a Formula 1 car. Unlike the Honda where the manual version has the clutch on the left foot, the F1 car’s clutch is a very different mechanism and is controlled by the right hand. Unlike the Honda which packs less than 80bhp, the F1 car stacks up an earth-shattering 900+bhp which, in untrained and inexperienced hands, could end up killing the driver.

There is so much more to trading than investing. The skills involved are very different, the psychology is worlds apart, the knowledge needed requires way more weeks and even months to acquire and the amount of research needed to be a good investor is nothing compared to the daily research and monitoring the trader is required to do to survive the market day in and day out. Where investing requires little or no practice, trading demands hours and hours of practice time to hone the skill. The financial management skills are also extremely different in that the investor protects his capital by how much he invests while the trader requires a different skill set to manage his finances – its called “cutting loss” – something easier said than done.

So without realizing it, most beginners will pick up an investment book or visit sites hosted by investors or have contributing members who are investors and assume that all that knowledge gained will stand him in good stead as a trader.

And when things don’t work out, it gets confusing. The common query that follows is always, “Why is it others can make it but I can’t?”

You can’t blame the poor fellow because there isn’t much literature on this subject and even some so-called gurus don’t know the difference. But all you have to do to know that this is true is to just look at Wall Street – how come the investors don’t have to be on the floor of the exchange everyday while the ones on the floor everyday are known as traders?

Knowledge … a little of it can kill you quickly while the wrong kind will slowly bleed you to death.

Finally we look at a controversial reason why most traders fail – The Attitude

It starts right at the start where most newcomers think that the market can be a get-rich-quick plan. This is akin to thinking that the market is like a casino. Consider this fact – the house ALWAYS wins. So if you treat the market like a casino, it will make you feel like most gamblers do. Gamblers always win a few but lose a lot.

Some trade like the market is a system to be beaten. Such traders ought to give themselves more credit. You’re insulting yourself if you have this attitude. To think that the market is a system is to include yourself in that system. Therefore, the system you are looking to beat includes you. Give yourself some respect and while you’re doing that, give the market the same respect – we’re not robots in the market and we’re definitely not part of a system. We’re humans that are driven by emotions. The market is an emotional place, not mathematical. You cannot have a system to beat an emotion because there is no math that can factor emotional irrationality.

Then we have those that don’t realize how unscrupulous the market is. Their ignorance is evident when they correctly assume the market is not that clear cut but will still buy into the hype. What is obvious is that the market is made up of all kinds of people especially those who will do anything to get an edge, even through illegal and criminal means. It is also full of experts who have spent years in Harvard and Princeton and then more years with established institutions such as Goldman Sachs, Morgan Stanley and the like. They have hugely experienced mentors to guide them to become the next generation of world class traders. These people have so much leverage and influence on market sentiment and to make their advantage more unfair, they collude with their competitive counterparts in order to corner the larger market for their own gains. With such power, how is a three-day workshop graduate expected to beat the odds? Yet more and more look past the obvious and end up throwing their hard earned money to the power-brokers.

These are also those who buy into the idea that the market can be analyzed fundamentally with valuations. Such valuations do help to reduce risk. But that is an investment-styled strategy and not suited for trading. Trading is way faster and seldom allows the security time to flex its fundamental muscles before the next gyration takes out the profits. Read the previous lesson to know the difference between the investor and the trader and you’ll have a clearer understanding of this.

Others rely purely on technical analysis. I can’t deny that I base a lot of my analysis on technicals. But that is not the end all. All it takes is one bit of macroeconomic news and all that technical analysis is out the window faster than you can say “Cut loss!” Technical Analysis is great as long as there is no news to upset the prevailing sentiment and as long as volumes don’t dip. But the market is never so generous. So in the end, Technical Analysis is only a “best guess” … and contrary to common belief, Technical Analysis is not the best guess of when to buy or sell – rather it is most reliable when used to guess the best potential against the least risk or the most risk against unfavorable potential.

Then there are those who believe that a good tip from a trader is the key to easy money without putting in any effort. For this, I have only one analogy; will you take a heap of hard-earned money out of your wallet and give it to someone you hardly know and expect to get it all back after a few weeks? And if that person was trustworthy, would you still do it? And do you really believe that it will come back with more than you gave him? If in life we don’t make such practices, then the same principles should be applied in the financial world and most of all, in the market. The desire to get-rich-quick-and-easy makes simple people do really silly things with their money. And it is always only after getting burned that you hear those famous last words,” … if only I knew …”. Yes, you’ve heard the horror stories time and again and so has everyone else. Yet people continue to write new chapters into this horror story ever so frequently … all in the name of greed, gluttony and sloth.

The financial markets are like an office block in a busy business district. The people who go to work there are serious professionals who take what they do very seriously. They are highly experienced, very influential and extremely powerful. It is also like a hospital where the surgeons, doctors and nurses are highly qualified and trained professionals. People put their life in their hands everyday.

Then one day, some over-zealous graduate with three days of workshop knowledge comes into this office block and expects to beat everyone out of their jobs. Or this hyped-up graduate with only three days of experience comes into the hospital and expects everyone to trust him with their lives.

Okay, maybe that is a bit of a stretch but the implications are no different. Every professional takes years to study his craft and then spends more years honing the skills with hours and hours of practice and hard work. They also have a mentor to constantly guide them till the day they are ready to go solo. There is no easy path to success and there will be failures along the way. The financial market is to be respected and feared. There is no other attitude except humility that will help a trader survive it.

It is said that more than 80% of the market is made up of those who lose and less than 20% are winners. The truth is that those statistics apply to any profession – how many top rated lawyers, engineers, surgeons, etc are there compared to the many also-rans?

The big money is always at the top where there are few who have it while the small money is at the bottom where most have to fight for it. And there are only two ways to be at the top – either you are already there or work hard to get there.

http://blog.shareinvestor.com/why-more-ignorant-money-is-lost-to-less-smart-money/