[Editor's Note: This is a guest post from a physician and a long-time WCI reader with whom I have no financial relationship, who wishes to remain anonymous, and who posts as NapoleanDynamite on the site. The subject matter is controversial, at best, and while not a true Pro/Con post, I did make some lengthy comments at the end. Despite disagreeing with a significant portion of what is in this post, I thought it would be a good discussion to have on the site as this subject has never been hit very hard by me or any guest poster.]
“Day Trading” My Way to Retirement
Let me start by stating that I expect this to be an inflammatory post for many people who read WCI. I will also admit that the title is meant to be an attention getter but not entirely true. Given the passive investment recommendations on this website many of you will blow me off. In the past, I too would have ignored this post, or considered the idea heretical. But before telling you about my decision to actively trade stocks, I will back up a step and explain my financial situation and a little about myself.
About Me
I am a private practice physician and part owner of a small practice. Our practice owns our surgery center. I am in my late 30s and 7 years out of residency, so that places me in a similar age range as WCI. The first 2 years out of residency my income averaged $150 K. I have steadily grown my practice and this year my income will likely be around $1.1 million. I have taken my practice very seriously and done very well with it. Growing my practice has been the best investment I could pursue following medical school. I cannot overstate this enough as it is what the vast majority of readers should be doing to grow wealth. Invest in yourself prior to all other ventures.
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From a financial planning perspective, I max out my 401K, HSA and Roth IRA. My wife maxes out her solo 401K and Roth IRA based on her income. She works part-time and her income is about $25K. If her chosen profession was higher paying or if she had a desire to change professions, she could work and earn more.
We have 2 children under the age of 6 who currently have $100K and $50K in their 529 accounts respectively. I have significant term life policies on myself and my wife along with significant long-term disability insurance on myself. In addition, we have a large taxable account which is our largest investing account. We have a couple real estate ventures and an oil royalty. I also have about $500K invested in my practice buy in which is like a stock option that will grow or shrink based on how the company does in the future.
My wife and I currently have $300K left on our home mortgage which has an interest rate of 3% and about $120K of student loans which have an interest rate of 1.75%. Although I could have paid both of these off by now, the interest rates are low and I haven’t been motivated to do so (I don’t want to argue this point as it is an entire 1-2 blog posts worth of writing). I will probably pay these off fully in the next 2-3 years. My current net worth is about $2 million.
I'm Not A Day Trading Wacko
My point in discussing my background is that despite the title of this post, I would still qualify as fairly conservative in my investments. I found WCI through the Boglehead forum about 6-7 years ago and continue to maintain many of the values expressed in both of these arenas.
While my income has increased over the past 2-4 years, I have searched for different avenues for investment income outside of passive stock market investing. For tax purposes, I have started to venture into real estate although this is definitely not my talent or my passion. From an ROI perspective, I have done okay with these ventures, but I continued to search for something more stimulating for me.
Initial Steps to Day Trading
Let us fast forward to 2015/2016 when I started discussing “day trading” with an old college friend. We will call him “Jim” (Irony intended). He was a premed student like myself who started trading stocks in our University computer lab. Jim dropped the premed track in his sophomore year to spend time trading stocks and take additional business and psychology courses. He started with $2K in 1999. We all made fun of him and told him he would lose his butt. Instead, he made his first million in less than 18 months trading stocks out of the computer lab!
I am still friends with Jim, and although I don’t know his net worth, he recently told me he has a goal of being a billionaire by age 40. I have no doubt he will get there. Realistically I will never be as good at trading stock as Jim and he refuses to trade with anyone’s money but his own so don’t ask me for his name. For good reason, he also does not give stock picking advice, especially to friends. However, he was nice enough to give me a good “starter kit” and a book to read if trading was something I wanted to pursue.
I read the book and did some research on my own about trading. I also started some basic research on publicly traded companies. In April of 2016 I placed $50K of “gambling money” into a TD Ameritrade trading account. On June 1st, 2016 I placed my first ever trade. Given my age, current net worth, income and retirement path I decided $50K was a small enough amount of money that it would not affect my final retirement outcome if I were to lose it all but a large enough amount to make it worth my time if I did well. Note: I do not short sell, specifically so I cannot lose more than this $50K.
I am not going to lie; making my first trade totally freaked me out! I had butterflies in my stomach even though I bought Walmart stock, which is possibly the most boring stock trade ever. Not much of the 50K was placed into the Walmart stock, but I ended up making about $150 in a few weeks on my first ever trade. I continued gaining knowledge and practice while placing other small trades and watching the market closely.
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Now I will fast forward to June 1st 2017. I made it through 1 year of trading stocks. I traded through the Brexit vote where I lost about $6,500 in stock value in two days as I made the wrong decision by going “all in” the night before the vote. Having “learned my lesson” from Brexit, I traded through the Hillary/Trump election where I again made a poor decision sitting on the sideline while the majority of the “Trump bump” occurred. Despite making two grandiose errors that cost me a lot of money, I also made some amazing trades during these 12 months. After one year my return on my $50K investment was 23% after taxes and fees.
Comparing Returns
Some might say that this effort was in vain as the market was up about 20% in that same time frame. This is true, but I can tell you the correlation with the market was very little as it related to the timing of my gains. As mentioned I sat out the “Trump Bump” as I didn’t believe it could be happening. Most of the total market gains occurred during the “Trump Bump” when I had my money in a holding account. Instead, most of my gains occurred on 4 trades. 2 occurred very early during that year and 2 very late. During both of these time frames the market was either flat or down. I made many other trades with less effect on my outcome. I had more wins than losses, but did encounter both. I learned to weather some storms and gained some incredible knowledge as to how the market works and behaves. Most importantly, I was really enjoying this activity. Since June 1st, 2017 I have continued to trade and have done well. Not as well as my friend Jim, but well enough to keep me interested for another year.
I have asked myself, what is the point of this? Would it not be easier to just keep working and contributing appropriately to my retirement accounts? (I still do BTW) Why “risk” this extra money instead of fully paying off my loans or buying a boat like WCI? There are no simple answers for these questions, but in 3 short words: I enjoy it.
WCI Comments About Day Trading
I informed NapoleanDynamite that he was likely to get plastered in the comments on this article and that I wasn't going to hold back in my comments either. He assured me he has thick skin. I will explain why I don't day trade nor recommend that you do.
#1 Day trading is a job, and not one I'm interested in
Day trading generally has to be done during the day. As noted above, this requires watching the market closely, doing research, putting in trades, and learning all about it. I have other things I'd rather do than watch the market closely, both for work and recreation. That includes practicing medicine (which pays me well and I can do outside banker's hours), running the WCI Empire (which pays me well and I can do mostly outside of banker's hours), going on trips, and spending time with my family. Adding a job as a day trader would have a significant impact on every thing else I'm doing, and I'm not willing to drop anything out of my life to do this. If I had wanted to spend a large portion of my time on stock trading, I would have done something very different with my education and my life. I suspect this is the case for most readers.
# 2 Day trading works out poorly for the vast majority
The investing literature is rife with data showing that, on average, the more you trade the worse off you are. Does that mean every trader loses? Absolutely not, but it takes a great deal of confidence to put yourself in a place where you believe you're smarter than the guys doing this full-time on Wall Street with better access to information and faster computers. Because that's who you're trading against. This fellow who's going to be a billionaire by 40 from stock trading- he's on the other side of the table from you. Good luck. I'm not that confident in my ability.
Let's consider NapoleanDynamite's case. He made 23% on $50K, or $11,500. Hopefully he wasn't doing this in a taxable account, but if he was, taxes, fees, and commissions, (bear in mind that in the highest bracket he is in, short-term gains are taxed at 39.6% Federal + State) could easily reduce his gains by 50%, down to 11.5%.
If he had simply bought Vanguard TSM and gone about his life, he would have bought it at $52.36 on June 1, 2016. On June 1, 2017, he could have sold it for $60.82, an increase of 16.16%. Add in the yield of around 1.92%, and that works out to a little over 18% a year. He would lose 23.6% in taxes, reducing his return to 13.8%, ahead of the more impressive initial day trading return. But even if you ignored taxes and other investing costs, he basically came out 5% ahead of just buying an index fund. 5% of $5K is $2,500. Maybe $2,500 changes your life, but it certainly doesn't change his.
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But wait, there's more. NapoleanDynamite makes $1.1 Million per year. His time is extremely valuable. You have to add in that opportunity cost, which in this case, is very high. Let's say he spends 10 hours a week, 52 weeks a year doing research, watching the market, and putting in trades. That's 520 hours. If he makes $1.1 Million per year working 50 hours a week 50 weeks a year, that works out to $440/hour. 520 hours x $440 = $229K. Now, surely he's really trading some of his recreational time for day-trading, so you can't hold all of that time against him. But what if you only held 10% of it against him? That's still $23K. He spent $23K of his time to make an extra $2500. Not sure that's a good trade-off. Sounds more like a very expensive hobby.
# 3 It doesn't pass the sniff test
Any time someone suggests to me that they want to purchase individual securities or do any sort of trading, I always recommend they keep very good records of their actual returns including all costs, taxes, and the value of their time. That's enough to convince most of us it isn't worth it. But for those who come out ahead, they then have to ponder the eternal question of whether they are lucky or good. If lucky, their outperformance isn't likely to persist. If good, what the heck are they doing messing around with $50K or $500K, or even $5M? They should be running at least hundreds of millions if not billions. It doesn't pass the sniff test, and that's assuming the person actually knows how to calculate their return (they usually don't) and isn't lying about their performance (which happens surprisingly often.) I'm not saying that there aren't people out there who through their skill can trade stocks profitably over the long run. I'm saying those people are pretty darn rare and the chances that you are one of them AND good at your main profession seems too low to risk it.
# 4 If you're rich, do whatever you want with your money
Finally, it's worthwhile pointing out that it doesn't matter all that much what you do with a small portion of your money, particularly if you're a multi-millionaire making $1 Million a year. NapoleanDynamite could simply light $50K on fire every year and will still have an estate tax problem in the end. If trading stocks is truly something you enjoy and are willing to pay (money and time) to do, then knock yourself out. But I can list several dozen things I'd rather do than track the market closely every day and that cost much less than what it would likely cost me to be a day trader.
What do you think? Do you day trade? Why or why not? Do you think it is a good idea for a high-income professional? Comment below!
Why not just retire early by playing online Poker?
Seriously though, I was ready to lambaste this argument, but WCI did a pretty good job of breaking it down. I’d be much more interested in seeing a blog post detailing how he built up his practice to $1.1 million annually in 7 years.
In college, med school and residency I used to play Texas Hold’em. I always sat down with $200 dollars at the table and if that 200 was lost I walked away for the day. For my career playing poker I am up over $13,000. With 2 kids and a full time career, I do not have time for poker any more as it is too time consuming and cannot be done in between patients.
I may write a future post on developing a business in medicine, but to answer your question about career decisions in short:
1. Hard work and hours put in
2. Understanding that medicine is a business and being an employee of medicine is not a way to make money doing something I love
3. Understanding that you have to spend money to make money and take chances….some of which will pan out and some of which will fizzle out…and live by the motto “Heads I win, tails I don’t lose much”
I have a buddy who would go play poker after a slow late-shift. The thinking was that everyone at home was asleep anyway and all the chumps would be drunk. Guess it made him a little extra cash!
Playing against drunk guys was one strategy I used to make money playing poker. Don’t stay too late though as the only people that make it past 1 am are the sharks.
I’m confused. Isn’t daytrading when you buy and sell even within a day to take advantage of fluctuations or news shocks? I knew a daytrader whose time window was minutes or hours only.
Maybe this is more about buying individual stocks at whatever time frame? I have bought individual stocks with “play money.” It is more fun than boring index funds for sure. I gained on some and lost on some. This post doesn’t have any specifics to make me a better trader. Those tips might have been helpful for those who choose to buy individual stocks.
Admittedly what I am doing is a combination of “Value Investing” and “Day Trading”. I have made trades in hours (never minutes….yet).
not for nothing but the time frame noted is so brief as to be close to meaningless. Do that for minimum of 5 years and you MIGHT be on to something. The shorter the time frame the greater the likelihood that luck led to those returns than did any inherent skill.
This is gambling and gambling can quickly become a destructive addiction. You should be saving that $50k. What if you lose most of it or all of it in 6 months and you can no longer trade for the rest of the year? If your answer is that you’d put in an additional $50k so you can continue “enjoying yourself”… then you have a problem. You’re gambling with money that some people don’t make in a year. Give it to charity or beef up your kids college accounts if you don’t need it. You can pay for your grandkids and great grandkids college education with that money! For every 1 person that succeeds at this long term… there are probably 100-1000 that fail miserably. Some probably ruin their lives. I see this as a gateway drug for you. Be careful.
If you feel this way, I am unlikely to change your mind as it appears closed to new ideas. No worry about my kids….my 2 year old has over 50K in his 529 and 1K/month going in and my 5 year old has six figures. All of that transferable to future beneficiaries. I also donate a significant amount of time and money to things I choose. Not too worried about your “gateway drug” analogy. It does not fit my lifestyle. Thanks for the critique though.
This feels like an odd pearl clutching response to me. I don’t know why you’d tell the poster he’s at risk to being addicted to gambling based on the information presented. He’s very financially secure and if he finds this a fun way to spend his time and play money, I don’t see what the big deal is.
Yes I agree with wealthydoc as usual. This post is not day trading but short term individual stock trading. It is fairly easy to make money on individual stocks in a bull market! It is also easy to convince yourself that you are brilliant. NapoleonDynamite if you enjoy it then keep doing it. I did the same thing for many years but got tired of worrying about it.
Thanks! As mentioned above, it is a combo of Value investing and Day Trading. It is mostly something I enjoy between patients on my clinic days!
This is a great post. It is important to post and study about topics in which you don’t believe. Most investors suffer from confirmation bias. That is, you only read, study, and interpret things that you believe. It is important to read (and study) the opposing view, even if you don’t believe it. I wanted to suggest one of my favorite books to the WCI community. It is entitled “A Man For All Markets,” by Ed Thorp. The first part of the book is a bit slow, but it shows the other side of things. A phenomenal track record by a math genius with an approach you can understand, but not replicate. The basic point is that neither you or I can do it, but someone can. We don’t know who those people are because they are like your friend. There is no incentive to tell anyone. Dr. Thorp knew about the Black-Scholes theorem before it was published by others who won the Nobel Prize. He did not tell anyone about it because he was literally printing money from it. I think there is a lot of the gambling mentality and physiology here. Be careful, and limit yourself to one account with a defined amount of money. Study about how gambling results in a dopaminergic surge just like drugs in the nucleus accumbens. Regardless, thanks for the article, I enjoyed reading it very much. Charlie Munger says you should know the counter argument well enough to argue it for the other person. Hence, reading about day trading can be an important task even for the most die hard Boglehead. Imagine a Pro-Con debate where the WCI argues the day trading argument, and N.D. argues the index approach. Bottom line: Stick with the index fund for financial freedom.
Thanks! Great critique. “Fortune Favors the Bold!” I will read the Ed Thorp book as the constant desire for knowledge and being open to other idea’s is exactly what this is about. As I wrote, the largest portion of my net worth is in boring old simple index funds.
Also, in case you were wanting to read a different book with some great psychology and outside the box thinking it was “Reminiscences of a Stock Operator” by Edwin Lefevre. It is actually a fiction book, but there is some unbelievable information in it about life in general.
+1 on “Reminiscences of a Stock Operator.” It was life changing for me, and I actually use many of its themes as the backbone of my commodity futures trading company. As you say, the goal is “heads I win, tails I don’t lose much,” and when you use that strategy/mentality on non-normally distributed outcomes (like markets, poker, private equity, etc…) and combine it with proper risk management, you can do quite well! Great post, and I wish you the best in medicine and trading.
Wow, Ed Thorp. There’s an old name. He wrote “Beat the Dealer” *way* back in 1962 for learning how to play professional blackjack. That’s right next door to professional poker and day trading / active stock trading.
“A man of all markets” is great. I liked the first bits the most, the latter parts were just ok. Thorpe just loved proving people wrong I think. Oh, x is impossible? Well bam! I mean He and Shannon even figured out how to beat roulette, thats serious. Concluded to difficult/dangerous in reality but he was an interesting fellow.
Point is, there are edges and if you find them and are good about exploiting them over a long period of time you can win. Most of the issues that people typically think to try are in areas with zero edge or a mistaken one, and then of course sized inappropriately.
There are edges out there, you just have to understand how they work and are to be utilized. The most available to regular folk like us is simply time, and then leverage wither implicit (student loans, mortgages, etc…) or explicit. This is really along the lines of lifecycle investing (ayers/nalebuff) thinking in regards to leverage and risk adjusted returns. Its an interesting book.
I want a guest post from Jim, the soon to be billionaire. I’m also curious to know if ND is actually day trading, swing trading, or just buying and selling stocks with holding periods longer than minutes or a few days. That may be the case, which might explain why “day trading” appeared in quotes in both the title and the body of the article.
I recall reading an article about a school teacher who did some quality stock picking for a few years and made tens of thousands of dollars. Maybe hundreds of thousands. He bought a Corvette, upgraded his home, and the ensuing years, he lost it all. He thought he was good, but it turned out he was just lucky.
ND, I hope you continue to have success, and if you do, perhaps we’ll see another post in a year or two detailing it.
Best,
-PoF
Thanks! I will keep you all posted in the future. It is a combo of Value Investing/Stock Picking and Day Trading. Hence the quotes…..Day trading was the attention grabber 😉
I think Napoleon’s returns thus far do pass the smell test, but one year returns are merely one year returns.
However, I don’t buy the story of “Jim”, the guy who is on track to be a billionaire by age 40 solely through day trading his own money. Unless “Jim” had a multi multi million dollar inheritance, why wouldn’t he take outside money. And if he’s investing his own money, his net worth seems off by many orders of magnitude.
He never said solely. Who knows what else this person is up to.
Lots of people wont take on outside money. For one thing there is a mountain of regulation and costs, and then of course you are on the hook and have to answer to sophisticated and high touch people. Another thing is some people dont feel comfortable doing things with others money that they would do for their own.
Zaphod,
You are on target regarding Jim not wanting to deal with other people’s money. I will only say that he is a good friend…he let me watch him trade for about 3 hours one morning and I saw him trade about 5 million dollars in stock value in those 3 hours…confirmed as we watched his trades tick across the CNBC trade ticker. I am a friend and by the end of 3 hours his statement was “all right man, now get the hell outta here I gotta do some real work”. I assure you he is very real and very good at what he does.
Similarly I knew a doc’s wife who was a real estate mogul. Between offering her Florida coastal rental properties for us to consider when we vacationed and discussing the charitable foundation she was going to endow with her millions, we never got to the risks… A year later she was speaking of the empty rentals in abandoned neighborhoods and how her fortune was down 50-75%.
Thank you for this post. This post is thought-provoking, and will inspire great, honest discussions.
Well, I think all the above comments by WCI and the other 2 replies covered it all, from an investment standpoint-I also try to live by those philosophies. However just to reiterate, ND is still doing index funds as a driver of consistent returns for the bulk of his portfolio, which means he’ll do just like all of us at the end of the day. The main difference worth pointing out is that I’m not doing any oil ventures, and I have not done any real estate. That piece is more notable to mention than the 50K invested in large cap stocks like Walmart. Regarding the 50K, he’s just using some play money with a very small portion of his wealth, as a hobby, and it seems pretty safe the way he is doing it, as long as he doesn’t get carried away and put even more money into this strategy, lest he be subject to tracking error and idiosyncratic risk.
Many hobbies including vacations, skiing, snowboarding, mountain climbing, hand gliding, parasailing, bungee jumping, etc. carry greater risks. I would say that ND is invigorated by his stock trading, judging by his comment “I enjoy it” He can afford it, so why not? And, he won’t lose life or limb doing it. He probably will keep most of it, and even gain some, so if that is his hobby, he’ll still be ahead even after taxes and poor market timing. Since he has a buddy who is also doing it, I’ll bet he enjoys conversing with him and others about it. I’d probably discount the argument of the “value of your time” here, since he is already doing his day job to the maximum which is generating significant income, and your free time is your free time to do whatever you choose, no judgement here.
ND, keep us informed on your progress, and congratulations on your success! As long as you keep it to $50K, there’s probably no danger choosing this as a hobby.
On Point! And I will tell you that no more than the initial 50K will ever go in to this account. I can afford a 50K mistake at this point in my career….but I also try to never make the same mistake twice. And it is an enjoyment for me.
An interesting hobby, doctor. Just do not let it become too expensive and do not quit your day job.
I would only “quit” my day job if this one time 50K ever starts making more than my current job in medicine….Then I will do medicine as my hobby for free!
I believe that day trading is one of those fun things that some people (not investors) do as a casino replacement. Having said that – to satisfy any crazy urge one should segregate up to 5% of their investable assets into a fun money account that they may do any crazy strategy they wish. When the money is gone, never do it again. I have a net worth in the low 8 digits. My fun money account has $100,000 in it. I piddle with technical analysis a bit but have not made or lost a significant amount. I’m not built for the kind of risk associated with day trading or options but it sort of fun to test strategy. This fun money account allows that.
He’s trading a very small part of his portfolio. Almost all of us have tried their hand at trading in the fashion ND is describing. I certainly have. Many (such as me) eventually come to the realization that trading is futile and quit. I hope that ND rigorously and honestly assesses his returns, so that if he is underperforming the market, he will quit. The problem is that some people don’t honestly assess their returns, and only remember the good trades, so they continue to trade. It can also become a gambling mentality, where he starts with $50,000, but then quickly escalates his money at-risk.
-WSP
My only rebuttle to WCI’s critique is that my 23% return was after taxes and fees. I had already calculated that prior to writing the post. My fees were essentially nothing the first year and my taxes were quite high. I have a serious tax problem at this point so the few thousand extra paid on these gains was a very minimal addition to my tax bill.
Just a clarification, ND said his returns were 23% AFTER TAX ” After one year my return on my $50K investment was 23% after taxes and fees.”
Later WCI said “He made 23% on $50K, or $11,500. Hopefully he wasn’t doing this in a taxable account, but if he was, taxes, fees, and commissions, (bear in mind that in the highest bracket he is in, short-term gains are taxed at 39.6% Federal + State) could easily reduce his gains by 50%, down to 11.5%.”
I am just curious if the 23% was before or after tax? I don’t have the stomach for this sort of thing so I am indexing regardless but one is a lot more impressive than the other.
After taxes and Fees…..I believe WCI mis-stated that in his discussion.
I have no problem with this. ND makes a lot of money, has a lot of money, and is using a small portion of his portfolio to see if he can create more wealth. If you are a resident, actively trading a $50k portfolio is probably foolish. If you are a wealthy attending, and it’s what you want to do, go for it.
Agree….I waited on this until it was a very inconsequential part of my portfolio. Likely a horrible decision for someone with low net worth and low income.
In ND’s particular case I’m with the “why not” point of view. One needs a mental break from patient care, and it sounds like an enjoyable hobby for the time being.. My only caveat is try not to neglect family and physical exercise-and of course (should the situation arise) don’t throw good money after bad.
Agree completely. Sometimes after a 45 minute difficult patient, I walk out of the room and check my stocks prior to seeing the next patient. I call it the “Disney Face”….re-energize and smile for the next patient. I wake up at 4:40 every day for exercise and spend the nights and weekend almost entirely with the kids/wife. Boring life and my trading adds a little spice 😉
It does not appear that what Napolean Dynamite is doing would be considered day-trading, rather trading. I am curious about the name of the book ‘Jim’ recommended; perhaps ‘Reminiscences of a Stock Operator’? Though there is acknowledgment of ‘lessons learned’ over the prior year, I don’t get a sense of a trading approach/philosophy. In addition, I find it difficult to believe that the 3% return above market compensation for the time/effort/tracking involved, especially relative to what sounds like a very successful physician practice.
Yes on the book. “Lesson’s Learned” would have taken me at least 1 and probably multiple posts. It is a constant evolution of learning, but I will say that I have learned a ton about how the market works and things I never knew existed through this process. For the time question…I enjoy learning and have time in between clinic patients some days…although today I am responding to blog posts instead of trading ;).
ND,
Would you be willing to tell us some specifics about your trading decisions for the year you made 23%? I think it would bolster your approach to those of us who are open to learning about it, but who are not exactly clear how you choose a stock, how you decide when to get out, and your typical holding periods. Or, tell us at least something about your decision analysis? Sort of like an appendix to your article?
Thanks,
Niraj
NP,
That would take a while. But, I read a lot. Mostly because I enjoy reading and learning. The intelligent investor by Benjamin Graham and anything by Warren Buffett are some good places to start. As mentioned, Reminiscences of a Stock Operator is a great book, although somewhat fictional. There is no science I can give you today that will be guaranteed to work for tomorrow.
In short, I only buy/sell/day trade stocks I would be willing to buy and hold forever. If I understand a company and product and think they are a good company then I will consider trading their stock. If I don’t understand a company or if I don’t think they are a good company then I won’t trade them. I then base my trades on a whole host of ongoing market and psychological factors when to trade a company.
For example, I have learned that a company may trade at 50 dollars on January 1st and may be trading at 49 dollars on May 1st. But in that time frame the price point could fluctuate significantly and instead of losing 1 dollar per share, I may have made 10 dollars per share. It was very hard for me to wrap my head around this concept, but it can be done. Meanwhile, I have no underlying fear if I end up holding the stock longer in a drop because I believe them to be a good company.
Granted this does take time to research companies.
Agree with the above commentary. My stockpicking has led to some disasters but also helped cover the downpayment for my house. (I have a hard time selling index funds, but no such qualms with individual stocks) Presently, i pick stocks to create my own funds (one is to save expense of fees, and other two because no fund exists). I can afford a total loss as worse case scenario. Ultimately I enjoy it too.
Seems like ND is doing well but I am with WCI. I have too much of my time already tied up with work (during bankers hours) and my site (after everyone goes to bed). To add more work to make a marginal profit does not seem worth my time. I would rather work out and maintain a healthy lifestyle so that I can enjoy the wealth as I get older.
ND, good work. I am glad you are having fun. You have the money and at the end of the day enjoying it…so keep it up. I go to the casino and loose $200 in a night. Not a smart investment but I enjoy it so I will keep doing it once every few months.
I always get a little irked when people brag about their finances. I see it as hubris. I think it’s sufficient to say you’ve done well and give what types of investment vehicles or options you’ve employed. I find people are getting a little boastful with this investing stuff. Money is a means to an end. The love of money is a bad thing.
I tend to agree, to a point. Talking specific numbers can be poor taste in many situations, however in a finance forum, it is certainly helpful for background. (i.e. ND makes $1M but is investing $50k.) Another example: surfing from the forum, I ended up eventually on a blog about financial independence where the blogger has a net worth of 5 figures; this is useful to know because–aside from generalities–his situation has not applied to me for 15 years.
Hugh,
I agree some of what I stated could be interpreted as boastful. I hope it did not come off that way as it was not the intention. That is one of the reasons I choose to remain anonymous. I would not have included any of my personal information, except for the fact that I knew people would tear me apart if they did not have some background and understanding of my personal financial situation. As “G” mentioned, someone with a negative net worth trading 50K worth of stocks is very likely a horrible decision. I have been very blessed, lucky and hard working to achieve many of my financial goals which have led me to this point. I also agree that the “love of money” can be a bad thing….but the love for things that money can do in the world doesn’t have to be.
Also, I appreciate the play on name words! My kinda humor.
But posts without any numbers in them are so boring and difficult to take any lessons from.
Why? This was specific to the context that it was an amount suitable to play money and he was already covering his bases and was clearly hobby territory. Totally appropriate.
Loving money is fine, its the actions you take because of it that matter.
Since ND states several times in the comments that his approach is a combination of day trading and value investing in individual stocks, my reaction is that this is an issue of competitive advantage, or at least trying to develop one. I am exclusively a passive indexer, except that I own two rental properties. I index because I learned long ago that I can’t pick stocks successfully. But I happen to have had a competitive advantage in real estate where I live 25 years ago when I bought the rentals and they have worked out well for me. WCI, and many readers of this blog, are passive indexers, but some are trying their hands at alternative investments (peer to peer lending). To my mind that requires quite a bit of study as well to develop a competitive advantage, and is the “moral equivalent” of what ND is doing; to wit, trying something out to see if his ideas work. True day trading is not for me. I am a buy ’em and hold ’em guy and don’t plan to change. But I am interested in whether or not others can have genuine success with different approaches, so thanks for the post!
My argument is that it is far easier to find a competitive advantage with real estate in your home town than with publicly traded stocks. The reason active mutual funds don’t beat the market isn’t because the managers aren’t smart. It’s that there are too many smart managers out there competing with each other driving up market efficiency.
Actually, I completely agree with you on publically traded stocks versus property ownership. However, I think the better analogy for my point might be peer to peer lending versus a mortgage REIT. It is a less efficient field. Investors in P2P are betting they can achieve better results after having studied the deal. Maybe they are right but I’d still leave the majority of my money with passive investments.
Just curious about the income level, would you mind sharing your field of specialty?
I am in a surgical specialty….Not Plastic surgery and usually ranked around the middle of median incomes on Medscape physician survey’s.
This really is just gambling. Fun Monopoly money.
Go and do what you enjoy. Have fun and burn money.
But it is silly to believe that you are going to “win” over the long haul. Your counterexamples in just year one proved that you are really just guessing.
Maybe….Time will tell. Thanks
what is 50k over 40yrs compounded? all active investing is plain silly! Why bother when you al;ready know the winning strategy
“Does that mean every trader loses? Absolutely not, but it takes a great deal of confidence to put yourself in a place where you believe you’re smarter than the guys doing this full-time on Wall Street with better access to information and faster computers. Because that’s who you’re trading against. This fellow who’s going to be a billionaire by 40 from stock trading- he’s on the other side of the table from you. Good luck. I’m not that confident in my ability.”
Let’s continue with this logic. It would be great fun to do what “Jim” did, but I simply don’t have the time or confidence to attempt that. The Wall Street guys have all the tickets and fast computers, so the odds are that they can beat the market. I don’t pretend to want to make a killing in the market, but using these smart Wall Street guys should assure me of at least modest wins, say a minimum of 2-3% over market returns. That’s all I want, so I’ll hire the smart guys and net 1-2% over market after my 1% fee.
Say what?
John-
You said that “the odds are that they can beat the market”, but when you examine the ownership of most publicly traded companies, a very high percentage of it is intitutionally owned and managed (often 90+%). Therefore it is not a few Wall Street guys that beat the thousands of Main Street individual investors, it is Wall Sreet guys beating other Wall Street guys.
Can you pick which one wins this year? Next year? Neither can I. If you can accurately identify (ahead of time, not after seeing past returns which do not correlate to future returns) which advisor will return 2-3% more than the market, go for it. And if you don’t know who to pick, I am sure Dave Ramsey can point you to a Smartvestor Pro that can sell you full-load mutual funds that will get you 12% a year.
Exactly. John carried the argument somewhere it shouldn’t go. I was arguing against why one shouldn’t trade stocks himself, not why someone shouldn’t hire someone else to do it. The reason why you don’t do that is any alpha, if there is any, flows to the rare commodity, which isn’t the capital, it’s the skill. So the skilled trader, should you be so lucky to find one, gets all the alpha he creates with your money. If you’re lucky. If you’re unlucky, he gets more than what he created and it comes from your beta (or even worse, your capital!)
Irony.
Hundreds of thousands do buy into this faulty logic and agree to fees of 1%+ of assets under management.
You’d have a lot more fun taking $50,000 and spending that many hours at the track, craps table, or throwing the dollar bills at strippers one by one.
That’s hilarious. I don’t enjoy Craps or horses. Never thought about Strippers 1 dollar at a time.
Anybody up for making a WCI field trip to Vegas? Lots of people mentioning gambling and strippers 🙂
There have been some thoughts about WCICON2, if there is one, being in Vegas. There is so much hotel space and flights and ground transportation are so cheap and easy it’s a great meeting location.
Maybe, but I’m looking forward to the quiet sounds of snow under my skiis.
What he’s doing isn’t day trading. That’s better defined as making trades within minutes or even seconds of taking a position based entirely on trend lines. You start and end the day owning nothing. It also isn’t about retiring. It’s just trading stocks. Pretty much all the negative feedback here is through the perspective of “investing” the money for “retirement”. It’s foolish for accomplishing that goal, but that isn’t the point..
Everyone I’ve known personally who still day trades, angel invests, buys penny stocks, rock climbs or heli-skis (sound like someone popular here?) isn’t doing it for ROI. It’s just a hobby they enjoy. This particular one happens to offer a chance at making some extra money. The author isn’t betting next month’s rent on black.
I know many people who made bank in the 2000’s playing with day trading and IPOs. All of them returned the money to Wall Street within a couple of years. No one became a billionaire, but there’s always a few guru-types making decent money “teaching” people how to “successfully” day trade. Hardly a new story.