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Feature
Article:
Five
Steps To Investing Better Than The Pros
By Dr. Steve Sjuggerud,
President, Investment U
(featured
speaker at the Stock Mastery 101 Course,
December 6-7.)
"Those investment guys at Citibank don't know anything... they just clock in and clock out, and never actually think for themselves."
This complainer is an Englishman working in Brazil. He's a hardworking entrepreneur, and he was an attendee of an International Institute of Trading Mastery (www.iitm.com) seminar I spoke at last week. This Englishman was at the conference to learn... to become a significantly better trader/investor.
I think he'll become a great investor... he's already following the five basic steps I outline below. And as you'll see, if you follow them as well, you'll not only beat the pros at their own game, you'll become a great investor... just like our English friend.
Why The "Pros" Don't Think For Themselves
The first thing that tipped me off about the Englishman being on the right track was that he'd already made an important discovery: The fact that someone works for a big firm does not mean they actually know anything about making money...
When you work for a big firm, like a Morgan Stanley, the truth is you're not really expected to think for yourself about the big picture. You're simply a cog in the wheel. And so is everybody else. It works... all the cogs rely on each other.
For example, a Morgan Stanley broker's job is not to think about the markets...
That's what guys like Barton Biggs and Byron Wien at Morgan Stanley are paid to do.
You're not expected to pick stocks...
That's the research department's job.
You're not expected to fill orders...
That's the trading department's job.
You're not expected to fill out account forms and send 'em to the home office...
That's the operations department's job.
And you don't have to keep up with the regulators...
That's the compliance department's job.
Heck, what do you even do?
As a broker, your sole job is to be on the phone talking to clients. That's it. No thinking for yourself please... we have a department for that.
I'm confident that you can beat that guy (and all the rest of those guys) at investing. You've simply got to put it all together... something they're not allowed to do. And I've come up with five things that I believe it takes.
Let me preface this by saying that most people will not have the time nor the desire to go through with this. And let me also say that the five things below are not all earth-shattering... there's no substitute for hard work. But if you've got the time, and you stick to these five things, you can beat practically
everyone.
The Five Keys To Beating Everyone At Investing
1) Commitment. I know that Englishman is more committed. He is not clocking in and clocking out. This is the primary thing consuming his brain. He'll be able to beat the guys who aren't expected to think in no time. Among two roughly equally skilled competitors, the one with deeper commitment usually wins.
2) Homework. You need to know more than the other guy - your competition. This means educating yourself (reading) and crunching numbers yourself. I recommend some resources to get educated at the bottom of this email.
3) Experience. Unless you're Tiger Woods, even with all the skills and commitment, you're not going to win big your first year. But at first, you at least need to be in the game. All the reading about golf in the world isn't going to make you a good golfer if you're not on the course. Keep paying your dues (by investing), take personal responsibility for your losses and try to learn from them, and the big profits will come.
4) Thinking for yourself. Along my investment education I've been amazed to find that there are only a couple of folks out there that think for themselves. These names include Jim Rogers, Bill Gross and Warren Buffett. But it is an amazingly short list. Remember, the employees of a brokerage firm are not paid to think for themselves. So you'll be able to beat the brokerage firms in no time. If you're simply copying their advice, you'll never beat 'em.
5) Avoiding major mistakes. The "catastrophic loss" is what kills you. You can't afford to lose it all. Cut your losses early. Use trailing stops. Do whatever it takes to keep your downside limited and your upside unlimited. Pretty soon, one day, that unlimited upside will show up in your
account.
There are ways to do okay in 30 minutes a year. There are ways to do well in 30 minutes week. But I'm not talking about those ways. I'm talking about becoming a superstar - the best full-time investor/trader possible.
Bonus: Two More Ways To Become A Better Investor
In addition to the FIVE steps above, two great things you can do to become a smarter, wealthier investor are:
1) Learn how the great, individualist investors got great, and how they think...
Jim Rogers: Read the book Adventure Capitalist by Jim Rogers (you can learn more about Jim at
www.JimRogers.com).
Bill Gross: Read his monthly commentaries at the www.PIMCO.com website and learn what he's talking about.
Warren Buffett: Read and try to understand what Warren Buffett is talking about at: www.berkshirehathaway.com.
2) Learn to do great homework.
Two books of great homework are: The Research Driven Investor by Tim Hayes and Winning on Wall Street by Martin Zweig.
A few great books with great thinkers include all of the Market Wizards books by Jack Schwager (particularly the first one), and the work done by the folks at the International Institute of Trading Mastery (www.iitm.com)
This e-Letter is often filled with tips and tricks - shortcuts to making you a better
investor - a successful investor. But to truly be great, you can't get around the work. Today is not about tricks or shortcuts.
Along the way you may just find, like I have, that the learning and getting better at something is a lot of fun. You may even come to see investing as I do, more as an all-consuming game with a scoreboard, rather than work. And there is a scoreboard: It's your monthly account statement.
If you want to be great, and you've got the time and the inclination, I've given you the five keys to beating everyone, and a pile of books to get you started in the right direction... so get to it!
The holidays are here, which means you should have some extra reading time to get started. There is no downside to heading down this path... even if you can't give it the full commitment, you'll be a much better investor than you ever were. And that's worth
it.
If you're interested in buying any of the books
that I mentioned in this e-letter, you can find them on the
"Recommended Reading" page of our web site at http://www.
InvestmentU.com
Steve
Sjuggerud, has a doctorate in finance and has been
regarded as one of the best researchers on the stock market
around. He is the editor of "Steve Sjuggerud's True
Wealth," has been a member of the Oxford Club's Investment
Advisory Panel for more than five years and is the co-founder and
President of Investment U.
Article
#
293 reprinted with permission from The Investment U E-Letter.
For a free offer and to learn more about Investment U and Steve
Sjuggerud, visit their website http://www.investmentu.com/IITM.
Learn how in just 20 minutes a week
you can become more market savvy than 99% of investors.
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Listening in....
Excerpts from Dr. Tharp's Discussion Forum.
How
A System Works
Author: Van Tharp
Date: 11-26-03 08:29
To make money in the market, you need some knowledge of the big picture.
You then need several strategies that take advantage of different aspects of the big picture.
For each strategy you need some sort of model that determine when you should enter. You must understand the model is not real and could be changed at any time (when you don't know that you get in real trouble).
Once you have an entry based upon the model you need to know immediately when you will be wrong -- that's your 1R risk. In addition, you need to have some idea where the trade could go (minimum objective) and in my
opinion that should be at least 3R (three times your initial risk).
You then need to practice position sizing which mean in most cases not risking more than 1% if you are wrong (often less than that is better). This keeps you in the game.
Most good strategies have this element in common. I recently did a teleseminar on that and you can still order a CD of it from IITM. And you need to be able to know when your idea of the big picture is wrong or changing. That material will be in my new book Safe Strategies for Financial Freedom (due in April-May).
If you want to know more, I'd suggest our Stock Market Mastery on the first Sat-Sun in December.
Van
Read
the full, unedited thread by clicking here.
Dr Tharp and traders, investors and wealth builders around the
world connect on this site, share ideas and learn from each other.
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Trading
Tips:
Peak Performance Trading
Tips
Expertise
(Part V)
by D. R. Barton, Jr.
"The
way to develop self-confidence is to do the thing you fear and get a
record of successful experiences behind you. Destiny is not a matter
of chance, it is a matter of choice; it is not a thing to be waited
for, it is a thing to be achieved." ~William Jennings
Bryant
Our exploration
of the subject of “trading expertise” is in its fifth week For the last four weeks, we’ve been discussing the concept
of expertise as applied to a price discipline in trading.
Last week we looked at the importance of practice in your
journey toward developing expertise in your chosen price discipline.
I left you with the thought that one has to develop a way to
practice. I mentioned
that when many folks think of “practice trading” they
immediately think of “paper trading”.
Paper trading
involves writing your trades down on paper, but not actually placing
the trade in the market. For
me and many of the traders that I work with, paper trading is seen
as a tool with very limited usefulness.
The shortcomings of paper trading are many, but the bottom
line is that nearly everyone paper trades well.
As one friend says, I’ve known many paper trading
“millionaires” who found a different reality when they put real
money into the markets. While
execution issues such as commission costs and slippage play a role
in differentiating paper trading from real trading, the true
distinction comes in the trader’s psychology.
There’s a very real difference between a big profit or loss
on paper and that same amount when seen in real dollars.
To illustrate this difference, think about placing a
2” x 4” board on your living room floor.
Your goal is to walk across that board without falling off.
It’s a piece of cake, actually.
After successfully traversing it once, you run, skip or dance
across. “Pass the
blindfold, this is easy!” might be your next statement.
Now imagine that same narrow board stretched between the
roofs of two buildings – 20 stories above the street.
Crossing that very same board takes on a whole new level of
complexity. The risk is
infinitely higher. It’s
the difference between a little personal embarrassment (if you step
off onto your living room floor) and serious personal injury (or
worse) if you fall 20 stories.
That gives you an idea about the magnitude of difference
between paper trading and real trading. But don’t despair! There
are some great methods for practicing your price discipline that
will not put you or your cash (at least not much of it) in harms
way. We’ll explore
those methods in next week’s “Trading Tip”.
D.
R. Barton, Jr. is a lead instructor for IITM courses. He is the
Chief Operating Officer and Risk Manager for the Directional
Research and Trading hedge fund group. D. R. has been actively
involved in trading, researching and teaching in the markets since
1986. In 1999. D.
R. has created extensive and innovative new training products and
taught extensively in many investment areas including intra-day
trading, swing trading, and cutting edge risk management techniques.
His writing credits include: Safe Strategies for Financial Freedom
by Van K. Tharp, D. R. Barton, Jr. and Steve Sjuggerud and cover
articles for the trade newsletter Market Mastery where he also
serves on the editorial advisory board. In addition, D. R. writes a
stock screening newsletter for traders and investors called The
10-Minute Trader.
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