October 27

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Are You Feeling Lucky?

FAMILY UPDATE!

Chris may have broken his big toe running cross country. At least, that is what we thought until he got X-rays—just a bad sprain. You don't realize how important the big toe is until you can't use it.

Grammy is flying down as we speak and will be spending a whole week with us. My wife and she are great friends. I got lucky there. I'm sure some of you have mother-in-law horror stories out there. I love my mother-in-law, too. She was born in Thailand, and we go orchid shopping together.

We have big plans together. Of course, we will play a lot of pickleball. Grammy and my youngest, Jesse, are now at the same beginner level, so they intend on having some heated battles. 


Oftentimes I find myself battling against the concept of "day-trading." Many people believe I sit behind a computer all day, watching the market minute by minute, making hurried micro-second changes.

Many retired investors use these strategies with their retirement savings. It’s heartbreaking.

There are plenty of people who would like you to day trade. Why would I say that? Here are a few gems I ran across (very quickly) on the internet.

Our Congressive Day Trading System isn’t about making millions of dollars every day. The goal is to make money consistently every day. It is learning how to be reliant on yourself so you can focus on the actual movement of the market.

Dave’s Take: How is it possible to make money consistently daily!? Maybe I should buy their system so I can help you make money every day. Do you know who else promoted this slow and steady growth with no downturns? Bernie Madoff.

Are you ready to invest smarter with very little effort on your part? Over the past 15 months, Prep2Grow has achieved a 96+% win rate with 117+% return.

Dave’s Take: Any time someone purports specific (and ludicrous) returns like this your alarm bells should go off.

If you thought that online trading was for men only, you are making one huge mistake! Thus, if you are a stay-at-home mom, this is the perfect way to make extra cash – and better yet, you’ll still have time for all your household requires of you!

Dave’s Take: I hope all of you ladies have time to study between laundry and vacuuming.

Let’s Have a Quick Reality Check

As I have mentioned repeatedly, "super-smart" Wall Street guys cannot make more money in the long term than a traditional long-term diversified investor.

I can’t tell you how many times I’ve heard, "Dave, I’ve been day trading for the last few years or so, and I’ve made a killing! I think I’ve really got a knack for this."

My answer (which I usually keep to myself) is, "The stock market has done nothing but go up for fifteen years. You could have thrown darts at a dartboard and made money." (It's gone up 336.4% since 2008 or 9.97% per year.)

What’s fascinating is what happens when the stock market has a downturn. Suddenly, day-trading isn’t nearly as fun — at all. Right now, I’m seeing a lot of ex-day traders in my office looking for some sensible guidance. Last year was a little rocky, and many people realized that day trading could go south extremely quickly in the wrong economic environment.

Moving in and out of cash is especially risky in times such as these. If your day-trading system involves rapidly moving in and out of the market based on daily returns, it turns into a mess. Why? While it is easy to sell all your investments and wait until things get better, when is the right time, exactly?

It goes something like this:

The market has a terrible day, and even though you might know it’s a mistake to sell your portfolio, it just doesn’t seem worth the risk. You sell. You want to wait until things settle down.

Then one of two things happens:

The market keeps going down.

I’m a genius, you think to yourself. I got out at the right time. I wonder if it is going to keep on going down? I better hold off reinvesting until it stops.

OR, the market starts going up.

Hmmm, you say to yourself, should I get back in now? But I'd be buying when the market is at a high mark. I should wait until it has a dip again.

Do you see the problem here? When do you get back in? It is an impossible task.

Either way, you lose. Your long-term returns will be slashed.

Stay the course. Allow the markets to do what the markets do. Remember that what the markets do this year or next does not matter.

Say that with me: What the markets do this year or next does not matter.

If I were to say that the markets will return an average of 10% per year over the next fifteen years, you would call me crazy. But I would have been right if I had said that fifteen years ago. Who cares if the market goes down 5% for a few months? Go focus on showing kindness to important people in your life. Your portfolio does not need you.

Day trading is a losing battle, nearly every time.

Interesting Story:

I have a friend who, in the 1990s, ran an investment portfolio. His returns were through the roof. His performance was so incredible that pension systems began to approach him. Large companies like Dillards, Inc. were coming to him to manage all of their assets. We are talking hundreds of millions of dollars. Of course, my friends charged fees, which led him to extreme riches.

Then, other large companies got wind of his stellar returns. He started to experience a bit of fame. He found himself responsible for over a billion dollars.

He decided to retire and slow down the pace of his life. He already had more money than he could ever spend.

I asked him, "What was your secret? How did you blow all these other managers out of the water?"

He looked at me sheepishly, "I had 5% of my portfolio in Yahoo stock the whole time. It went from $1 a share to $110 a share. That’s over a 10,000% increase. I guess you could say I got lucky."

Beware of anyone telling you they have a system allowing you to beat the markets. Like I said, if an effective system existed, I would use it for my clients.

Be Blessed,

Dave

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