Unfortunately the archetypal image of a trader is of an individual who is constantly on the move. In the old days the appearance of a trader would include the endlessly repetitive scenes of someone yelling down the phone to their broker issuing a constant stream of instructions. Nowadays the image might be of someone using a tablet and moving coloured figures about a screen. Irrespective of the visage that people have in mind the central theme was one of activity. This perception has also crept into the belief system of how traders should behave, as such traders cant seem to accept that they will not be busy every minute of the day – even with a short term system. What is lost in all of this is the simple notion of how wealth is created. It is has been my experience that despite the popular idea that trading involves buzzing around like a blue arsed fly there is a lot of sitting around involved whilst you wait. You wait either wait for something to trigger you into a position or you wait to be exited from an existing position. Irrespective of which event is occurring the common denominator is waiting.
This desire to be part of the mania that is trading has also in many traders caused a loss of what could be called basic skills – the most basic of which seem to revolve around the triad of understanding long term trends, the power of compounding and the fact that positions wlil give you free money in the form of dividends. To give you a sense of the power of these three elements consider the chart below. I have taken the share price data from ALL and split the data into adjusted and unadjusted data. The unadjusted data is simply the raw closing price whereas the adjusted data is price based upon the inclusion of dividend payments.
Naturally you would not simply buy a stock and hold it because that is insane. But match long term trend following with dividend reinvested schemes and pyramiding and you have a powerful wealth creation tool. The only problem is that it is boring and the prime motivation for trading for the majority of traders does seem to be entertainment – being profitable is a way down the list.
In the beginning for me, most of my time was research of stocks and workable systems. Then came trying to keep track and record keep for me and the accountant. The portfolio management and record keeping is still a work in progress.
The next hardest part for me was to fill my portfolio with quality stocks with good potential. But once that was done it was a case of acting on my stops. It took me a while to get the gist of this. My plan is quite simple, but it keeps me out of a lot of whats on the ASX, My interpretation of junk.
Now I spend more time on leisure pursuits. I check the market every night after downloading the data. Just in case there are any nasty surprises. But my system is weekly, and that has been very forgiving.
It is a pity I did not start this investing 30 years ago.