How To Make A Small Fortune Trading Stocks
Answer: Start with a large fortune.
The fact is, actively trading stocks is one of the fastest ways to destroy your wealth. Here are some things to consider:
Do You Feel Lucky – Several studies show ~97% of day traders lose money. What are the odds you are one of the few with the time, temperament, information edge, experience, and skill, to turn a profit?
Leave It To The Pros – 96% of U.S. equity mutual fund portfolio managers failed to beat the S&P 500 over the last 20 years. These are professional stock pickers who have access to the best information and technology, and they still can’t pick winners consistently.
Extreme Herding Events – A behavioral trading pattern where individuals pile into a popular stock, pushing the price higher. Research shows that these stocks lose ~9% over the next month, and retail traders are left holding the bag.
Sunk Cost Fallacy – We are likely to continue an endeavor if we have already invested in it, whether it be a monetary investment or the effort we put into the decision. That often means we go against evidence that shows it is no longer the best decision.
Stay Humble – A study from U.C. Berkely cited “overconfidence” as the main reason why day traders lose money when trading at a high frequency. Their conclusion: “Those who trade the most are hurt the most.”
Princeton professor Burton Malkiel, author of A Random Walk Down Wall Street, notes: “Serious investing involves diversification, rebalancing, minimizing taxes, avoiding market timing, and using ETFs with rock bottom fees. Don’t be misled with false claims of easy profits from day trading.”
If you would like to discuss your investment portfolio, click Book A Meeting.
