Online Stock Trading

Occasionally, I think of little mantras which help guide my thinking. So, I started writing them down. Eventually, I began to notice just how much influence they began having on my perspective. It turns out they are little versions or even pieces of the abstract side of my comprehensive strategy. They are signposts in a sometimes strange wilderness.

Here are ten of them:

1) Have an iron stomach and nerves of steel

Times can be tough. Investing isn’t all rose-filled sun-draped fields in peaceful Midwestern towns or quaint Old London pubs fixed beside warm cobblestone streets. To the contrary. Investing is a roller coaster ride set in the scene of 28 Days Later. Yes, it can really be that bad. Be tough as hell, and the worse thing that will happen if you have to take a loss, besides taking that loss, is that you can retain some self-respect, that you can get up and try again. Do just that, and you’ll earn my respect too.

2) Be wary of the crowd

This is one of those really bizarre ones. It’s the one that most people keep talking about that most people never do. You must believe in facts. Here’s one: the vast majority of investors under perform the market: and I quote, “Not even the top tenth of [performers] manage to beat the market consistently” (emphasis added). Read the abstract here. Read or download the original study here. Just where is all that money going then? It’s fascinating, but we already know where it goes. Yes, the rich keep getting richer and the others, well…they keep feeding the rich. Read this to see the actual numbers. Absolutely staggering. Start feeding yourself.

3) Learn how to smell a pig

This should be easy right? They stink. Nevertheless, many people buy them. Again, let me quote, “chop stocks alone ‘make up half the 85 million-share volume on the OTC Bulletin Board’” (emphasis added). Unbelievable. Read the Wikipedia article here. Buy reputable companies that are actually making products or selling services, and who have a high likelihood of being able to continue to do either of these long into the future. Anything else should smell like something odd to you.

4) Do at the very least this one math problem

Ok, you’ve done your research, done at least some valuation, taken many things into consideration. You’re ready to buy. What’s the problem? Problem is, most investors (me included) almost always over estimate the likelihood of a stock going up. Then they minimize the likelihood that it could go down. Then, to make matters worse, they forget that it might just sit and stagnate. Sit down and calculate a probability density function. A what? Don’t worry, I’ve made it easy. Download one here. Just fill in the yellow boxes and look at the green one. This will help you become much more conservative (i.e. thoughtful). Using this periodically will help you assess risk more accurately. In other words, it takes into account the possibilities of what a stock can do. All of them. And then it assigns a dollar figure. You don’t have to be precise, you just have to estimate. It’s not a valuation of a security, it’s a valuation of the probabilities of all the possible outcomes involved in buying one.

5) Learn how to take a break

Gracious, go find a beach, a library or a Starbucks. Unwind. Unplug. Go visit your girlfriend, whatever. If you stay so tuned into your stocks, you will go mad. Studies prove this. I swear. I was in one. See here for details.

6) Educate yourself

You don’t have to be an analyst to trade stocks. In other words, you don’t have to know every single kind of trade or how to trade currencies. But you have to get good with at least something. Also, if you do start reading articles, magazines and other informational sources, you’ll start getting a clearer picture of the whole. You’ll start thinking and living investing and like anything else you’ll just eventually start picking up skills. Think drink and talk fitness and you’ll end up by being fit. Then, go see number 5 again.

7) Don’t commit your bloody reserves

Ever buy a stock and watch it go down, but still stay convinced that you have a great stock? Then do you ever watch this cycle repeat? Then finally, blood stained boots and all you say, “Damn it. I wish I would have bought it now.” You can, but only if you have more troops. It doesn’t take doing this too many times before you start habitually keeping cash. Then, when the battle goes unconventional, you can send more men to mop.

Construct a solid strategy but use at least some plastic parts

It is vital, in my opinion, to have some kind of strategy, but, if it is of stone, the stock market is not. It is a fluid and moving pool of quicksand; surf rolling up on the beach. If you are too inflexible with a moving target, you will only hit when it comes to you. If you’re too flexible though, you’ll never know what really works. You will become one big second guess. Get the best of both worlds by bending your knees a little. Check your corners and go get the bastard.

9) Evolve into an android

This is not easy, but necessary. What do you have that androids do not? Emotions. Save those for poetry, love letters or even divorce papers. Here, with the stock market, you have to remember that this is business. If business hurts too much, go do charity. Always be rational. Anticipate enough of the outcomes so that you aren’t caught by utter surprise (barring nuclear war or something). Get good enough to know that you knew this could happen. Then, unblinking gaze and all, get back to work.

10) Remember this: The low hanging fruit has already been picked

Just like you should avoid letting depression set in to control your outlook, be at least a little wary of extreme optimism. If you find a stock and begin thinking it’s too good to be true, guess what? Always assume that someone got there first. Remember, it’s not bad to be second, after all a synonym for “got there first” is “bait.”