Trading For A Million?
I made this posting some time ago when I received an email from an inquirer. The question was an honest one but it reflected the state of mind of most locals when it comes to trading.
Through all the daily hype and rah-rah that we receive in the media, we slowly start believing that it is possible to get rich quick through trading. We get the idea that it is easy money and in some cases, takes hardly any effort. We oggle at the likes of Soros and Buffet and look to become successful traders and investors like them.
But truth be told, money makes more money. If you don’t have it at first, it will be a major struggle.
People often think that a Trader is an investor that starts small to build an asset base that becomes an Investment for the long term. That couldn’t be farther from the truth. Investing and Trading are two very different styles of approaching the market with two very different mindsets with very different objectives and obviously very different results.. Not often do you find people who are proficient in both.
I am a short term Trader who leverages heavily with a rather large risk appetite and small tolerance for loss. Adam Khoo is a long term Value Investor with moderate leverage (10% of his capital on any single investment) and a larger tolerance for loss (he can afford to lose his entire investment as it is a calculated risk). I can’t stand to lose, let alone everything. Over the years, our returns are comparable but I will be working harder than Adam and definitely have to be more active.
Why work so hard when I can be like Adam who is passively invested? It’s because I don’t have the millions Adam has so I have to work for it. Being an active Trader also allows me opportunities everyday to outpace Adam’s performance but with that comes more risk. Adam’s risk is constant and pre-calculated.
Investing means placing money into growth potential -
money that you can afford to lose without the losses impacting or changing your life.
I do invest for the mdeium term but unlike Value Investing, my style of investing is more active and higher on the risk side with greater returns in a shorter time-frame. I can’t be a passive Investor like Adam who will lay out 10% of his capital and can afford to lose it without changing his life drastically. I have to cut my losses early because any such great loss will surely alter my long term plans – that is not money I can afford to lose if I want to keep my plans on track.
As far as becoming a millionaire is concerned, trading to become a millionaire is a fallacy. It is possible but it will take a damn long time to achieve it starting with an account of less than $10K. We can’t even talk about compounding at this level. All a Trader can hope to achieve with a small account is consistency with exponential growth. With that optimum level of performance (which is so hard to attain) a really good Trader can probably make it to a million like this;
- $10K X a monthly profit of 15% exponentialy over 1 year = $53K (without any losses) (500% annual growth)
- $53K X a 15% monthly growth over the second year = $283.5K (without losses) (520%)
- $283 X 15% monthly growth over the third year = $1.517M (without losses) (540%)
So tell me, how realistic is it to be a Trader on a small $10K account hoping to make a million without any losses in 34 months? And what if the Trader was me and when I started with only $2K? It would take another whole year to get the account up to $10K at 15% monthly.
Is it achievable? Not unless that Trader is willing to take very high risks and be fully invested with maximum leverage for returns of no less than 15%.
In reality, as you grow, you won’t invest more exponentially and your growth percentage will decline as the dollar value of your profits rise.
You would be follish if you wanted to trade for a million because there are many easier ways to make your money make a million. The truth is, as you get better and make more money, you will find other ways to make your money work for you harder. Investing and Trading alone are never going to be one’s life-blood forever. It’s a fallacy. It’s stupidity. Re-invest and diversify – that is the name of the game.
Here’s a hint: every successful multi-millionaire always had miltiple income streams, passive income and made their first million from a piece of property.
Cheers!
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