This is an extract from my next book on Trading Psychology which I shared with Batches 53 and 54 this morning in an email in reference to GRPN’s IPO launch and why seasoned traders tend to stay away from such events.
In life, we have two kinds of shoppers – the young and impressionable shopper with not a lot of money (in trading, they known as novices) and the old and wise shopper with obviously more wealth (in trading, they known as seasoned traders).
The young and impressionable buy on impulse the moment they see something new and attractive. This puts them in the hip and fashionable light. But the hipness doesn’t last and they will continue to spend lavishly to stay hip and fashionable by always shopping for things that don’t have an intrinsic value.
The old and wise shopper with obviously more wealth will shop for things that are necessary and will always look for the best bargains, lowest deals and cost efficiency. This ensures that what they buy will last and save them money in the long term. They shop for an intrinsic value.
The young and impressionable buy properties on impulse without much care for the total value (quantum value) and will be focused instead on the ability to make the monthly instalments. They often shop for properties that are too large for their needs and in locations that are most convenient and hip.
The old and wise property hunter will buy a property with the quantum in mind and will scope out the deal with the best resale value that their nest egg can afford. They will stick to properties that meet their needs and won’t mind locations that are slightly out of the way as long as there is a promise of future developments and expansions that will guarantee a rise in their property’s value.
The novice trader is exactly like the young and impressionable shopper in every way. They will always get caught up in the hype, they will always buy the rumor and sell the news, they will always regret pulling the trigger too early and they almost always spend more than they can afford.
This extract is from a chapter that compares Novice behavior against Seasoned behavior and vindicates my theory that the market makes us do things that are not normal in life. In the weeks to come, I will share a few more gems from this chapter that will lead up into the launch of this next book.