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Tale of the Farmer and the Share Trader

by Bruno Deshayes on 19 May 2016 permalink
Are you in the market? If not, why not? Have you sown your seeds in order to reap a harvest? One thing we know for sure: No seeds in the ground is tantamount to a zero return. So what is it about agriculture that makes a good pattern for long term investing?

First you have to be in the race to win the prize. No matter what adverse conditions prevail the farmer always plants a crop because conditions can change and do change over time. Compare that with fidgety investors staying on the sidelines waiting for that perfect entry point. We know you cannot pick the tops or bottoms of the market. You can only find that out three months later looking back at the charts. By then it is useless information apart from setting a precedent for the next support/resistance level.

Later as soon as the seedlings emerge the farmer waters them with tender loving care. But some investors are so paranoid that they protect their position with a stop too close. Sure enough they get bumped off at the first retracement to re-test the last support level. That would be like a farmer pulling up a plant off the ground to check how the roots are doing.

Lastly plants do grow in the wild without the help of anybody. The farmer knows that time is on his side. The process that was started will eventually reach fulfilment. The seasoned investor also knows that time is on his side. The economy keeps going and going simply because consumers keep consuming what producers keep producing. Yes peaks and troughs follow their erratic ways but there is also an upward bias in the market that will reward those who stay for the long haul.

But what about you? Have you sown your field? Are you in the market? If not, why not? Maybe you heard so many horror stories of people who lost their life savings that you don't know who to believe. Obviously you do not have yet a positive personal experience to fall back on.

What if you could look over the shoulder of a successful trader, gaze at the trading log and ascertain the overall performance?

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Gamblers, Speculators and Investors

by Bruno Deshayes on 28 Apr 2016 permalink
Gamblers rarely see themselves as gamblers nor would they want their spouse to know what they are really doing. If there are some winners in the market there must also be some losers and I am afraid gamblers make the bulk of it. They compound their misfortune by trading with borrowed money rather than some set-aside capital they can afford to loose if it comes to that. They are attracted to the market for all the wrong motives and supply the grapevine with reasons why you should not be trading. They have no discipline no patience and no accountability. They have no notion of a calculated risk and do not take a break to regather themselves after a loss. Instead they try to make up for it by trading double the original quantity. Their demise is deserved. They suffer from a psychological addiction which blinds them to the consequences of bankruptcy to themselves and their family if they still have one.

Speculators are savvy traders who have a nosy interest in the market. They like to uncover profitable patterns and only trust what they have observed after some long and meticulous research. They use math and charting to document their findings but unlike specialists who know it all but never trade speculators take trades every day as a matter of personal discipline. They learn to take losses in their stride knowing that the next gain is just around the corner if they keep trading and maintain their safeguards. Speculators tend to trade commodities, forex and indices which cannot be manipulated by a single large player. Speculators are predominantly short term and use technical analysis.

Investors are in for the long term and use mainly fundamental analysis. They have a vested interest and inside knowledge of a given industry. They know the main players in the game and keep themselves informed of anything that might impact their industry. Investors tend to trade stocks of all capitalisation. They might know that so and so has been appointed to the board of directors of some unnoticed company and vote with an order for a bundle of shares. Investors are experts at sifting through information. In fact recent scandals have highlighted the fact that what you know and what you do with that information can make you a fortune. Insider trading is hard to quantify, hard to prosecute and hard to expose. Retail investors are in danger of being duped by insiders and recriminations are the norm at company annual general meetings. Share options and the plethora of new weird and wonderful share issues muddy the waters for newcomers.

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