This exciting world of stock investing can be quite bewildering and even scary to many of us. Should you buy stocks or mutual funds, and how to choose between thousands of them? Or perhaps your fortune lies in the family business, collecting works of art, antiques or international real estate? Surprisingly, it is relatively easy to answer all these questions without spending another year at school or paying a fortune to a financial consultant. My book, Psychology of Investing, describes the subject in great details. Here are a few ideas from this book.
The inconvenient truth of stock trading lies in the fact that the vast majority of amateur traders do not do well in the market. Even the most intelligent and well informed of them can rarely outperform the Dow. The world of investing is a zero-sum game where you compete not only with amateur traders like you, but also with highly skilled professionals. Most of these professionals are graduates of our most prestigious universities. In truth, you compete with the best and the brightest minds of our nation who spend 60 hours a week trying to outsmart you. Besides, they possess the most advance knowledge, the fastest computers and all the greatest tools of trade available. In addition, the game of trading—like almost everything else related to money—is shamelessly rigged and not in your favor.
How come some amateurs like you still make money in stock trading? And not only once or twice, but consistently. Simple, they possess certain innate skills appropriate for certain trading strategies. Because of these skills, they have a competitive edge that allows them to win this very unfair game of stock trading. Unfortunately, they can succeed only as long as they stick to the strategy they have innate skills for. The moment they change such a strategy, their advantage is lost, and they begin to lose money. So, the process of successful trading is fairly simple: first find out if you have the skills to trade stocks and then chose a trading strategy appropriate for your innate skills and stick to it.
You can find out if any of your innate skills can be used for trading, and what trading strategies are appropriate for these skills in my book, Psychology of Investing. A few tips from this book that may increase your chances for success can be found in my article, Trade Right for Your Type.