Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell. – Warren Buffett, who became a billionaire through stock market investing
I have a friend whom I asked one time whether he is an active trader or not. He humbly said he’s too busy to be trading every day.
I asked another guy the same thing and he said he is active. Every week he collects and dumps penny stocks in the market.
I just think that the first guy has a better position compared to the second.
Vice
Everyone has a vice. In the stock market, most have. Mind you, this vice is addictive.
People who lose money the first or second time don’t learn. They would trade more thinking that their next trades will make them recover what they previously lost. They do so until they become addicted.
If, however, they happen to make money during the first trade, the more they become addicted thinking that the stock market is easy or they are geniuses, or both.
So they continue to trade until they learn, or lose it all. But they unfortunately end up not as victors but victims in the stock market.
Whether traders admit or not, constantly buying and selling can ruin their financial life.
I mentioned to you last time the cost of buying and selling every now and then. Assuming you always win, tax and commission can diminish your profit from 2% to 4%.
If you are losing money in most of your trades, that’s a double whammy. And if accumulated, that’s a big loss of your money.
Unless you exercise a strong will to cut this vice, you won’t go ahead financially in the stock market.
How many active traders do most of the time make a good profit?
I admit that there are few people who can beat the market by trading. Only a few. These are the people who are attuned to the market all day and study it so hard. If you don’t have the luxury of time, don’t dare try day trading.
Virtue
I will keep on repeating this: when you buy a great company, that is managed by capable managers, at a discounted price, you will eventually make money if you just relax.
If you buy stocks that way, it’s better to spend more time with your family and on things you enjoy doing.
Remember that when stock market analysts tell to cut your losses and safeguard your profits, you may end up becoming an active trader. Such analysts have short-term views in mind.
Don’t listen to them. Buy more shares when the standards I mentioned above are met.
Further, when predictions of stock market “experts” seem to scare you, Warren Buffett says, it’s a terrible mistake to try to dance in and out of the market.
Resist the temptation to trade. The problem with most people in the stock market is that they seem to develop rushes when they don’t trade.
Just relax. Don’t scratch your skin. I’m sure your allergy won’t be triggered if you don’t monitor the monitor the market on a daily basis.
Be mindful also that active trading takes a lot of time and loads of energy. It is physically and intellectually taxing, one author says.
I remember a story of my professor in Capital Markets. He had an acquaintance who was into currency trading. True he became very rich but he died young. Probably because of stress since the guy was always monitoring the markets around the world day in and day out.
Warren Buffett is proud to say that “We continue to make more money when snoring than when active.” Take it from the billionaire, people.
