To be an investor or trader? [In my own words]
For newbie, before you step into the market, you need to know which type of player you want to be, investor or trader? or half half.
To be an Investor;
IMO, you need to have at least $30,000 to hoot at least 3 blue chips or good fundemental stocks, capital gain and dividend yield is usually what you aim for in a portfolio, IMO an expected rational dividend yield should be at Least 5%. but as long you are invested in the market, no matter whether is it trading or investing, you face risk, anything can happen to a stock or even a bluechip counters or the market overnight while you are sleeping at night or when the singapore market is closed, be it is a blue chips or a penny stock, to quote some bluechips, just look at wilmar, glp, SIA. Your entry into the market is important too, just imagine u started building up your portfolio your investment when sti was 3200 last year? Or when sti was 3800 in 2009? You would have lost a fortune despite hooting only bluechips. IMO the only advantage of hooting bluechips is there will always be funds will invested in blue chips. So depending on which level you start your investment. an investor will not lose all your capital, but might stand to lose 60% to 80% paper loss. Type of portfolio you can build can be a dividend portfolio that consists of the high yield dividend stocks, or reits (reits is good when i/r is low, but when i/r starts to move up, reits will go down), or a portfolio full of ETFS, or a portfolio full of undervalued stocks. IMO a portfolio should have at least one or two multi-bagger and it boils down to which level of the market you invest in, a market will never make high everyday, it moves in cycles, a typical market cycle can be as short as 5 years or as long as 10 years, so do you invest when STI is trading at 1400 or when STI is trading at 3000 when the previous all time high is around 3900? so IMO, you only become an investor when the market crashed, and not when you have the money. Do you honestly believe that by buying DBS today at $14.32 and DBS will be trading at $18 by end of the year or $50 in 10 years time?
To be a Trader;
IMO, The startup capital can be low, you can start with a low capital like $1000 or $2000, but the learning curve is steeper, a trader days become like a war game, to a trader, every trade is a war against the market, you fight against the market, you can't simply go into a trade without planning and knowing what you want out of the trade, you as a trader is fighting against the unknown everyday. There is only 50% win 50% lose. Trader requires war experiences to survive or improve, the more u trade the better you become, provided you put in an effort to study your losses. No traders can beat the market when he starts. he needs experiences. It's akin to in NS when each drill each mission is repeated many many times so that when any unexpected or when a surprise spring up, you are up to the task to react with instint, so going back to trading, when your trade goes against you or some unexpected event happen with the market (a rise in interest, a terroist attack, or some important character death) you are able to react to it instinctly.
A trader's journey is usually rocky in the beginning, some drop up along the way, some become investor, some give up and loss become permanently, the journey is challenging. A trader should always regard himself as an entreprneur and treat his trading as a business..
let me use a chicken rice stall holder as an analogy.
1) It is common for a businessman or enterpreuer to face losses everyday too
(trader faces losses too),
2) they face rental cost and operation cost everyday in their business
(trader faces commission, gst and clearing fee),
3) you want to be an entrepuer, you save up, you borrow from the bank to start a chicken rice stall
(you need to have a good capital to begin your trading journey too),
4) you need to look for a location with good flow of human
(you need to find a good broker house with good stock platform),
5) there you need to find supplier
(you need to find a good and reliable broker),
6) you need to negotiate your terms with your supplier
(negotiate a good commission rate if you are a high volume trader),
7) you need to choose your ingredients carefully
(select a few market and counters to concentrate),
8) but of course before you decide to start a chicken rice stall, you must already have a recipes for a good chicken rice
(A good trading strategy or develope your own),
9) but what is taste like a good chicken rice might not be a good for your customer
(what might works in forex market might not work in sgx or us market)
10) since eventually it is your customers who is your revenue generator who decide whether you make or lose money
(It is the market who decides you profit and losses).
so nobody will have a perfect recipes
(a perfect strategy) for a chicken rice,
11) you do still need to prepare to adjust your recipes everyday to match your customer taste, adjusting your recipes requires time and cost too
(revising your trading strategy),
12) you would also, part of your business planning requires to forecast on the number of chicken you order from your supplier, the ingredients and also negiotiate your rental cost
(Adjust your trading position, the type of entry, the amount of risk you put in the market).
13) Every business will face risk, even a chicken rice stall will face many risks
(Be prepared to face risk once you are a trader, there might be computer failure, system failure, or even job occupation risk),
14) there might be a shortage of vegetable or chicken due to natural disaster or Epidemic risk like bird flu which might affect your business
(like the middle east unrest or china rate hiking or even singapore going into recession)
15) despite finally having a perfect chicken rice recipes which could be passed down from your forefather
(could be a good trading strategy that you pay and learn from trading school or trading books),
16) or there might be a sudden change in taste and preference from your customers due to new innovation or competition
(like no contra, or new rules or new market rules or new market operating hours like no lunch break)
or maybe health warning, that is also when recipes must again be adjust again
(requires to change or revise your strategy again),
most important is you must evolve with the industry.
17) Nobody will have the perfect recipes for chicken rice, if you can evolve faster than anyone, you will have a bigger slice of the profit. If you refuse to evolve, you will always be the left behind. Even a chicken rice stall holder dont make money everyday after deducting all the cost, a typical daily profit after deducting all the cost could amount to at most $100 or $150, sometime they dont make money too
(be happy with a $100 or $150 or dont despair if you dont make any money at all on that day)
despite working long hours from 11am to 7pm for a chicken rice holder
(a trader position can be as short as 5min or as long as 5 days), which are due for taxation at the end of a financial year too
(good thing is trading or capital profit is not taxable unlike dividend. )
18) A chicken rice stall can go bust, your effort and capital will go wasted
(a journey of trading can make you bankrupt or have a high debt)
So if you want to be an entrepruer but doesnt have the time because of your job, be a trader.
So therefore trading Losses and commission should be treated as business cost and all his profit be treated as revenue, when your revenue exceed expenses, you make profit vice versa. You manage your risk, you plan your business, different times counts for different strategy. In bad times, it's normal for a newbie or even an experience trader to lose money, but an experience trader will manage their risk and their exposure better and minimise their losses by placing tighter stop losses and taking profit off faster than a newbie who some cant differentiate a bull market or a bear market and hopes to see his winning run and eventually disillusioned himself as a short term investor rather than a trader.
Losing money as a trader is common and part of parcel to his business, even an experience trader will run into losses, but when money is lost without knowing why you lose, the losses will become as a cost or write-off, if you learnt from it and you are able to avert such mistake again, the losses will become an asset or school fee. Therefore do not lose money without know why you lose.For a trader, we face shorter but BIGGER risk, our risk ends once our trade is settled compared to an investor, so before you decide to be a trader, be prepared to lose all your capital but if you suceed, the market becomes your ATM machine.. It doesnt matter you lose today or you are on a losing streak, what matter most is the net net profit/loss at the end of the month/quarter or year.
Even a bluechip company can make losses in a quarter despite sitting on huge cashpile or good track record previously.
Nobody wins everytime, as a trader, we look at our net position, not the number of losses or number of wins, you can have more losing trades than your winning trade, as long you minimise your losses, and have 1 or 2 good wins, you will still make a good profit.
So eventually the Golden Rule no 1 is know yourself; Do you want to be a trader or an investor and know who you are up against in your trades, it is not the market but yourself.
