Dose of Reality

I was surfing some of my favorite blogs a little while ago and while on Stock Rookie, came across a link to Michael Goode's recent post on his site Goode Value Investing Blog. Entitled, "So you want to be a stock trader?", it is an eye opening, hard slap to the face for traders in training like me. I recommend all newbies study it hard. I already read it twice.
To review and simplify, he says...
1. Trading is a game of winners and losers.
2. Trading requires a great deal of effort and time invested to be continuously successful.
3. 2 out of 10 traders make money. I've always heard the 10% study cited but Michael mentions one that indicates 20%. Purely speculating, he personally believes it is fewer than 1 percent.
4. You are not the smartest, best capitalized, or the most prepared person trading the market.

I am looking forward to the next piece in the series. If the purpose of the "in your face with hard reality" approach the article takes is to draw people back to the site, it worked on me!

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Relatedly, I was thinking this morning about the rationale of trading as a profession, as I do every day. We are in a very unusual time for the stock market right now, in terms of opportunity. The VIX is still in the 40's and has been in the 70's. Before last September/October, a 30 on the VIX was worthy of note. These are great times for traders; volatility, big price swings, and momentum. As traders, this is eden.
My thought this morning was, what happens when the economic clamity starts to pass. Normalcy is destined to return and where then will we be? How many of us by then will have acquired the necessary skills and be capable of repeatedly trading for profit when the big moves are fewer and farther between?
From 2002 through 2006, real estate and mortgage brokers were stuffing the cash into their pockets. They couldn't make more money if they were printing it themselves! People poured into the industry because the money was easy. You didn't have to work all that hard for a commission. I remember the thick, weighty real estate section in our local Friday newspaper with the advertisements for the real estate brokerages which were busting at the margins with photos of their stable of brokers. That same real estate section still comes every Friday. You can guess that it is only a few pages thick now and the ads chock full of realtors with their bright smiles and their stuffed pockets are mostly gone. What are all those folks doing now for a living? Are they trading stocks in this terrific time for traders?

Where will we be in one or two years, those of us who have just arrived?

Food for thought...