This month: Marcus Padley
It takes time and practice – not luck – to become a successful investor
One of the things that everyone seems to enjoy is gambling. Along with prostitution it is the most enduring industry in the world. Of course, it doesn't deliver because luck is doomed as a means of reliable progress but still people keep doing it.
When it comes to gambling the inevitable is inevitable, and if the government really wanted everyone sucking on the state pension then it has done the right thing: put large sums of superannuation money in the hands of many unqualified and impatient individuals who live on a diet of adverts that say gambling is smart and clever, that it makes you happy and that the winners are social heroes, all of which are the utter opposite of the truth.
But morals and politics aside, it is far better you open one of those very technologically dazzling online betting accounts and lose $10,000 in a year, fulfilling your gambling urge in the open, than taking the same approach to the money that has been painfully collected over decades to buy your groceries and pay your bills when you retire. Because your super is real cash. You will be withdrawing it from an ATM. Money is time in the end. Making it is buying time and losing it is giving away years.
There is a base level of knowledge you should acquire before you go trading and investing but it does take time and many people are impatient to start hitting the buttons. As one of my tennis colleagues who trades full time and retired at 50 to trade says, it is about learning a process and you need to start with a clean sheet. How do you do that? Here's an outline for beginners, with thanks to my tennis colleague, who has nailed most of this from experience:
Buy yourself a comfortable chair – and make sure it is comfortable, because you might be in it a while.
Do not trust yourself. You do not know what you are doing, so don't pretend you do. You are not a hero; you are a risk to your own retirement.
Understand that it is not a matter of intelligence, it is a matter of learning and your brain needs practice. Give it the time to learn. Travel at your own pace.
Treat it as a business. Set a target like: “I will finish the first year with the same amount of money I started with.”
Include all costs in your results, including subscriptions, brokerage, memberships, fees. Minimise costs.
If you can, find a mentor like Marcus to tell you what you don't want to hear. Pay for training if you can find it. By the way, a free seminar from a platform provider is not education, it's a client acquisition strategy.
Interaction is essential to being objective and hearing ideas. Interact with other investors. You can do that online but doing it in person is a good game. You might find some like-minded traders and investors in the Australian Investors Association, the Australian Shareholders' Association and the Australian Technical Analysts Association.
On the way to success, expect to fail, fail, fail. Failure is good. Every failure is progress. While you're starting/failing, do it on paper. When you start succeeding, start with $10,000 but only when you think you have a process. Then prove the process a few times before trading with more.
Write down your process – the steps you will take from beginning to end of every trade. It can be simple to start with. You will add to it every trade.
Analyse your result, make corrections to the process that would have improved the result. Learn. Adapt. Develop the process.
Be brave enough to do unconventional things. Everyone tells you how it is done but it's not working for most people, and just maybe the Lord has been waiting for centuries for someone as dumb as you to come along and prove something else works.
Eradicate emotion. You cannot operate the process when you are upset, annoyed, desperate. Be the robot.
You do not end up as a good investor; you will end up as an effective risk manager. Managing your investment is more important than picking it.
You are not alone. Everyone else goes through what you will go through. Everyone else has failed to take an early loss, everyone else sells only to see the price rise immediately, everyone else has sat like a stunned mullet when they are losing money. But you will learn and you will get better. Expect those mistakes.
Nothing comes easy. Expect it to be hard but if you have an interest, investment and trading can become a fantastic, absorbing and stimulating intellectual pursuit.
Marcus Padley is a stockbroker with MTIS Pty Ltd and the author of the daily sharemarket newsletter Marcus Today. For a free trial go to marcustoday.com.au.