“In the investing world, a new paradigm is totally new way of doing things that has a huge effect on business.” – in Investopedia
After I stopped trading I started wrote in a financial forum about my trading disadventures, as part of my healing process. I needed to understand my mistakes and feelings, but I also wanted to learn from other traders with similar experiences. Everyone was really nice telling me stories with great resemblance to mine.
Nevertheless, there was a user with the nickname of LTCM (curious name) that started to post in my topic some charts of trend following funds performances in recent years and the results were almost as bad as mine. This made me thinking how could professionals had so lousy performances? And how could I, as trader wannabe, to achieve great performances if pros couldn’t?
For sure that I had responsibilities in my trading, but were there any edge to my system? Probably not, specially for a person who is only starting and hasn’t mastered trading psychology yet. But what kind of system would fit me was the following question that popped out.
LTCM was a mysterious user, as if he knew something that the rest of us didn’t, that allowed him to make clever remarks to all who wanted to be traders. Normally he would say that is extremely hard for micro-investor to succeed in trading and great majority of us should abandoned short-term trading for the good sake of our money. So I remember to read again his topic about “How to get rich slowly”. Reading that completely changed the way I thought about investing/trading. Was such a good reading, that I can compare it to Barry Ritholtz writings. But to read it in portuguese were financial illiteracy is so big was really a treat. It was so good that it was severed copied and exposed in other financial forums. Nowadays, being copied is a kind of success recognition I guess.
There are two ways of learning faster, through books or mentorship. LTCM was a kind of virtual mentor. Because he posted some charts and articles in my topic, made me start to wonder if I was in the correct path. But for learning quick you also must embrace what are being teached to you. The true is that LTCM started is topic two years before and I didn’t pay much attention because I thought I would succeed in short-term trading and I wanted to get rich quickly not slowly. Now because I was sore of lost money I was really paying attention.
Reading LTCM’s topic, Barry Ritholz in his blog, John Bogle’s “The Little Book of Common Sense Investing” and a lot of other articles and blogs on the web did the rest.
I had discovered a new paradigm for the average investor like me to take his fare share of market’s profit. A multi-asset portfolio with geographic diversification would be it.
Getting rich slowly still requires a lot of research and knowledge. For example: Putting bonds in your Multi-Asset portfolio could still hinder your ability to get rich. The current 10 year bond yields of 1% in Europe isn’t something that I would put in my portfolio. I also wouldn’t put any Russian ETFs. I live in Canadian and I made close to 8% in 2014 by transferring my Canadian cash into U.S. cash because my dollar was at $0.94 in Dec 2013 and now it is at $0.86!!!
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Besides from research and knowledge I would say you need a lot of patience and to be mentally strong to bear with drawdowns. In 2008 a portfolio similar to mine had a drawdown of 22% and that must be hard, but you need to really believe in your system and the true is after 2 years it had already recovered. My portfolio covers grand majority of asset classes and because of EUR.USD evolution (EUR is my main currency) it has been a great year, but about that I’ll write in next chapters.
Thank you for your comments it enriches my blog.