the know-nothing investor

…money doesn't grow on trees, you know?

Tag: Investing vs trading

1.FOOLED BY NUMBERS

When you start to understand the game you become more sceptical about people constantly bragging about their methods and rate of returns. Sometimes they don’t even need to show their return numbers to have a lot of followers that don’t question those figures or their incongruencies and if there are better ways to participate in the markets.

This year I decided to honour those “two digit figures” braggers by becoming one of them and saying to you, few fellow followers, that through my magnificient method and outstanding capabilities in 2014 I achieved 48.58% rate of returns.

Wait…wait…that number was achieved because I’m counting with new add money for buying assets purpose. Although it is a true number, because my portfolio value grew that much, it was due to add money from my savings.

This is a fair observation. I’m really bragging, but those number are unrealistic.

So looking for the NAV in my broker account, in 2014, my returns were still impressive with an increase of 17.16% .

Wait…wait…that number is only achieved because my main currency is in EUR and my assets are in USD. This pair’s valuation was great for dollar assets and only because of that I achieved so great returns. For me, that use euros in my daily life it was a great value increase. Nevertheless, I’m a naturally bragging again.

Well I only have two more number left for my 2014’s rate of returns, but those are just ok and they are not to great to brag about. The first one was the total return of my portfolio in USD, which was 4.92% and if I consider new entries over the year I’ll end up with a rate of return of 4.36%, which is still better than the average of active investors.

So don’t let you fool by numbers and braggers. All that rate of returns are true in someway, you can pick your favorite or just ignore my returns and focus on yours.

What I can say is, I’m glad with my 2014‘s results, after all my portfolio’s value more than recovered the losses of short-term madness.

8.NEW PARADIGM

 

“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?

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A Comparison of CTA Indexes with trend following strategies – RED ROCK

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.