It probably sounds real scary, something that should only be done by Banking professionals, Independent Financial Advisors and people with years of trading experience. Believe it or not, you are wrong!
I firmly believe that everyone has the ability to trade stocks and options and manage their own finances, the difficulty is that you probably haven’t been taught how and by the right teacher, since it isn’t part of high school or university curriculum, even when you study finance and economics.
This lack of knowledge appeals to some people, namely those that make money off your naivety.
For years I had been aspiring to follow market news, stocks, indices, funds and begin to self manage my pension. It never happened! Firstly, I never had the time and secondly, I didn’t really know where to start since the industry likes to make the subject matter seem much too complex for the average Joe to comprehend.
Instead I was like most DIY stock traders; taking stock tips from friends and buying the dummies guide to stock trading, which teaches theoretical concepts but not the practical application.
We started filling this educational blackhole in June 2016 and the more we learnt about how money, the markets and pension funds (or 401(k), RRSPs, superannuation etc.) work, the more we were enraged and inspired to build our proficiency. If you’re looking for some motivation I highly recommend reading Andy Tanner’s book 401(k)aos.
Having been introduced to Andy Tanner by Rich Dad Poor Dad, we decided to enrol in his Four Pillars course. The 12 hours of pre-recorded videos covered Fundamentals Analysis (analysing companies), Technical Analysis (analysing charts), Cashflow (creating an income from trading) and Risk Management (what to do when things go wrong).
The layperson is taught the following basic rules of the stock market:
1. The market goes up and down and you just need to accept losses as the market falls, because
2. Overtime everything will go up, you just have to wait long enough, therefore you should only invest for the long run, and
3. That investing is risky and should only be done by professionals
But with regards to these three points there are things that they don’t tell you;
1. You can make money in an up, down or sideways market
2. Investments don’t need to be long term, we create a weekly and monthly cash flow (without being day traders)
3. Investing doesn’t need to be high risk (for instance you may not know that you can buy insurance for your investments, so that if the market crashes your capital isn’t wiped out) and with the right education you can do it just as well if not better than professionals.
This last point is a big one. As soon as we told our family and friends that we were learning to trade we were instantly warned off any such activity due to the high level of risk even if there are potential high rewards. So let’s take a different example. I tell my family and friends that I’m going to pilot a plane. If I’ve never flown before they will probably warn me off any such activity, but if I’m a professional pilot this won’t raise an eyebrow. What’s the difference? As a professional pilot I’ve spent hours studying and in a flight simulator. By way of comparison, I’ve completed hours of education and practiced my trading techniques using a simulated trading account. So, is there a difference? The difference is that trading has a facade, that makes it seem inaccessible and god-like.
But a facade is just that, a facade. So don’t be put off and join me for the next three blogs in which I will delve more deeply into each of the three myths and their counter points outlined above.