Tuesday, February 24, 2015

Investing: Preparing the next gen of suckers

Read this yesterday afternoon as Tharman was delivering his budget speech. He was too slow for me and I told myself I would read his speech later - I haven't. Blog about this first. Gonna come back to this in a few years time. You also cannot tell when the kids are mature enough to appreciate this.

I see history repeating itself here. A new generation of investing casualties is being prepared for slaughter at some future date. Some parents will tell their young adult children to stay away from the stock markets because they had been badly burnt themselves and failed to take away any useful lesson. Some will try to guide their kids because they had been successful themselves but the record for transferring such skills is quite poor. Rarer than a large carat diamond are those capable of teaching others how to do this.

To do well there are only two ways. Either your are faster (also sometimes seen as early) or contrarian. In general being contrarian is the ultimate in being early because you have simply gone ahead and waiting for the herd to stampede to where you are! So in essence there is only one way for succeeding. I make it sound so simple but it is actually horribly hard to execute. The pull of the herd is like the gravitational force near a Black Hole. Very few escape. Unfortunately this has to be or the contrarian cannot succeed.

What is the difference between the trader and the investor? In my paradigm, the trader is the short term contrarian and the investor the long term one.

All successful trading and investing if you work through it intellectually is just successful contrarianism, value investing included. But I have not been completely honest. What about managing risk? Unfortunately most of us do not even know what risk is. That is why each new generation is destined to repeat the same old mistakes.

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