If you read my blog, chances are that you like talking about investments. Most of us have an investment portfolio but we rarely manage them the same way. Active investors have different perceptions of the very same news and will trade accordingly. So before you share investment picks with someone else, you should ask him which kind of investor he is:
Momentum Trader aka The Gambler
I am sure you have heard of people swinging out of money market funds into equities and then back to money market funds. The momentum trader manages his investments like I help my daughter in her swing: they push when they think it’s good timing and pull back before the market crashes (or in the case of my daughter, before she gets sick 😉 ). They think they have that special 6th sense to know when the market is “high” and when the market is “down”. The problem is that the market is a psychopath… so tell me how you can predict a psychopath? As you already know, I don’t really believe in market timing. The main reason is because you have to be right 100% of the time… can you really predict every peak and drop? If you can, send me an email!
The Day Trader aka The Technician
Day traders are stock market cracks sticking to their 5 trading screens like flies on sh…… They really don’t want to miss anything as any tidbit of information is crucial. Volume, trend, moving average, big news… they look at everything and use their system to draw patterns. If their analysis is right, they may make a killing out of their technique. However, this requires passion and a lot of time in order to become successful. I don’t have the patience (and talent!) to track 5 screens of minutia 8 hours in a row!
The Short Seller aka The Pessimist Gambler
Those traders expect stocks to crash and short sell them. This is how Timothy Sykes made most of his money. Many short sellers have been accused by Wall Street of pushing the stock markets down the stairs back in September 2008. As the world was about to collapse, short sellers were looking to buy their new Bmer with the profit earned from their short sell of Citibank, AIG and others. As in the case of the momentum trader, the short seller is a gambler and bets on bad news to make money on market swings.
The Stock Picker aka The Professional
While he thinks and acts like a Pro, it doesn’t mean that the stock picker is one. He usually has reasons why he buys stocks based on fundamental analysis. He might have spent 20 minutes or 5 hours analysing reports…. In the end he is convinced of his choice. He follows each of his stocks closely and will trade them upon certain homemade rules such as gain/loss target, sector swings, fundamental changes, etc. While he can make a lot of money, he will only perform well if his analysis method is great!
The Buy and Hold aka The Warren Buffett
The famous buy and hold strategy is not too popular these days. Several articles have been written on the fact that buy and hold investors had left a lot of profit on the table when it was time to cash in their profit. I personally think it is still a good strategy but one must consider selling his holdings and not fall in love with them 😉
The Contrarian Investor aka The Rebel
The contrarian investor bases his trading strategy on the opposite of the market. While everyone is looking to buy, he looks the other way. It is actually one of the most logical things to do when you are close to stock market peaks and at the bottom of a drop. Someone who was buying stocks during fall 08 is probably laughing right now… oh wait, this is what I told most of my clients… they are showing double digit returns since then 😉
The Lazy Investor aka The Financial Blogger (LOL!)
After a few years of being a stock picker, I have turned myself into a lazy investor. While I am not the perfect lazy investor, I found that stock picking required too much of my time compared to my chances of beating the markets. Actually 7 professional portfolio managers out of 10 don’t beat their reference index. How can I continuously do it with my laptop and a few friends from the trading floor?
This is why I have decided to go with stock market index funds. As I invest on a monthly basis, I prefer index funds to ETFs. However, ETFs are much cheaper when you don’t buy them regularly. I base my trading strategy on tracking the market and reducing MERs.
How about you, what kind of investor are you?
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