Don't treat the market like a casino, and it won't treat you like a gambler
Chapter 7 of "Getting a Better Class of Enemy", my investment book
I'm writing an investment book called "Getting a Better Class of Enemy - Money, Markets and Manias". As I write the chapters, they will be made available to paid subscribers to OfWealth. Previous chapters, along with the Preface and Chapter Plan, can be found by clicking on this link.
The reason for the title is that, as your wealth grows, there are a lot of potential "enemies" that will try to take it away from you. These are explained in Chapter 1.
"Money can't buy you friends, but you do get a better class of enemy."
Spike Milligan, Irish-English author and comedian (1918-2002)
A lot of people write off the markets as a casino. This is often because they got burnt in the past.
The reality is that the markets can be casinos, if you approach them in the wrong way. Which is to say an excessive focus on short-term trading, which involves trying to time and guess price moves over short periods. This is little more than gambling, and the results tend to be the same. Plenty of losses.
This chapter explains why short-term trading cannot work for private investors over the long run. But also how private investors can still make healthy profits with a different approach that is far removed from gambling.
The next chapter will focus on the important topic of risk, which is often misunderstood, or made unnecessarily complex by the financial industry. I'm half way through drafting it, but it needs more work to de-mystify some of the technical aspects (so that sane people can understand them).
If I get it right, my hope is that any investor will come away with a much clearer idea of what "risk"really means, and how to invest accordingly.
In any case, before I complete that, I need to dedicate some time to finding new stocks to analyse for (paid) readers. So keep an eye out over the coming week or so. Past analyses can be found here.
As always, feedback on the chapter from readers is encouraged.
Please send emails to ofwealth@substack.com
Chapter 7:
Don't treat the market like a casino, and it won't treat you like a gambler
"The individual investor should act consistently as an investor and not as a speculator."
Benjamin Graham (1894-1976), the "father of value investing", Warren Buffett's mentor, and author of The Intelligent Investor.
In this chapter I'm going to argue that short-term trading cannot be consistently profitable for private investors, and is more likely to result in losses most of the time. On the other hand, a longer term approach, that uses a consistent strategy based on fundamental factors, is far more likely to deliver healthy profits.
But first, a short story that helps to illustrate what short-term traders are up against. Chapter 1 dealt with knowing your "enemies" in the investment world. The over-arching theme of this book is how to achieve ultimate investment victory against those enemies. Short-term traders have some very powerful adversaries, and are in a battle that they are likely to lose.