On... KEN

The money is not the most important, the making of the money is. What does that mean?  Having a stable job and accumulating wealth is a must for retirement, however the ability to make money is even more important. I can probably rely on my wife ( who has a stable job ) to keep us going and saving her salary to prepare for retirement. However, I feel that just gives me a false sense of security. Two things happened in my life that led me to think this way.  I used to have a good paying and relatively stable job. At some point in time, I left that job and moved to Australia. At probably the worst time as the oil price tanked and I got laid off. My professional skill was not in demand anymore, which highlights just how fragile it is.  I own two houses. One was wrecked by the tenants and the other got broken into. That shows how easily your wealth can be taken from you.  So, I had money before and was building my wealth. But wealth can disappear easily. My ability to ac...

Told my wife that we will have a million dollars in 10 - 15 years time. Her reaction was pretty muted.  Whether it was disbelief or she was unimpressed, I'm sure she ( and others ) would be even more in disbelief if I told her I can earn a million per year.  It doesn't matter how long you take to accumulate your first million. For our discussion, let's assume you have a CAGR of 10%. As soon as you accumulate your first million, it will take just another 7 years to get your next million. The table below shows the progression of your net worth over time. Using the rule of 72, you double your net worth roughly every 7 years ( with 10% CAGR ). The chart above shows the increase of your net worth over time. You double your net worth every 7 years or to put it another way, one cycle of net worth doubling is 7 years. And the next cycle, you double your net worth again. Meaning, in 2 cycles ( or 14 years ), your net worth has increased from 1 million to 4 million. This also means i...

A commonly quoted statistic in trading is that 90% of people lose money or break even and only 10% of traders make money.  Is that really true and where did the numbers come from? Intuitively it seems rather pessimistic considering the stock market index has only gone up over time, if you zoom out. If the stock market is an average of all the participants return, then wouldn't at least 50% of traders make money? I would expect that at least 50% of participants make money, or even more. Probably just me being optimistic.  I think if it were really true that only 10% of traders make money and the rest break even or lose, I would pinpoint it down to one main reason. Of course there are many reasons like trading is difficult, most people don't have the personality to trade, people are not taking trading seriously, etc. Those are all valid reasons but they are general reasons why you don't succeed in any activity and not trading specific. The reason I think many people fail is b...

Just because you're 'doing nothing ', doesn't mean you're not doing something.  In my previous job as a geophysicist, I do spend quite some time thinking and reading, instead of tapping the keyboard all day long. Reading and thinking is actually a very important part of the job. Although when you're thinking and reading, it actually looks like you're not working. Contrast that to jobs that require physical activity like a waiter, labourer, etc., you can actually tell when someone is working or not.  In the realm of investing/trading, most of the time you seem like you're not working. Except for day trading, the other forms of trading and investing don't really require a lot of time clicking on the buy and sell buttons. Clicking buy and sell probably makes up only 10% of the activity. The other 90% of the time would be spent on reading, looking at charts, listening to podcasts, thinking, etc... Activities that doesn't show youre actually working o...

If there's nothing to do, then do nothing.  In my previous post , I mentioned that everytime I see a signal, I should take it. This implies that I have to be very active. In essence, it is, but only when you see an entry/exit signal. Otherwise, you should not do anything. You see the investing business is quite different from any other business or career. In your normal activities, business, career, etc.... The more you do, the more you gain - it pays to be active. However, in investing, the less you do, the better. Laziness ( bordering on sloth ) is actually an edge. To quote Jesse Livermore - "It was never my thinking that made the big money. It was my sitting. Got that?" The first instance where you should sit on your hands is not to put trades where there are no good trades to put on. Don't force yourself to trade for the sake of trading. Be patient! Of course, no trades = no money. But that's much better than putting on bad trades and lose money. In the last ...

Scaling solutions always beat non scaling solutions and that's what we should pursue in my opinion. In my opinion, fast food chains like McDonald's  Kentucky Fried Chicken, etc... Are better business models compared to boutique restaurants or niche cafes, because fast food chains have the ability to scale easily. If you run a boutique restaurant, your ability to expand the business is dependent on your chef/cook. Assuming your menu has been a hit and your customers are increasing, you won't be able to easily set up a new restaurant as you need the chef to pass on his skill to another person. Compare that to a fast food chain where the recipe can be easily replicated and you can set up new stores easily as long as you continue to be profitable.  Another example of scalability is whether your endeavor is capital dependent or time dependent. If you're selling your time, I.e. being paid as an employee in a company, your upside is limited. You can only work a certain amount ...

Recently, my wife asked whether I'm making money in investing. If I am, then it's easy money and I should continue? Otherwise, quit?  How soon should you be investing before you conclude that you're making money or not? Sure you can invest for a week and see if you're up or down. But does it carry any conclusions whether you're a profitable investor? To the layman, if you tell them you're making money after a week, the conclusion might be investing is easy money and you should continue investing. Or if you're not making money, investing is hard and you should quit.  In my "previous life", I was a geophysicist. My degree took 3 years, and after that I took 1 year masters before I got a job. Even after joining the workforce, I was in the graduate program for 3 years. That is a total of 7 years before I was considered a "fully trained " geophysicist by my company.  A doctor takes many years of education before they can practice medicine. Wou...