There’s a little secret that many investors don’t know about. It’s so simple that you wouldn’t think it matters very much. But it does. In fact, it’s so important that it could make the difference between winning and losing in the market. The secret is this: every trade has a buyer and a seller. The buyer is betting that the stock will go up, and the seller is betting that it will go down. Only one of them can be right. The other one will leave money on the table.
Many investors mistakenly think that when they buy a stock, they are buying it from “the market.” But in reality, they’re buying it from another investor who has decided that he no longer wants to own it. And since professional investors account for 95% of all trading activity on the exchanges, chances are that the person who is selling you that stock is a professional. Why does this matter?
Because just as it is in poker, amateurs leave money on the table and professionals scoop it up. In the stock market, skilled investors play the game every day, and they have better information and greater skills than you do. They use those skills to their advantage.
I spent 30 years as a professional trader, and the one truth that stands above all else in this business is this… professional traders would not be able to make a living if it weren’t for the mountain of money left on the table by amateurs.
Maybe it’s time for you to stop leaving money on the table, and learn how to play to win.
When I talk to clients, the two most common questions I get are:
“Why are my results so inconsistent and unpredictable?”
“How can I be sure that I’m making the best decisions?”
My answer is always the same: find a strategy that is well-suited to your personality, and then set up a simple plan that will keep you from deviating from that strategy. So how do you go about this? Start by asking yourself what kind of investor you are. Are you risk-seeking, or safety-seeking? Are you a “tinkerer” who enjoys doing research and picking stocks, or does the whole stock market thing bore you to death? Will you actively maintain your investment portfolio, or would you rather “set it and forget it?” These kinds of questions will lead you to your natural investing style, and your investing strategy should match that style.
If you want to learn more about who you are as an investor, try taking the free Investing Style Assessment here. It takes about 10 minutes, and it will uncover some things about your investor personality that you didn’t know. It explores things like your grasp of key investment concepts, your risk preferences, and your decision-making skills. It’s free, and there is no sales pitch connected with it.
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