A post by Adam Hamilton about the values of trading, monetary and otherwise. Mr. Hamilton has probably been more successful than most in achieving financial independence.
Even if you cannot achieve abnormal returns there are other gratifications from trading.
I particularly liked Hamilton’s suggestion of getting your kids involved as early as p0ssible. It will make them more informed and teach them the value of saving, investing and living within their means.
Trading for Everyone
By: Adam Hamilton, Zeal Intelligence LLC
– Posted Sunday, 26 December 2010 | Digg This Article | Share this article | Source: GoldSeek.com
Trading is awesome! Everyone should trade stocks. The benefits that trading brings to anyone who sticks with it are vast. They spill over into and enrich all aspects of our lives, in a myriad of ways extending far beyond the obvious financial rewards. And it’s never too late or too early to start learning this fascinating and empowering art.
Trading is something I’ve loved my entire life. When I was growing up my father was a small-town banker, so he was naturally interested in the financial world. On Friday nights I remember watching Louis Rukeyser’s Wall $treet Week on public television with my Dad. I remember him reading the Wall Street Journal, and encouraging me to do so when he came across articles that would interest a young boy.
When I was 12, my father opened a brokerage account for me. Of course back then you had to actually call your broker on the telephone to make a trade, so it was certainly intimidating at first. Trading, and really anything new, always is. But I bought some stock in IBM and never looked back from there. I saved income from my summer jobs including fishing golf balls out of water traps, mowing lawns, and painting houses. I invested some of my meager surplus income in stocks.
Trading was always exciting, and it changed my life for the better in countless ways. I eventually founded my own financial-research company so I could study the markets, research stocks, and pursue my trading passion full-time. The financial rewards of trading are widely-known, I was blessed to become a millionaire before my 30th birthday. But even if trading hadn’t made me rich, I’d still keep doing it for the vast intangible benefits. I won’t stop trading until I’m dead.
Trading is incredibly liberating, breaking a crushing bond that enslaves most people their entire lives. Trading divorces income earned from time on task. Salaried or not, we are all essentially paid to work by the hour. But this is a problem, it creates an artificial ceiling on our incomes since our time is preciousand finite. We can only devote so many hours each week to work before our lives become an unbalanced, unhappy disaster. We effectively become financial slaves to our time available for work.
But trading earnings aren’t dependent on time. When you buy a stock, and it rallies to earn you profits, it doesn’t matter whether you spent 1 hour deciding to make that trade or 100 hours. Trading opens up a wonderful new world where income is divorced from time! While it is true that trading is a learned art that requires years of discipline and experience to thrive in, the ultimate financial rewards it yields are wildly disproportionate to the time spent learning it. It breaks your income free from the chains of time.
The ultimate result of this liberation is the highly-sought-after goal of financial independence. If you start trading and stick with it for decades, you will get good. And trading mightily rewards experience, building fortunes for those who strive to master it. Eventually your trading will at the very least set you up to retire much earlier than you otherwise could. And since trading doesn’t require excessive time (a few hours a week of research is often enough), it can free up many hours for you to pursue your life’s passions.
Trading is a great equalizer, shattering all the limiting preconceptions that we burden ourselves with and others impose on us. The world is tough and unforgiving, and often we feel inadequate. The reasons are infinite. Maybe the world teases you about something, looks down on you for some reason, or doesn’t respect you for who you are. All these crushing limitations that saddle real life are obliterated in trading.
The markets could not care less about your background, your education, your faith, your age, your appearance, your sex, or any real or perceived shortcomings in your life. All that matters is your own decisions. Trading may very well be the last true meritocracy on the planet, where everyone is free to thrive or fail based solely on their own drive. If you diligently strive to learn the art of trading, you can and will grow successful regardless of where you came from, where you are, or what limitations have burdened you.
Trading feeds your brain, as it demands constant yet fascinating learning. I call myself “a student of the markets” as I continue to learn new things every day even after decades of trading. If I lived and traded through 10 lifetimes, I’d still be a student of the markets. We humans are all hard-wired to love to learn, to expand our horizons. And trading provides learning in droves. There are always new market situations to observe, new companies to analyze, and new factors driving the performance of stocks.
The more you trade, the more you will learn about the world around you. You will gradually start to better understand the global economy, national economy, business in general, and how things work. Traders view the world in a different light, pondering how the goods and services we need and want are created and ultimately delivered to us at a reasonable profit. Every time you buy something, every time you interact with someone, your mind will constantly be sifting everything for trading opportunities.
Learning is naturally empowering and self-feeding, the more you know the more you want to know. And knowledge and diligence ultimately lead to success, which builds self-confidence. Once you start making money trading stocks, and you will if you apply yourself and stick with it, your whole worldview starts to change. As your income becomes less dependent on your time on task, as the markets reward you for the merit of your own decisions, I guarantee you will feel better about yourself and life in general.
And this gift of learning extends far beyond the external, markets and stocks. The greatest challenges for trading lie in your own heart. Your success depends on harnessing your own internal greed and fear, your greatest enemies. As naturally-emotional creatures, mastering our own emotions isn’t easy. But the more you trade, the more you will learn about yourself. It literally forces you to look deep into your own heart, to try and dispassionately analyze the motivating forces driving your buying and selling decisions.
The more you learn about yourself, the deeper you journey into your own emotions, the happier you will ultimately be. This quest for emotional mastery yields benefits far beyond the trading realm. The longer you trade, the better you become at stepping back and calmly analyzing life situations that make you angry, sad, frustrated, whatever. Controlling your own greed and fear helps you better control all your emotions, making you more even-keeled and slower to get upset in the future. Imagine the benefits this has for marriages, family interactions, business relationships, and everything else!
Trading also yields great insights into other people. Sentiment, how the majority of other traders view the stock markets or any given stock at any particular time, is the most important driving force behind price movements. Trading success demands buying low and selling high, right? The only times stocks are low is when they are unloved and out of favor among the majority of traders. Conversely, stocks only get high when they are popular and the majority of traders want to buy them. Observing others’ sentiment gives you fantastic insights into life in general, and human nature, that are extremely valuable.
Trading also develops the wonderful ability to take the long view. The tyranny of the present is intense in this Information Age, everyone worries incessantly about today while carelessly ignoring the past and the future. Trading forces you to transcend today’s worries to see the big picture. In order to buy low and sell high, you have to consider any stock’s history and future potential. This grows into a universal life-wide ability to keep the present in proper perspective, to not dwell on today’s challenges out of proper context.
I’ve always viewed trading as analogous to the wondrous Age of Discovery when great tall ships plied the world’s oceans with exotic trading goods. They would sail to Asia at great risk and expense, and bring back spices to Europe that would fetch a fortune. Traders bought goods where the supply was plentiful to transport them to where demand was great. Stock trading today is like sailing the oceans of time. We buy trade goods (stocks) today, and hope that demand for them (and hence their prices) will be higher in the future.
Trading demands discipline, which has unimaginably-big benefits in all aspects of life. In order to trade, you first have to generate some surplus income. The only way to do this is spend less than you earn. The longer that you live below your means in general, the more you save, the richer you get. This trading-forged discipline virtually ensures you will never have debt problems, never be in an ugly situation where you risk losing a major asset like your house. It leads to a much-happier and less-stressful life.
Living below your means, regardless of what they are, also loosens the hold of money (greed) on your heart. There is nothing wrong with building wealth, but the Bible is crystal-clear on the dangers of greed. In his first letter to young pastor Timothy, the great Apostle Paul wrote, “For the love of money is a root of all kinds of evil, for which some have strayed from the faith in their greediness, and pierced themselves through with many sorrows.” Paradoxically even though trading’s goal is to build wealth, greed is its mortal enemy.
A parallel trait greatly enhanced by trading stocks yourself is stewardship. We are all blessed with financial assets, and how we manage them is of paramount importance for our futures. No one cares more about your financial future than you do! Trading stocks forces you to take more responsibility for growing your assets, gets you deeply involved in what you invest in and why. While it is important to seek wisdom on investing from wise counselors, trading gives you the knowledge to ultimately make informed decisions yourself. This leads to radically-better stewardship of your financial assets and entire future.
Trading builds honor and integrity like few other things can. Why? You arecompletely at the mercy of your own decisions. When you make a trade that doesn’t work out, and it happens often as losing is a major part of trading, you have no one to blame but yourself. Sadly we live in an era where personal responsibility and accountability are dying, people prefer to blame others for their own poor decisions. But when trading you have no choice but to be fully responsible and accountable. Nourishing these positive traits greatly impacts all areas in your life and relationships for the better.
Trading hones diligence and perseverance, maybe the most important life skills of all. Like life, trading has many setbacks so opportunities to get discouraged are legion. But if you stick with it, keep your nose to the grindstone for months, then years, and then decades, you will succeed. The single most-important ingredient for success is to simply stubbornly keep doing something until you naturally learn enough to get good at it! Most elite traders, CEOs, athletes, or any professionals became that way not because they had advantages up front, but simply because they never gave up despite the inevitable setbacks.
Incredibly, trading also helps you socially! Not only does its built-in achievement bolster self-confidence, it makes you more interesting to everyone you meet. Over the decades I’ve talked one-on-one with many hundreds, maybe thousands, of people about trading stocks. And 99% of them are utterly fascinated by the prospect. And who wouldn’t be? The markets are endlessly fascinating, and the allure of divorcing income earned from time on task is great. It is really fun sharing what you are doing in the markets with others, helping them see and seize the same stock opportunities you are.
If you are a parent, I’m sure you want your kids to excel in all these critical life traits. Trading is a great way to teach them! Start your kids out young, it’s easy and fun. When you take them out to their favorite restaurant, talk with them about the process of getting the food to their plates. Tell them about all the workers from the farmers to the truckers to the cooks, who labor hard and earn a profit for their part in the food chain. If the restaurant is publicly-traded, explain to your kids that they can own a small piece of this businessthemselves!
Open up a trading account for your kids. It really doesn’t matter how much money you can spare, the kids can gradually fund it themselves with cash gifts they receive on birthdays and Christmas and through doing odd jobs. As they slowly buy and sell a few shares in stocks they are interested in because they love the products those companies produce, they will learn the same trading lessons and develop the same awesome life-traits as adults. And starting young, even casual trading as a hobby can literally earn your kids fortunes over their lifetimes. This skillset will almost certainly radically improve their lives.
Teaching kids about business and stocks is very empowering for them, they naturally love to learn. It instills in them a broad practical worldview most people never experience, and increases the odds they will nurture their entrepreneurial side and ultimately do fulfilling work they love. The earlier anyone starts learning about trading, and all the necessary peripheral topics like sound money management, the more successful they will ultimately be.
On the other end of the age spectrum, trading is equally beneficial to the elderly. Sadly many people get bored in old age, it’s tragic. They don’t exercise their brains so gradually their minds turn to mush. Trading, since it demands endless learning, can seriously slow or even reverse this unfortunate deterioration. Trading provides excitement for elderly folks, helping them feel plugged in to the world again. It gives them something cool to talk about with their friends, kids, and grandchildren. I’m going to continue trading until the day I die to keep my mind in training and razor-sharp.
So trading is awesome, everyone should trade stocks. Easy for me to say, right? What if you don’t have any money? Believe me, that’s not a problem at all. Almost every trader in the world started out with nothing, zero. Traders start small, trading a tiny amount they can afford to lose when trades inevitably move against them. But gradually as your knowledge of the markets, stock trading, your own emotions, and market sentiment around you grows, so too will your success. There are endless accounts of traders starting out with a few-hundred dollars and ending up multi-millionaires a couple decades or so later.
Starting out small is actually really important. If you start out trading with a lot of money, odds are you will lose it and get discouraged. The great majority of traders lose almost all of their initial capital at some point in their first year or so of trading. It is par for the course. But the hard lessons learned, and the skillset developed through those early losses, scale beautifully to any amount of money as your trading prowess grows. Even if you are blessed with lots of surplus capital, start trading small with an amount you can easily afford to lose. As your confidence and skills gradually grow, only then should you start trading bigger.
The amount traded is totally irrelevant. If you can earn a 20% return on $1000 in your earlier years, you can earn a 20% return on $100k or $1m as your capital grows. The critical thing is just to get trading, start small and start learning the lessons stock trading teaches. Get your greed and fear under control and grow your understanding of the markets and stocks when you have little on the line. This foundation is essential to help you thrive someday in the future when you are risking a lot.
The hardest part of starting trading is making the commitment to live below your means. Trading is seeded with surplus income. Everyone has areas of fat we can cut from our lives. For example, I love reading. It’s my favorite leisure activity. If I was a new trader and cash was tight, instead of buying new books I could simply check them out for free from my local library. If you think hard, almost regardless of your income today you can probably find a way to scrape some surplus together over a year or so.
Stock trading is intimidating when you are first starting, but so is everything else. Things like hobbies or interests you hold dear and really enjoy today were once overwhelming to you too. Think about how intimidating it would be to learn golf, or gardening, or photography from scratch. Everything new is intimidating, and trading is no exception. But also like everything else, the more you get into it the more comfortable you will grow. And you will have a lot of fun along the way learning about the markets and stocks.
We can certainly help you if you are interested in learning about stock trading. Every week I write essays like this one, discussing some aspect of the markets. A few years ago I wrote a popular essay called “Stock Trading 101”. It will help you grow your knowledge and accelerate your understanding of the key core fundamentals of stock trading. The more you read about the markets and stocks, even if you don’t understand everything (heck, I still don’t understand it all!), the faster your knowledge will grow.
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The bottom line is everyone should trade stocks. The most obvious reason is for the financial rewards, the financial independence this pursuit ultimately yields. But the crucible of trading also forges many awesome traits that greatly enrich your entire life. It forces you to learn and grow your brain, it demands strict emotional control. It creates discipline, honor, integrity, responsibility, diligence, and perseverance.
While sticking with trading will almost certainly make you rich eventually, the journey is truly more rewarding than the destination. You will see the world differently once you start trading stocks, everything will become more interesting. You will feel liberated and empowered. Life in general will be better as trading forces you to nurture your good traits while starving your destructive ones. And it is never too late or too early to start.
Adam Hamilton, CPA