Besides Those Mad Dog Type Option Trading, How to Build Up Your Wealth?
I been watching WSB for a while, I did notice that there are quite a few try to beat the market by investing some heavy risky derivatives, i.e., naked call/put option. If you are a professional trader, ignore what I say. But if you are just into the market and try to gain some money, here is a right way to do it.
For start, you should avoid any short-term action, which by IRS, any position hold for less than a year. Not because some BS around, simply for tax advantages. Any assets hold less than a year is subject to ordinary income tax rate which in general, MUCH higher than long term capital gain. You don't want IRS to take a cut of profit for no reason, right?
Secondly, do not timing the market. If there is one thing I learn from the past 5 years of trading, nobody knows how market could do tomorrow, or the day after tomorrow, or next week, next month, or next year. This has been proven over and over. But people just don't believe it. They created graphs, lines, chats, all kind of "Voodoo" try to predict a short-term market. But so far, we haven't heard anyone who become super rich by timing or predict it.
But people still doing it anyway, just like those historical numbers on roulette, you know mathematically previous results has absolutely nothing to do with current results, but we just try to connect the dots, and still enjoy it even though it is a BS.
I do it as well, it is human nature. But if you want to make money, you have against it. In 2013, Nobel Laureate in Economic Sciences was awarded jointly to Eugene F. Fama, Lars Peter Hansen and Robert J. Shiller for proven that short term market movement is not predictible in short, it is ramdon movement (actually it is Geometric Brownian motion, but we don't need that much details). Which kind of officially announced everything is BS in financial market. However, for long time prediction, it could be very accurate. That is why when you are seeking advise from any kind of finical advisor (As long as they are licensed), they will recommend you invest at least for 3 years.
Here is a list of long holing stocks I have since 2017, you can see since time elapse, the only factor to determine a stock price is it cash flow. Which is how the price of stock is valuated. The price of stock represents company future cash flow discounted to current dollar value.
So, our job is simple. When market is in panic mode, assets won’t price correctly. Companies with solid fundamentals, will trade less than what it worth. We buy in and hold until the fair value is presented. Sell only if you need money for vacation, buy a car, a house or support child for school, or the fundamental of a company has changed.
In finance, people use Discount Cash Flow model to calculate a company future cash flow discounted to current value. The calculation is complex, and there are lots of parameter input is by human guessing. That is why you need to invest in multiple companies to increase you chance of success. Which leads to my third point: unless you have non-public information from a reliable source, such as our house of speaker Nancy Pelosi, or company’s C level executives, which then you are subject violation of insider trading; you should never put more than 10% of your entire portfolio into one single assets.
Yes, people paste lots of attractive screen shots by gambling solely on GME, AMC, BBYC, etc. But the thing for gambling, is that the overall expectation is not in your favor. There is always lucky winner for each draw, but most likely will not be you. Since you are not kissed by God, investing in multiple assets is your only way to make money in a constant pace, which means portfolio diversification.
But to manage a portfolio is expansive and time consuming. It feels like working on a 2nd job. You basically acting as a fund manager, reading research reports, following news, trace macro economy and all kind of data, even with all that, sometimes still got fucked by the market.
Lucky, for every demand there is a service. We can investing in mutual fund or simply ETFs to achieve similar results by paying a small portion of fees. Which is I recommended most people to do. My self for example, have 60% of positions on varieties of mutual funds or ETFs. I know my limitation, I am good at value those high-tech firm, since this is the area that I work for almost 10 years, I know the future of the industry, better than those analysts. So do this part by myself. The area that I am not so familiar with, such as traditional industries, energy, and etc, I buy funds that will covers it. Together, these assets create a Fund of Funds, which basically covers all good companies across the globe. This strategy went well so far. Average annual return for the past 5 years is around 18%.
This way has been proven that will work. by throwing everything into a Monte Carlo (commonly used in assets return prejection for a LONG period of time). My portfolio return is granteed. Althought leaglly fund manger can't promiss you anything, but for sure, long lasting funds will genertate lots of money in a long period of time.
However, no body like to be rich slowly. You must give your money time to grow. It will pay you back in time.
Submitted August 06, 2022 at 05:42AM by valkla123
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