- Well, the obvious one is that experienced and competent practitioners of each type can extract Money from the Markets - and that is what it’s all about. Many ways to skin a Moggy and all that.
- All Types require discipline and calm, clear, thinking. Panic and erratic decision making will not work in any of them.
- All Types need a clear Plan and defined way of working - unstructured methods will lose you money.
- Careful Risk Management and Position Sizing are crucial across all Types, this may or may not involved Stoplosses - but be consistent.
- Passion and keen Interest in the application of the Approach are vital to ensure success. If you lack such Passion, then maybe you need to settle for Lower Returns and follow a Passive Investor kind of method. In a similar way, all take time and if you cannot spare the time, then you must go for a more Passive Approach.
- It is important to find a Style you are ‘comfortable’ with - in fact, this is probably the most important aspect. If you are not happy doing the approach, then you will fail at it - it is that simple. You need something you can enjoy and be passionate about - then the Money will flow to you. If it’s a chore, you will lose Money. Fact.
- On the whole, Girls tend to be far more successful than Blokes - it’s unclear why this is but many put it down to lack of Ego. I wonder if part of the reason is that the Girls and Boys are ’self selecting’ - the only Girls who actually become Investors/Traders are people who are extremely passionate about the Markets and this commitment almost guarantees success. With blokes there are loads more messing around in the Markets and I suspect levels of interest vary immensely. I am not discounting the idea that Girls may be better due to psychological reasons but I think it is possible that Blokes can be very good Traders/Investors as well if they follow the rules. Maybe it is just more of a challenge for the Guys to master their emotional make up - whereas the Girls naturally are more attuned mentally for the Markets. I suspect it might be because Girls are more patient and less prone to wanting to ‘Get Rich Tomorrow‘.
- There is a lot of overlap between the Styles and many of the detailed Tactics and Strategies will be copied and blended by different people. For instance, I see myself as very much an Active Investor but I steal lots of Trader ideas like adding to winners; sizing Positions to their volatility and use of Technical Analysis to time Entries and Exits, and Hedging via Shorts.
- It doesn’t matter what Type you are or what Assets you play with - if you buy Cr*p you will lose money and if you buy Quality you will make money. This is probably the most important Sentence in this Blog.
- You cannot expect to undertake any Style and be hugely successful at it straightaway. It will take a lot of time to become proficient and you will have many disasters along the way - this is all part of the Learning Curve and an essential part. You do not learn if you never make errors - Luck can be the worst thing you have when you are starting out - you need to get things wrong to learn. Success, especially when starting out, breeds overconfidence which can lead to very expensive catastrophic failures - often in Bankruptcy. This is a particular danger for people who have only been involved in the Markets during the last 5 years or so - it is not a normal situation to have such a great Bull Run.
- Whatever style you undertake, you can find People on Twitter who are doing it very successfully that you can learn from - and you can get all this help and guidance for FREE - never spend valuable Capital on anything unless it really is unavoidable.
Key Differences across the Spectrum Types:
- It is clear that the further you go towards the ‘Daytrader’ end of the Spectrum, the higher the Rewards can be but also you have to work ever harder. In addition to this, the Trader Types arguably require higher Skill levels - or at least very different Skills to those of the Investor approaches. OK, to be fair, perhaps the best way to put it is that the average Boy or Girl on the street can learn how to be an Investor and probably can make a good go of it - and it is possible to fit this around a Full Time Job. Trading takes years and years of dedicated Study to get any good at it and most people will never be good Traders - and with the demands of Real Life and Jobs and stuff, most people will never have the time. When I see the adverts for the Spreadbet Companies with the Sharp Suited young Professional trading on his/her Fone I just have to laugh - what a joke. Real Traders are sat in front of their PC Screens !!
- Another quite obvious difference is that they all vary by Time Horizon. As you move from Daytrader through to Passive Investor, the Time required to undertake each Approach reduces. In other words, Daytrading is a Full Time Job and you cannot escape this reality - if you try to, I can 99% guarantee you will fail. If you are in Full Time Work and have lots of other commitments on your time (like Family etc.) then you have no choice but to follow a more Investor type style.
- In a similar way to the above bullet point, the Rewards you can make reduce as you move from Daytrader through to Passive Investor. These are the trade-offs you have to make when shaping how you will attack the Markets - however it is worth keeping in mind that very few people can be successful Traders and Active Investors can make very good Returns especially when Compounded over many Years (please see my Blog ‘Why Invest? The Power of Compounding’ - there is a link at the bottom of Part 1 of this Blog Series).
- Levels of Leverage used will reduce as you go from Daytrader through to Passive Investor. Daytraders and Position Traders will use a lot of Leverage, especially if they trade FOREX - most Investors do not use Leverage at all. Personally, I never understand this - if you are a Proven and Consistently Successful Active Investor then it makes no sense to me to not use Leverage - it is FREE MONEY if you understand what you are doing. The key is to keep your Leverage low and understand your Levels of Exposure at all times - these principles with a Portfolio of Spreadbet Positions and Hedging where required can be extremely successful. Leverage is not suitable for Passive Investors or for the inexperienced. Please see my Blogs on Spreadbetting here:
This is the Last in my series of 7 blogs on Spreadbetting but at the bottom it includes links to all 6 other parts.
An unusual Approach that may or may not fit in one of the Styles in the Spectrum.
There is one Approach that doesn’t necessarily fit neatly within the Spectrum of Trader / Investors types - arguably it does have a slot, but I leave it to Readers to take their own view of where it should go (in other words, I have no idea where to shove it !!).
The particular Approach is that used by Ed Croft on his Stockopedia Website which uses a Data-driven numerical approach to select Stocks and run a Portfolio - its results have been extremely strong. I am not all that expert in understanding it, but in essence the System lists the Stocks that you should Buy and hold in a Portfolio and I think it will also tell you when to Sell them as the Numbers change. I think it is based on the ‘Stockranks’ which are derived from all sorts of aspects of a particular Stock like Debt, P/E Ratio, Dividend yield, Momentum, ROCE (Return on Capital Employed), PEG Ratio (Price Earnings Ratio divided by Profit Growth Rate), Sharpe Ratio, etc. etc.
The strange thing about this approach is that it seems to be very Passive as you don’t really need to do much except do what the System tells you - but the Paradox here is that many people like myself would probably not classify it as ‘Investing’ - in many ways it has more in common with ‘Trading’ approaches which are more Quantitative and less Qualitative in nature. For me personally, it is not something that appeals as it seems a bit like ‘Painting by Numbers’ - it lacks the ‘Art’ which I enjoy - it is more like ‘Science‘. Of course a big risk is if Stockopedia ever stopped providing the Stockranks.
I admit I know very little about this so probably most of the last few paragraphs is utter tosh - however, to get more of an understanding, @GrindertraderUK is running a low effort Portfolio which he calls his ’Stockranks Farming Approach’ here:
There are loads of articles on it which are well worth a look.
When you make your tentative (or ‘Gung Ho’ in some cases unfortunately !!) first steps into the Markets, it makes best sense in my view to approach it from the Active Investor end of things. I see many, many people who start off by paying some or other ‘Guru’ for a Trading Training Course where they have been sold on the idea that you can make £000’s every week just by learning the principles of the Course. Needless to say, this is complete bollox and it is a total waste of money to pay these people £3000 or something when you will come away pretty much clueless and now you have even depleted your Valuable Capital.
It makes far more sense to start slowly and learn from all the other experienced Investors that are around (especially on Twitter - please see my ‘Beginners’ Page to get some ideas of people to Follow and Websites that are worth looking at), and after perhaps a couple of years you will be more steeped in what is going on and maybe you can then make a sensible well thought through decision that you want to move to more of a Trader type approach, from a position of real understanding.
If you do it this way you have hugely more chance of being successful and if you start off by wanting to be a ‘Trader’ then you will most likely lose huge amounts of money and end up disillusioned and leave the Markets altogether - this would be the biggest and most expensive mistake you will ever make in Life - don’t ever give up - the markets are the best and easiest way of making money there is once you know what you are doing.
A Word of Warning
My own personal experiences and observations of other People make me think that mixing Investor Styles with Trader Styles does not work very well for the vast majority of people. To a large extent, I find they are incompatible.
What I mean by this is that it is far better to stick to one particular Style and to become truly an expert at this, than to chop around from one Style to another. Over the years I have tried to do Daytrading and Position Trading but I am quite frankly useless at it - for me I think the biggest problem is inability to use Stoplosses and the conflict of Timeframes.
When I think about it, I have put a lot of effort into learning the Skills of Short Term Trading but it is only by applying my Long Term Active Investing Principles (as laid out on the ‘M3 Manifesto’ Page of my Website) that I have really brung home the Bacon. Sadly, the time I spent on Short Term Trading (and a fair few Quid LOL) was mostly wasted - although it has taught me a few tricks to help refine my Investing activities.
I suspect a lot of ‘Short Term Traders’ that I see on Twitter are fooling themselves - they all make out that they are in the Money but I am not convinced and there are clearly a lot of People who only tell the World about their Winners. The simple fact is, if you are a Trader and you are not making many multiples of your capital every year, then you are wasting your time and the chances are that any success you are having is purely down to Luck and Probability.
It is important to know where you are on the Spectrum - it may be worth spending some time on this and thinking about how it affects what you are doing. Are you working too hard on your Market Activities? Are you making the right sort of Returns? Are you enjoying it? Should you change to a Style that may fit your lifestyle better? Are you anxious and worried all the time? Is Wheelie talking a load of shite here?
One of my reasons for writing this Blog, or at least why the idea was in my mind in the first place, is because I have been very attracted to the methods that @stealthsurf and @YaiLondon use. I don’t see approaches very often that are sufficiently different to my own so they would actually be worthwhile changing to, but the System these guys use looks like it could consistently work very well - and clearly does for these guys. It has the beauty that it is very Rules Based from what I can tell and the subjectivity which most approaches suffer from is largely removed.
My thinking here is that if ever my own approach stopped working (unlikely, but I never want to have to Work again so it is important I have a Contingency Plan !!), then I could totally change my Style to follow their methods - it wouldn’t be a perfect match (I like doing Company Analysis and their approach is more Technicals based and mechanical) but it would be a compromise worth taking as it would mean not having to get back in the Rat Race !!
Even if I do not adopt their approach precisely, it is very good at highlighting Stocks in strong Uptrends and it is these kind of Stocks where further Fundamental Investigation might prove very worthwhile.
@stealthsurf does Tutorial Articles on his Website with lots of information about how the approach works:
There is masses of Educational stuff available about all of the Styles across the Spectrum, one place that should have various books on each of them is Wheelie’s Bookshop on WD2 at:
Ok, that’s it, thanks for sticking with it, wd.