So Many Booby Traps In Trading And Investing (part 1)

To do well in the stock market in the long run, there is a number of issues you must address in order to gain meaningful annualized returns.

If you're going to participate in the stock market, your goal is to build up your assets in a big way as the years go by -- to make the endeavor worthwhile.

So, you cannot afford to be monkeying around or chasing your own tail year in and year out. An example is day trading, where over 85% of traders eventually blow up their accounts and only 1-2% have any consistency in making money. And even if you do make money, your funds have to continuously compound to make it worthwhile.

Let's say you have $100,000 in your account and you make $75,000 per year as a full time trader. But you take out $75,000 for taxes and personal expenses each year. You net account value is still $100,000 by the end of the year. This scenario offers no compounding for all your effort and stress.

True, you have more freedom than working at a corporation because you're your own boss. But, assuming median income is around $75,000 where you live, you're probably much better off to go work for a corporation. At least you get better health coverage, virtually guaranteed salary, possible year end bonus, and potential promotion and raise. You get no guarantees in trading.

In the above example, to build up your account you would need to either increase your returns, add additional funds to your initial capital base, or decrease the amount that you withdraw for personal spending. As a full time trader, adding additional funds from other sources besides trading is generally not an option -- especially when your only source of income comes from trading. Cutting back on personal spending/expenses is a possibility but generally very tough because most of us are accustomed to a certain lifestyle for many years. So that leaves the last route to increase funds is by generating a higher return on your investment.

I got news for you. A 75% annual return is already very difficult, if not impossible, to achieve even for the seasoned pros. Remember, Warren Buffett has an average annualized 23% returns for the last 45-50 years. Most traders and investors will earn significantly less than 23% average per year in a 30-year period. Most can't even get an annualized 10% return measured in decades. Thus, it is generally much easier to get funds from outside sources and to force yourself to be frugal, than it is to increase your annual stock market returns.

With such a delicate balance, such as the example above, your principle and returns must be preserved at all costs. You absolutely cannot afford to "monkey around" with your trading or investing. For instance, once your account takes a big hit, it may already be game over for you, sometimes without you being aware of it at the time.
Why do so many traders act like monkeys?