Pre-game warmup.
Theory: "I turned $50 into $300, playing on-line poker. I can do this too!"
Reality: Honestly I think there is a correlation. Poker has taught me about analyzing risk vs. reward (pot odds), money management (choosing table limits, when a front running hand becomes worthless), and about taking smaller more regular winnings over homeruns. Those 3 things are often overlooked by "novice" stock market investors like myself.
On the other hand, I had a strict mathematically proven game plan to follow with limit poker. Much like blackjack, there is a proven chart of starting Texas Hold-'em starting hands, when they are worth calling / raising / etc. From there it's more math about pot odds, and the odds your hand will improve. Playing limit poker takes out a large part of the 'guesswork' involved with bluffing as seen in 'No Limit' Hold-'em. For stocks, there's not really a proven game plan to follow. There are a dizzying array of strategies and systems but it's tough to separate the scams from the real deal. Not to mention I could be spending my $5,000 on the trading system alone.
So what's MY game plan in the stock market?
I'm going to split the middle. On one side there are "buy and hold" investors. These folks see purchasing stock as buying part ownership in companies, as a result they put considerable effort into selecting profitable companies. They can be considered Fundamental analysts. On the other side are the "(day) traders". These folks see stock as a commodity to trade, as a result they put considerable effort into determining the best time to buy or sell a stock. They can be considered Technical analysts.
Technical analysis interests me more, but I can't deny the track record of "buy and hold", so I'm splitting the difference. I'm going to "time the market" with stocks that have a proven fundamental track record. For example, the stocks that make up the Dow Jones industrial Average, or are found in Warren Buffet's Berkshire Hathaway portfolio. I see this as similar to the online poker game plan, smaller more regular wins by "properly" playing proven starting hands.
The flaw with this plan is that with only $5,000 I can't buy very many shares of big name stock. More to the point money management rules suggest limiting any individual trade to 2% of your capital, or $100 in my case. The solution at the moment is to invest using Options. There is added risk in the sense of time value (options expire at a certain time), and leverage (movement of the stock is magnified by the lower initial investment), but there is also reduced risk in the form of set maximum losses (the premium on the option).
I'll no doubt be altering my game plan as I learn more but that's where I'm starting for now.
Let's see how things go.
Reality: Honestly I think there is a correlation. Poker has taught me about analyzing risk vs. reward (pot odds), money management (choosing table limits, when a front running hand becomes worthless), and about taking smaller more regular winnings over homeruns. Those 3 things are often overlooked by "novice" stock market investors like myself.
On the other hand, I had a strict mathematically proven game plan to follow with limit poker. Much like blackjack, there is a proven chart of starting Texas Hold-'em starting hands, when they are worth calling / raising / etc. From there it's more math about pot odds, and the odds your hand will improve. Playing limit poker takes out a large part of the 'guesswork' involved with bluffing as seen in 'No Limit' Hold-'em. For stocks, there's not really a proven game plan to follow. There are a dizzying array of strategies and systems but it's tough to separate the scams from the real deal. Not to mention I could be spending my $5,000 on the trading system alone.
So what's MY game plan in the stock market?
I'm going to split the middle. On one side there are "buy and hold" investors. These folks see purchasing stock as buying part ownership in companies, as a result they put considerable effort into selecting profitable companies. They can be considered Fundamental analysts. On the other side are the "(day) traders". These folks see stock as a commodity to trade, as a result they put considerable effort into determining the best time to buy or sell a stock. They can be considered Technical analysts.
Technical analysis interests me more, but I can't deny the track record of "buy and hold", so I'm splitting the difference. I'm going to "time the market" with stocks that have a proven fundamental track record. For example, the stocks that make up the Dow Jones industrial Average, or are found in Warren Buffet's Berkshire Hathaway portfolio. I see this as similar to the online poker game plan, smaller more regular wins by "properly" playing proven starting hands.
The flaw with this plan is that with only $5,000 I can't buy very many shares of big name stock. More to the point money management rules suggest limiting any individual trade to 2% of your capital, or $100 in my case. The solution at the moment is to invest using Options. There is added risk in the sense of time value (options expire at a certain time), and leverage (movement of the stock is magnified by the lower initial investment), but there is also reduced risk in the form of set maximum losses (the premium on the option).
I'll no doubt be altering my game plan as I learn more but that's where I'm starting for now.
Let's see how things go.
posted by Jeremy at 12:37 PM
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