Philosophy Part II

The market is a great place to get rich slowly.

I don't remember where I first heard that phrase but it sums up my approach. I don't do a lot of active trading. There are countless studies that show a lot of trading leads to poor returns because of bad decisions and giving away too much in commissions.

The commission thing has obviously become less of an issue in the last couple of years. The bigger thing is poor decisions. To be clear some people do very well trading actively. I have absolutely no doubt about that. But I also have no doubt that active trading is not something that everyone can do. The vast majority fail at it.

The most important thing, I believe, to being a successful trader is discipline. Being smart is not essential, but it helps. The active trader knows there will be losses. Successful traders I have known have a clear exit strategy on the upside and downside for every position they put on.

Part of any type investing, trading or otherwise, is introspection. I have written before that I think I do a good job of letting logic dictate my decisions. I believe that if I traded frequently I would lose that objectivity quickly and make too many decisions based on emotion.

There line from some movie that said "A man has got to know his limitations." That would be one of my limitations.

Active trading is not wrong, but it is not right for me.