Trading and ROI

[Kjell201]

I've come to a point in my poker where I think my bankroll is growing faster then I could handle moving up to the level I have the bankroll for.
(As of now my bankroll can handle 15/30 but I cannot (skillwise but mostly the fact that I'm not comfortable at that level))

So I've decided to cash out every now and then and try to invest the money. I'm probably going for stocks on the swedish stock market. I've ordered a book (a swedish book, so no point in telling which one /images/graemlins/smile.gif) and will begin with a small amount next month.

Anyway, the real question was about ROI (return of income). I'm assuming traders have their own BB/100 or ROI thing, that you can use to seperate the break even traders from the good traders and from the great traders.

Lets use an example:
5 traders each get 10,000$ to invest.
There's one from each of the following group:
(1) Hobby trader, hasnt really read a book. Reads a monthly investing magazine and takes their advice.
(2) Regular trader, has read a book. Reads a daily/weekly investing magazine and takes their advice.
(3) Daily trader, has read 2-3 books. Keeps himself up to date by checking out the market every hour or so, reads a few daily online investing magazines. Does a bit of his own analizing of trends etc.
(4) Professional stock trader
(5) The best traders out there.

How much would the average 1, 2, 3, 4 and 5 have at the end of the year?

Oh, and how much can it differ between countries? Is it possible that traders in one country in general makes alot more then traders in another country? (obviously assuming they only trade in their own country's stock market)

[midas]

I'm assuming you're from Sweden, a couple of comments:

1. ROI = Return on Investment not income

2. I have no idea how the Swedish stock market trades but you need a volatile market to make money as a trader. Also you need to know the insider trading rules for your country - the U.S. has the toughest - most other countries are lax - you could be at an information disadvantage.

3. Your cases are kind of silly - any one of those scenarios could make or lose money - stupid people get lucky and the pros can lose it all.

4. Pick an industry that is well represented in the Swedish stock market like shipping - learn the industry and the companies cold and place your bets.

[Kjell201]

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3. Your cases are kind of silly - any one of those scenarios could make or lose money - stupid people get lucky and the pros can lose it all.

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1) Yeah i know, typo /images/graemlins/smile.gif

2) Makes sense. Right now I havent even read a book so I know pretty much next to nothing about stocks. Won't get into until I feel I atleast have some idea of what I'm doing

3) Why are they silly? Ofcourse a single individual could get lucky or unlucky but on average surely the best traders would have a bigger ROI than the hobby trader who hasnt even read a book etc?

4) Good idea, thanks.

[Soxx Clinton]

Hey Kjell. I'm a portfolio manager and I'll try to answer your question as simply as possible. I think the goal of active investing (as opposed to simply buying and holding an index fund) is to outperform the S&P 500. Since one could buy and hold an index fund with no research, work, time, and little in the way of transactions costs or taxes there would be no point to active investing if one could not outperform your target index.

Since this has been shown to be very difficult to do, (through studies of mutual fund returns, daytrader failure rates, analysis of retail trading accounts, etc.) for most people it is a waste of time and probably all of your groups 1-4 are basically, on aggregate going to fail to do it.

As in poker, there are elite investors out there who crush buy and hold returns, but by and large these are rare.

In other words, the first "measure" of trading ability is the ability to beat a passive index over a long period (after adjusting for taxes/trading costs/the value of your time/leverage/risk, etc.). The amount by which you can do this is similar to BB/100 in poker where simply matching the index is equal to a win rate of 0BB/100.

[GrunchCan]

[ QUOTE ]
Hey Kjell. I'm a portfolio manager and I'll try to answer your question as simply as possible. I think the goal of active investing (as opposed to simply buying and holding an index fund) is to outperform the S&P 500. Since one could buy and hold an index fund with no research, work, time, and little in the way of transactions costs or taxes there would be no point to active investing if one could not outperform your target index.

Since this has been shown to be very difficult to do, (through studies of mutual fund returns, daytrader failure rates, analysis of retail trading accounts, etc.) for most people it is a waste of time and probably all of your groups 1-4 are basically, on aggregate going to fail to do it.

As in poker, there are elite investors out there who crush buy and hold returns, but by and large these are rare.

In other words, the first "measure" of trading ability is the ability to beat a passive index over a long period (after adjusting for taxes/trading costs/the value of your time/leverage/risk, etc.). The amount by which you can do this is similar to BB/100 in poker where simply matching the index is equal to a win rate of 0BB/100.

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Actually, I was thinking of suggesting that Hero just invest in shares of an index tracking fund, too. /images/graemlins/smile.gif So much easier, and a pretty solid investment.

[BadBoyBenny]

Good response. The key here is that you don't really know whether you are doing things right until you have long term results. Then it may be too late to change your strategy. It is generally a bad idea to invest in equities with a short term return in mind.

Also the original posters assumptions are poor. Even a hobby trader should read several books.