Am I going into trading too soon?

_Super

Bowlhead perhaps it's you who is prone to exaggeration? I never said I wanted to turn my £15 into an annual salary in the space of a week... When I said millions up millions I meant world wide and I didn't mean only home traders...

As far as day trading goes I don't always expect to buy and trade on the same day but a few trades a week would be nice.

I have a choice, take a risk and start trading with 1 years worth of savings or just keep stacking it in my ISA for 20 years.

If I lose the entire £15k then I've learnt a valuable lesson, it's really not like the end of the world. I could totally understand it if I was 50 years old and playing with my literal life savings but I'm 22 years old and thought why the heck not.

Clearly you all think it's a wrong decision so for now I'm going to leave my money where it is and conduct some more thorough research. I just think it would be a lost opportunity if I don't at least give it a try... even if I do lose the entire £15k which would be incredible unlikely as companies don't just lose 100% of their share price over night.

jimjames

_Super wrote: »

I'm fine with letting my money sit in a S&S ISA but trading just appeals more, feels like I'm actually doing something, as a hobby almost. Nevertheless I'll read a lot more about trading and in the mean time keep my money in the ISA and just adding to it.

You might like to watch this video. A fund manager who promotes himself for doing the opposite of you. The danger of wanting to "do something" means you trade more. More trading = more costs.

Terry Smith prefers to buy and do nothing.

https://www.fundsmith.co.uk/NewsDetail/15-01-30/Money_Observer_-_Video_interview_with_Terry_Smith_Don_t_just_do_something_sit_there.aspx

TrustyOven

jimjames wrote: »

You might like to watch this video. A fund manager who promotes himself for doing the opposite of you. The danger of wanting to "do something" means you trade more. More trading = more costs.

Terry Smith prefers to buy and do nothing.

Another interesting video with the same fund manager:
https://www.youtube.com/watch?v=RaF5Uu4WI_M

Similar take on it - do nothing, trade very infrequently, very low churn rate. Approximately the first 18 minutes of the video is relevant to this thread, but I'd certainly recommend watching the whole thing - always good to learn more.

_Super

jimjames wrote: »

You might like to watch this video. A fund manager who promotes himself for doing the opposite of you. The danger of wanting to "do something" means you trade more. More trading = more costs.

Terry Smith prefers to buy and do nothing.

The problem I have with investing and doing nothing is this. A fund manager with £2.7billion can easily accept a return of 20% a year which is £518million profit.

My £15k is going to receive just £2850 for the year. I would like to this that I could trade and make more than £2850 in an entire year.

Nevertheless I've decided not to trade as I am still new to stocks ad shares in general. I've only had my ISA for a year and didn't do much reading, just dumped it into an index tracker and left it.

bowlhead99

There is probably a terminology difference - day trading generally involves screen watching and being around during the day to research and typically use technical indicators to trade in real time. You can't do that effectively with £15k and no experience. Also, being always available during market hours to keep your positions under review would consumes much of your day, hence needing to give up the day job and why I presumed you were going to need to make a salary off it.

However, merely placing the odd buy and sell trade every so often is different and is how some people first got into investing - by acting on tips from newspapers or their mates before they discovered how lower-risk pursuits like fund investing was the way forward. Nothing to stop you having a go at that if your £15k is genuinely free and available and not a big deal to lose. It is not day trading though.

But still, throwing out bundles of £1000 for different shares - because any smaller trade sizes will be very inefficient with the stamp duties and round trip transaction fees to buy and sell (especially if you sell in more than one tranche) - only lets you do 15 trades at any one time.

Doing that sort of thing is unlikely to lose the lot, because you would be pretty unlucky to have 15 companies go bust in one year without you having the chance to exit them. It's just that the profits would be very small because £1000 making 10-20% gain less the trade costs (not to mention taxes if you are successful) is not very much money to reward your time and effort in research, considering the ones you try which will lose the same or larger amounts. Not a great moneyspinner. But sure, it's something you could have a go at, as a hobby, like MortgageFTB suggested. And as Jimjames mentioned, it's better to do it with £15k than with £45k.

Probably the worst thing that could happen is you get lucky and make money out of your 15k, because then you will have a false sense of security and getting it wrong with a bigger bankroll later could be quite painful

But this is not to suggest you can't make money by buying and selling shares. People do it. But short term trading is way harder than long term investing because the market can do anything in the short term, while in the long term it usually rises.

On the 'millions' thing, perhaps you're right and there's a million worldwide doing it. Out of 8 billion that's only a hundredth of a percent though. Are you the hundredth of a percentile that is good enough to do it? Without the huge professional resources of the firms doing it for a living? I guess you won't know until you try.

To be honest though there are plenty of things you could blow £15k on at your age. If you are in a position where you're getting a new £15k of savings coming in every year, doesn't hurt to try a new hobby as long as you know what you're getting into.

bowlhead99

_Super wrote: »

My £15k is going to receive just £2850 for the year. I would like to this that I could trade and make more than £2850 in an entire year.

I know these are just example numbers but 20% is more than twice the long term average. So usually you'll make quite a bit less than £2580 a year, at least on average. Some years you would lose £5000+ from your index.

The trick is that it does generally go up in the long term and if you get compound growth of 7% a year, then 1.07x 1.07 x 1.07 etc for ten years doubles your money. So you put £15k into an investment and a decade later you have two of them and after two decades you have another two of them. Just for sitting and waiting. It is easy money.

Whereas with trading you might think you are going to accelerate this, but as all the market information is in the hands of everyone else creating the price in real time and they collectively have a lot more resources and processing power than you, it's unlikely that you'll have an 'edge'. You make the greater returns only by taking greater risks and being fortunate.

Nevertheless I've decided not to trade as I am still new to stocks ad shares in general. I've only had my ISA for a year and didn't do much reading, just dumped it into an index tracker and left it.

Seems sensible not to dive into trading then. Investing without researching portfolio theory but having time on your side, is an OK thing to do, if a little unwise; while trading without fully researching all the theories and the individual companies and their rivals and the relevant market news and economic indicators etc etc, can be much closer to financial suicide

This is not to imply you are incapable of doing it, just that it does not work out for most people which is why people here will typically caution against it - apart from those few who are hobbyists and like to have a dabble without it being their livelihood on the line (still not actually day trading, just making very hands on investment choices for weeks or months at a time).

N1AK

_Super wrote: »

My £15k is going to receive just £2850 for the year. I would like to this that I could trade and make more than £2850 in an entire year.

I'd like to think that I could walk down the local Sunday league team, be talent spotted the next day and earning £250k a week playing for United by May, but that doesn't mean I would If there was an easy obvious get rich quick scheme out there then we'd all be doing it.

_Super

N1AK wrote: »

I'd like to think that I could walk down the local Sunday league team, be talent spotted the next day and earning £250k a week playing for United by May, but that doesn't mean I would If there was an easy obvious get rich quick scheme out there then we'd all be doing it.

I'm not expecting to invest £15k and wake up the next morning with £50k... £2850 a year is a stupidly small amount of money and I honestly think I could make more than that by trading.

Even if you sell your shares for a tiny profit, it adds up.

Buy: 33,000 shares @ 450p = £14,850
Sell: 33,000 shares @ 460p = £15,180

This is an increase of about 2% and I've seen some shares change by up to 9% in 1 day. Now obviously I know this could go down in price so then I would have to decide whether to hold on to the shares and see if the price picks back up or just sell them. Of course holding into them the price will probably go back up but for the duration you'd not be making any profit at all while your funds are tied up.

This is where having a fund would probably be better money. Lots of variables to juggle around but I know I'll kick myself if I don't even give it a shot. Maybe I'll try in a few years when I have a bit more capital, who knows.

Herbalus

_Super wrote: »

I'm not expecting to invest £15k and wake up the next more with £50k... £2850 a year is a stupidly small amount of money and I honestly think I could make more than that by trading.

:rotfl::rotfl::rotfl:

You're talking absolutes. 20p is a small amount of money but if you started with £1 what more can you expect?

If you think that £2850 is a "stupidly small amount of money" then you need to realise that you didn't have a lot of money to start with.

jimjames

_Super wrote: »

I'm not expecting to invest £15k and wake up the next more with £50k... £2850 a year is a stupidly small amount of money and I honestly think I could make more than that by trading.

Even if you sell your shares for a tiny profit, it adds up.

Buy: 33,000 shares @ 450p = £14,850
Sell: 33,000 shares @ 460p = £15,180

This is an increase of about 2% and I've seen some shares change by up to 9% in 1 day. Now obviously I know this could go down in price so then I would have to decide whether to hold on to the shares and see if the price picks back up or just sell them. Of course holding into them the price will probably go back up but for the duration you'd not be making any profit at all while your funds are tied up.

So your intention would be to put the whole £15k on one share to get that level of increase?

What happens if something like Tesco or BP occurs? An unexpected event that sends the shares down 50%.

You then need to make 100% to get back to your starting point. Plus any charges and you're also forgetting the bid/offer spread. So instead of a 2% rise you need more than that to cover the difference. Some shares could be significant and need 5% or more to cover that.

Fund managers on the whole are not trading like that, they may hold for many months or years and even then can get it badly wrong too. Even Warren Buffett admits he bought Tesco at the wrong price.

If you're looking to get more than 20% pa trading then I think you're likely to be very sadly disappointed.