Am I going into trading too soon?

somethingcorporate

_Super wrote: »

Take the risky approach and try to get at least 50% return on your starting capital per year.

50% pa? that isn't risky, the investments would need to be incredibly speculative and near suicidal. You may get lucky, you'll probably go broke.

If your shares immediately drop 5% and you need to hold a year to recover that's a large chunk or even all of your capital tied up for a year doing nothing but waiting to recover.

Radiantsoul

_Super wrote: »

I'm not sure to be honest. I suspect that a fund manager doesn't care a great deal about what they invest in as long as they turn a reasonable profit. When it's your own money you're going to be a lot more careful and go for the best possible.

Also fund managers don't trade do they? They just dump the money in various stocks in an index and let it sit?

How are you going to be careful though?
How are you going to find which is the best you can do?

_Super

You're all mentioning perfectly valid points and to be honest I have not thought about every possible thing. I said a few posts back that I'm not going to trade and just invest instead.

I can save £15k a year so after 15 years it should be worth a fair bit, at least I hope. My worst fear is to save £15k a year for 15 years and then I've made like £10k profit.

If I'm going to commit for the long term then I hope I can make at least 5% return per year. I guess I'm just trying to maximise the security of my adult life as I get older.

My ultimate goal is to have £1m in savings by the time I'm 50. Call me naive but I've always had high hopes

Gadfium

_Super wrote: »

Because I've looked at a vast number of stocks from various different indexes and the majority of them do eventually go back up.. even if it takes several months.

Apart from the ones that don't go back up (ever hear of confirmation bias?).

Identifying the ones that go up in the past is dead easy. Identifying the ones that go up in the future is infinitely harder. After all, if you knew that then you'd also know Saturday's lottery numbers and you wouldn't need to day trade at all.

It seems to me that you are labouring under a classic case of Dunning-Kruger effect which is "a cognitive bias wherein unskilled individuals suffer from illusory superiority, mistakenly assessing their ability to be much higher than is accurate. This bias is attributed to a metacognitive inability of the unskilled to recognize their ineptitude."

Of course, you could just ignore any or all of this and plough on. Let us know how you get on.:beer:

mgarl10024

I'm relatively new to investing, but I've gone the passive route for a few reasons, including:
- Actively doing anything successfully would take me a long time
- I'm competing with individuals who have better expertise, better equipment, access to better information, access to faster links to the exchange, etc. and even they struggle to beat the market.
- Investing is about balance risk and reward. There are very few opportunities to increase the chances of reward without also increasing the risk - otherwise everyone would be doing it - and increasing risk is not something I'm prepared to do.

You're in an excellent position though. Young, with invested money, and an interest in finances (although you do say that you don't read many books - can I suggest you grab a copy of Tim Hales' excellent and often recommended on here book "Smarter Investing").

If I was in your shoes, I'd leave the £15k passively investing, add to it every year, and then ignore it and find other fun and exciting things to do with my life, safe in the knowledge that I'd done the best I could for my future... but then, I'm not you.

Herbalus

_Super wrote: »

The general consensus on this forum seems to be "avoid trading all together" but is this based on personal failure or something else?

It would almost seem that people are telling people not to trade when they themselves have not done much if any trading? The way I see it is I have two choices.

Take the slow steady approach that will probably win in the end (25 years time)

Take the risky approach and try to get at least 50% return on your starting capital per year.

The same could be said for gambling. You don't have to gamble yourself to know that the house always wins.

There is a vast amount of empirical research that points to the odds of success being in the favour of the slow and steady approach, compounding gains. Sure, there are always exceptions, just like there is a possibility (however slim) of you throwing 100 heads or 100 tails in a row. But the question is: what do you know that enables you to pick the winning stocks with confidence?

If you don't know why you're choosing your stocks, then I'd suggest your strategy bears a remarkable resemblance to gambling.

jimjames

_Super wrote: »

You're all mentioning perfectly valid points and to be honest I have not thought about every possible thing. I said a few posts back that I'm not going to trade and just invest instead.

I can save £15k a year so after 15 years it should be worth a fair bit, at least I hope. My worst fear is to save £15k a year for 15 years and then I've made like £10k profit.

If I'm going to commit for the long term then I hope I can make at least 5% return per year. I guess I'm just trying to maximise the security of my adult life as I get older.

My ultimate goal is to have £1m in savings by the time I'm 50. Call me naive but I've always had high hopes

You do understand compounding, don't you? The numbers from bowlhead should give a good indication.

Even at just 5% pa putting £15k per year will give you over £300k. If you get 10% then it's nearly £500k and at 20% you'll break that £1 million after 15 years.

AndyT678

_Super wrote: »

My ultimate goal is to have £1m in savings by the time I'm 50. Call me naive but I've always had high hopes

That's the first plausible thing you've said...

£15k per year invested and returning 5.5% will get you about there.

Gadfium

_Super wrote: »

I can save £15k a year so after 15 years it should be worth a fair bit, at least I hope. My worst fear is to save £15k a year for 15 years and then I've made like £10k profit.

History would suggest otherwise, especially if you invest in equities

http://www.tradingeconomics.com/united-kingdom/stock-market

http://www.ritholtz.com/blog/2011/01/long-term-stock-market-growth-1871-2010/

However, you cannot be certain, this is the future that we are talking about. There could be another world war, a planet busting meteor could strike, HN5N1 might go airborne and wipe half the population off the planet, you could have a medical issue in 10 years. One thing will be certain, you will have a lot more than if you save nothing per annum.

Eco_Miser

_Super wrote: »

Also fund managers don't trade do they? They just dump the money in various stocks in an index and let it sit?

Some do, others are constantly monitoring the markets for opportunities to improve their portfolio.

_Super wrote: »

I can save £15k a year so after 15 years it should be worth a fair bit, at least I hope. My worst fear is to save £15k a year for 15 years and then I've made like £10k profit.

How about a £225k loss when it all goes pear-shaped in year 15?

_Super wrote: »

If I'm going to commit for the long term then I hope I can make at least 5% return per year. I guess I'm just trying to maximise the security of my adult life as I get older.

5%pa plus inflation is a reasonable average expectation, but it's not going to be a nice straight-line graph, more like a roller-coaster in reverse.