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Three Ways You’re Smarter than a Professional Trader

The Investment U E-Letter: #363
Friday, August 20, 2004

Three Ways You’re Smarter than a Professional Trader
By Brian Hunt
Vice-President, Investment U

The first stop was a swanky bar in Lincoln Park

While in Chicago last week, I met up with some friends, and one new acquaintance: a pit trader on the Chicago Mercantile Exchange.

I’ve always wanted to exchange ideas with someone who works “in the pits” - a real pro who spends his days fighting for deals and screaming out prices.

As it turned out, this Chicago trader didn’t know as much as I would have wagered

Here’s what I mean…

Are You Smarter Than a “Big Time” Trader?
Let Me Count the Ways.

I asked Chris (name changed to protect the “innocent”) what he thought of the stock market.

His responses provided the first way you’re smarter than a professional broker:

  • Way #1: He felt with the economy expanding so quickly it was a great time to buy stocks (a booming economy is actually bad for stocks - IU E-Letter #357).
  • Way #2: I then asked Chris his opinion on investing and interest rates He said he has a huge portion of his money on a bet that interest rates will rise. Well, if you read IU E-Letter #340, you know that making a huge bet on any trade is usually a bad idea.
  • Way #3: One more question to confirm my suspicion that Chris might be a little “narrow minded” when it comes to investing. I asked him if he was worried about taking such a big bet on a trade that everybody else likes - in this case, betting that interest rates will rise. He said no, not worried at all. But again, as a reader of the IUEL, you know that trading with the crowd is almost always a bad idea (#358).

“All Foam and No Beer” Makes Chris a Dull Boy

It turned out Chris didn’t really know much about investing nor did he care to. It was clear from our conversation that he actually hated his job.

Chris’s job is to make “the spread” on option trades, skimming an eighth of a point from large trades on the floor. It’s similar to a used car salesman buying a car for $10,000 and selling it for $11,000.

Chris had the typical in-your-face attitude of a trader. He was a nice guy. But he’s an in-the-flesh example of how some people working in the financial industry can be “all foam and no beer.”

I’m not trying to beat up on floor traders. A lot of guys on the floor are hard-working and brilliant -and make a ton of money.

But when I was starting out as an investor, I used to be impressed when someone claimed he was a broker or a trader. After meeting a few traders and brokers, I’m not impressed anymore

Why Great Salesmen Do Not Necessarily Make Great Investors

Chris, like most people working in the money business, is just punching the clock. These folks are getting a paycheck and couldn’t care less about putting in the extra time to become a great investor. They’re no smarter when it comes to investing than people like you and me - those of us “outside the pit.”

Stockbrokers are another good example. Their job is to sell you stocks and collect commissions. Most of them are great salesmen but they don’t know what it really takes to succeed in investing.

They’re told what to think by the management. And the management says it’s always time to buy stocks. Just send them your money and they’ll do it for you, right?

Now That You’re Ahead of the Investing Pack, Stay Ahead

If you’re looking around for a financial planner or broker, ask them a few questions. Make sure they know their stuff. You might even see how they match up against one of the Investment U Quizzes, which you can find at the end of each chapter of the Investment U Course.

And as my dinner with one of them shows: If you read this E-Letter, you’re more likely to have the answers than a lot of so-called investment “pros” out there

Today’s IU Cribsheet

  • I always encourage you to check out our Investment U Course, an easy-to-read summary of the 141 secrets, techniques and strategies you can use to become an extraordinary investor. It also contains the IU Quizzes I mentioned above. For more information, just visit http://www.agora-inc.com/reports/300SINVU/W3IUE8AC/

Good investing,

Brian Hunt

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