*For infotainment purposes only; sharing ideas as I learn more about investing and trading.
Dearest readers, I am sure most if not all of you would agree with me that we seek an edge in many aspects of our lives. From life hacks to paradigm shifts to success formulas, we look for ways to do things better, to achieve more with less resources by improving the process of doing so. One place where this is so very obvious is in investing, and especially trading. In that world, it is called alpha. When we look towards the markets, we do so because we want more money in our bank accounts, so anything that helps us turn the markets into our proverbial ATM is highly coveted. However, as I learn more about investing and trading, I realized that not every alpha works for everyone out there equally or at all. As such, I would like to share a couple of ideas about what alpha is for most of us who are new active participation in the markets and we are not made of money to begin with.
First, a definition. According to Investopedia, "Alpha (α) is a term used in investing to describe an investment strategy's ability to beat the market, or its "edge." Alpha is thus also often referred to as “excess return” or “abnormal rate of return,” which refers to the idea that markets are efficient, and so there is no way to systematically earn returns that exceed the broad market as a whole." In simpler terms, an example of alpha would be the kind of edge that will give you a greater return on investment than just dumping all your money into Tesla or "Virgin Fund" (haha). Simple enough?
Now, there are obviously many different ways to achieve your edge. However, here is where we run into a problem because the less savory characters out there use social media to pump so much fake edge out there that it is not even funny. They all boil down to one thing- they try to conflate insane speculation with edge that they claim will give you insane returns. They offer scenarios according to which a crypto coin or token, or some stock, will blow up to amazing heights and they provide suspicious evidence for their claims. Best of all- for them- they make money from dispensing their advice (directly, indirectly, or both). in so doing, they take on the role of the house in casinos, and the house always wins regardless of whether you win or lose. Now, there are many people- even people I personally know, who pay for this kind of edge and sometimes it works, while other times it does not. Naturally, there are also so many people, article writers and so on who keep reminding us how much money we would have now if we invested in Amazon when it initially went public. Yeah yeah yeah...
Look, if an article comes out about a guy who is hooked up to a polygraph, says he invested thousands in Amazon very early, AND believed firmly at the time he invested that it was going to be huge, I will accept that this sort of person exists (I will not accept Jeff Bezos or any Amazon staff as examples). That kind of story, however, does not give you an edge or excess return because you cannot replicate this, ever.
So, what sort of an edge results in some admirable alpha for a typical retailer investor or trader? To me, at present, alpha results in focusing on price action. A company may or may not be going to a x place in y number of years, but to us it is nothing but a stock symbol with financial information, a chart and the current price along with all past price action- that is all. When you reduce a company to what matters to you as someone seeking to print tendies haha, you realize it is basically a value oscillating between price points. All that matters at that point is technical analysis and applying it to a list of stocks that are in your price range and are frequent flyers in the daily top percentage gainers category (BNN has a live update list of those for major markets during market hours on their website). Once you make your list, work out a system that will work on every stock on that list that will control gains and losses so you end up growing your account faster than just letting your money sit in your RRSP, stocks or ETF's. What I have started to realize is that, if you apply yourself and do this right, putting your thumb on the scales will give you the right kind of edge for a rhythmic growth. By a rhythmic growth, I am referring to a timely, frequent account gains that exceed occasional losses, and this happens again and again successfully over a long period of time. You let the gains compound, and eventually you may be able to draw a side income from it or even a salary.
Why am I saying this? Why not look for edge in trading and investing by treating the whole thing like lottery? Simple. Trading contains the word trade in it and I think there is some wisdom to it. Trades are career paths such plumbing, electrical work, HVAC, cooking. They differ greatly from each other but they have the same structure. You have to study a lot, then you have to practice, and when you are deemed competent you go to work. When you are working, the only way to do so is to engage in the list of tasks included in your trade and to complete them according to prescribed rules and standards, no fooling around shortcuts and so on. Look at chefs- every recipe they cook has to be done as close to perfect as possible or you lose a customer. I feel that once you understand trading in those terms, you are ready to find your edge, apply it well, and print your tendies. ;)
Dearest readers, I am sure most if not all of you would agree with me that we seek an edge in many aspects of our lives. From life hacks to paradigm shifts to success formulas, we look for ways to do things better, to achieve more with less resources by improving the process of doing so. One place where this is so very obvious is in investing, and especially trading. In that world, it is called alpha. When we look towards the markets, we do so because we want more money in our bank accounts, so anything that helps us turn the markets into our proverbial ATM is highly coveted. However, as I learn more about investing and trading, I realized that not every alpha works for everyone out there equally or at all. As such, I would like to share a couple of ideas about what alpha is for most of us who are new active participation in the markets and we are not made of money to begin with.
First, a definition. According to Investopedia, "Alpha (α) is a term used in investing to describe an investment strategy's ability to beat the market, or its "edge." Alpha is thus also often referred to as “excess return” or “abnormal rate of return,” which refers to the idea that markets are efficient, and so there is no way to systematically earn returns that exceed the broad market as a whole." In simpler terms, an example of alpha would be the kind of edge that will give you a greater return on investment than just dumping all your money into Tesla or "Virgin Fund" (haha). Simple enough?
Now, there are obviously many different ways to achieve your edge. However, here is where we run into a problem because the less savory characters out there use social media to pump so much fake edge out there that it is not even funny. They all boil down to one thing- they try to conflate insane speculation with edge that they claim will give you insane returns. They offer scenarios according to which a crypto coin or token, or some stock, will blow up to amazing heights and they provide suspicious evidence for their claims. Best of all- for them- they make money from dispensing their advice (directly, indirectly, or both). in so doing, they take on the role of the house in casinos, and the house always wins regardless of whether you win or lose. Now, there are many people- even people I personally know, who pay for this kind of edge and sometimes it works, while other times it does not. Naturally, there are also so many people, article writers and so on who keep reminding us how much money we would have now if we invested in Amazon when it initially went public. Yeah yeah yeah...
Look, if an article comes out about a guy who is hooked up to a polygraph, says he invested thousands in Amazon very early, AND believed firmly at the time he invested that it was going to be huge, I will accept that this sort of person exists (I will not accept Jeff Bezos or any Amazon staff as examples). That kind of story, however, does not give you an edge or excess return because you cannot replicate this, ever.
So, what sort of an edge results in some admirable alpha for a typical retailer investor or trader? To me, at present, alpha results in focusing on price action. A company may or may not be going to a x place in y number of years, but to us it is nothing but a stock symbol with financial information, a chart and the current price along with all past price action- that is all. When you reduce a company to what matters to you as someone seeking to print tendies haha, you realize it is basically a value oscillating between price points. All that matters at that point is technical analysis and applying it to a list of stocks that are in your price range and are frequent flyers in the daily top percentage gainers category (BNN has a live update list of those for major markets during market hours on their website). Once you make your list, work out a system that will work on every stock on that list that will control gains and losses so you end up growing your account faster than just letting your money sit in your RRSP, stocks or ETF's. What I have started to realize is that, if you apply yourself and do this right, putting your thumb on the scales will give you the right kind of edge for a rhythmic growth. By a rhythmic growth, I am referring to a timely, frequent account gains that exceed occasional losses, and this happens again and again successfully over a long period of time. You let the gains compound, and eventually you may be able to draw a side income from it or even a salary.
Why am I saying this? Why not look for edge in trading and investing by treating the whole thing like lottery? Simple. Trading contains the word trade in it and I think there is some wisdom to it. Trades are career paths such plumbing, electrical work, HVAC, cooking. They differ greatly from each other but they have the same structure. You have to study a lot, then you have to practice, and when you are deemed competent you go to work. When you are working, the only way to do so is to engage in the list of tasks included in your trade and to complete them according to prescribed rules and standards, no fooling around shortcuts and so on. Look at chefs- every recipe they cook has to be done as close to perfect as possible or you lose a customer. I feel that once you understand trading in those terms, you are ready to find your edge, apply it well, and print your tendies. ;)