Highlights of Chapter 3 – The Mindless Investor
This brief chapter in The Mindless Investor focuses on what “being a trader” means. According to Tyler, becoming a competent trader means first understanding what kind of trading style best suits the reader. The key points covered by this chapter are that trading is not gambling, successful trading takes effort and, and most importantly who you are as a person doesn’t matter to the market; only what kind of trader you are does.
Key Point #1 Trading is not Gambling
Even though traders and gamblers have speculation in common, traders are professionals who calculate risk and reward. Thinking like a trader is key to success because the primary focus for traders isn’t what kind of company they are investing in, it is what kind of risk to reward relationship is defined by the opportunity.
Key Point #2 Trading takes Effort and Motivation
While some may equate trading with day-trading, Tyler offers a different perspective. Even though executing a trade takes mere moments, most of the money in trading is made in the waiting. The market accommodates different types of traders, from short term to long term, from complex traders to very simple ones. The important note is that to succeed, trading does take a significant amount of motivation and effort in order to avoid being on the wrong end of the market statistics for successful traders.
Key Point #3 What Kind of Trader You Are Matters More Than Who You Are
Whether you are a hedge fund manager or a ‘regular Joe’, it makes no difference to “the market.” The most important thing to focus on is knowing yourself – what kind of emotional makeup you have, what your time and capital constraints are and what life situation you are in. These factors will help to decide what kind of commitments you can make to the market and what strategies you can use that best suit you. The common thread for all traders, though, is focusing on buying/selling shares in order to make a profit. What distinguishes traders from investors is that “investors own assets; traders speculate on the price movement of those assets.”