27 November 2020

Investors Believe Making Money Is Complicated… Traders Know Making Money Is Simple

The masses believe there’s some mysterious magic to making money in the market. Traders know money flows from process

Traders know the better they are at following their profitable process the more their money will grow. 

Great traders are masters at reducing their risk while simultaneously increasing the frequency of their compounding using that proven process.

Given the above, "getting rich" in the markets then is simply a matter of 1) finding a profitable process, then 2) deploying it exactly and repeatedly. The more frequently you can exercise your profitable process, the more (and faster) your money piles up.

Most folks think “successful” traders are smarter, more talented, more attractivešŸ˜, luckier and/or more educated. We’re all of those things… but that’s really not the point. While these things are indeed true, none are the source of trading riches.

Historically, money managers have made a very large percentage of their riches from the AUM calculation. What’s that you say? AUM is Assets Under Management… And that’s the Holy Grail in the money management industry. The more money you have under management as a money manager, the more money you make.

Here’s how it works… The magic formula for money managers is AUM*Mgt Fee which is normally a % of assets.

For example, $100MM*1% per year is, of course, $1,000,000 per year.

Have 150MM under management with a 1% management fee? That’s $1,500,000.

$1 Billion? You’re making $10MM.

And notice there’s no mention of performance. Zero... zip... nada.  The management fee is what you as investor pay for the privilege of having the money manager hold your money under his management umbrella.

That’s nice work if you can get it.

Simple even…

But as anyone who’s worked as or for a money manager will tell you holding on to your assets is not automatic… which means holding on to the revenue provided by your assets is not automatic.

Here’s my formula for making money as a trader.

Try to make ½ of 1% as many times as possible over 200 times in a year.

You read that right… just $.50 for every $100 you have.

As you may have noticed, that would amount to a doubling of the underlying account value from $100 to $200 on a nominal basis (without any scaling or compounding) on  200 trades.

If compounding is allowed, the balance at the end of 200 periods goes from $200 to a little over $271 all else the same… or a return of 171% vs 100%.

Not bad as these things go…

And not at all complicated.

No comments:

Post a Comment

My Most Popular Posts

Follow Me On YouTube

TAOST Topics

How To Trade Emotional Capital simple trading Bitcoin How It Works Simple Day Trading swing trading stalk candidate Daily Simple Trading Habit how to trade Bitcoin trade idea Process price action simple trading tools what to buy what to trade Best Retirement Investments Chart Patterns Focus New Trader Sins Swing Trade TAOST Trading principles TAOST market update day trading lifestyle keep it simple risk risk management support and resistance trading psychology trends Are you too old Confidence FAQ FASTQ How To Invest Income streams It takes as long as it takes MAR Retirement Crisis Retirement Investment Retirement Trading Trade Pattern compounding day in the life of a day trader how to day trade learn to trade performance improvement sell signal side hustle the power of simple trading rules trend persistence ultimate side hustle Buy Signal Coil Distraction How To Trade EUR How to trade SPCE Mistakes Oh S#!t Gap Oil Optimization Process Ownership Portfolio Trade Private Equity Professional Gap Retirement 911 Risk Arbitrage S&P 500 Sacrifice Shooting Star Trading & Poker Trading Components Trading Myths Value Why You're Only 1 Setup Away chaos theory context diversification downtrend extra money financial freedom how much money how to information is the stock market random kis linear regression channel lock limit down meditate money money management negative compounding optimize thinking pandemic position size quantum leap improvement random random market update risk management plan sector selloff simple day trading risk management stock broker trading intraday trading secrets training trend analysis