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Think Like a Wall Street Pro

samseiden
Sam Seiden
Online Trading Academy, Chief Education, Products, and Services Officer

Making major financial decisions that are truly best for you requires non – conventional thinking. There is a reason why the gap between Wall Street’s annual profits and the average investor’s is so wide. There is a reason why Wall Street revenues break records almost every year and the average investor hardly ever achieves their financial goals. It’s simply a matter of how each groups thinks, which leads to the action that drives the results. I started my career on the Wall Street side of the business during my time on the trading floor of the Chicago Mercantile Exchange years ago. What I saw first- hand was how vastly different the Wall Street professional “thinks the markets” vs. the average investor, for whom Wall Street serves. Wall Street returns may be a big stretch for the average investor, but if you even want to get close you had better start thinking and acting like Wall Street.

Wall Street doesn't buy and hold and you shouldn't either

Price: The one word Wall Street doesn’t want you to think or ask about. The reason for this is because just about every financial decision you’re going to make requires you to buy something: stocks from your broker or financial advisor, annuities, mutual funds, life insurance policies and more. In all cases, you are essentially buying something from someone which means they are trying to profit from your decision. With Stocks, for example, Wall Street owns the stock at a certain price and sells it to you at a higher price; that is one of the many ways they profit. Don’t blame Wall Street; this is how the system is set up. Instead, realize that the responsibility to make the right decision is on one person, you. The goal is to first become aware of this issue, understand how to make the right decision and lastly, feel comfortable and confident doing it.

The average investor almost never asks what “price” they are buying a stock at. Make sure you buy it on sale, just like Wall Street does. Wall Street professionals suggest buying and holding, but are they doing that? Wall Street focusses on “price” more than anything else when buying stocks, bonds or any other financial instrument. The problem with “buy and hold” is it really means “Buy at Any Price in the Market and Hold with No Plan for Risk or Profit.” Does this make any sense to you? Do you think this is the strategy financial institutions use for their capital? Wall Street isn’t doing anything wrong; the average investor is due to a lack of understanding. To really change your financial trajectory, there is only one answer in my opinion: Stop thinking and acting like an average investor and start thinking and acting like the big banks and financial institutions.

Buy and hold works once and a great while, but consider someone who invested $1,000,000 in 2000 in the S&P 500 Index and that investment’s performance since then. If you’ve been in the market since 2000 the profits have only been made the last couple of years. In this example, our $1.0 million beginning balance grew to $1.4 million at the end of 2014. That’s an average annual rate of return on an IRR basis of 2.0%. Is an investment return at par with long term CD rates worth the risk? Welcome to today’s market.

How do you think Warren Buffet has made his fortune? His strategy is simple. Along with his insurance business, he finds strong companies and buys them cheap, just like Wall Street but opposite of the average investor. Let’s go over an example for 2016 based on simple analysis and professional thinking.

AAPL: Great company, strong earnings, healthy balance sheet, solid management.

Current price as of this article: $116.00

Analysis: Buy APPL below $85. (Make sure you have a plan for risk and profit!)

Free Trading WorkshopWhat if we start thinking and acting like Wall Street and other financial institutions? It’s not as hard as you may think. To start with, understand that how you make money in the financial markets is exactly how you make money buying and selling anything in life. When buying a stock, think and act the same way you do at the store, try and buy something really good on sale. The next time you make a key financial decision, make sure you’re asking yourself this simple question: Is this decision benefiting you or the person selling it to you?

Hope this was helpful, have a great day.

Sam Seiden – sseiden@tradingacademy.com

Disclaimer
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.