Trading for a Living Versus Trading for Life

Many times when I meet BK traders in person I often hear the very same thought expressed over and over again -- “Man I wish I could do this for a living!” My response is always to wince. Don’t get me wrong -- it’s certainly possible to make all your money exclusively from trading, and there are individuals who have made the transition to full time trader, but they are few and far between.

Trading for a living is a feast or famine business. Kind of like sales except much worse. Not only do you not get a monthly draw, but very often Mr. Market will take away last months and the prior month’s paycheck and you have to trade for two or three months forward just to get your money back to even.

That’s why I always recommend that anyone who contemplates a trading career have a side stream of income that is not market dependent. It doesn’t have to be much. But it really must exist, not only to help you cover the basic monthly expenses of living, but much more importantly to give you the peace of mind for those very tough periods when drawdown inevitably kicks in.

But rather than aiming to trade for a living, I think everyone who is involved in the financial markets should actually set a much more useful goal for themselves -- trading for life. Let me explain why that skill, here and now maybe the most important skill you can acquire.


A few weeks back I tweeted out a graph (see above) that I called the scariest chart in finance that I’ve ever seen. The basic premise is that we are all going to live a lot longer than we think and will all have a lot less money than we hope, because QE and ZIRP have basically destroyed any long term investing options. For all practical purposes bonds all yield zero and will do so for possibly decades to come. Real estate is a highly capital intensive business that is utterly illiquid and could goble your savings faster than a Florida sinkhole. (Tokyo apartments anyone?). And stocks? Well stocks are the last great hope of all investors. But I keep having that sinking feeling that the future isn’t what it used to be. Maybe, just maybe the Dow will be 30,000 by 2030 or maybe like the Nikkei it will just range trade and wallow at 18,000 leaving most of us with nothing to show after decades of investing.

I do know one thing. All those S&P compounded index returns that everyone touts are total bullshit. Unless you buy every month, rain or shine, year after year after year you have virtually no chance of making serious money from stocks when you buy at the highs. Back when my older kids were in elementary school we started two 529 accounts for them for college. We used Fidelity and we bought the basic equity/bond index match like the good savers we were supposed to be. Our only problem was that we bought at the start of 2000.

16 years later guess what that patience got us? After fees, the REAL return on that money was something like 2.1% per annum. Imagine if I had to count on that for my retirement income.

We are living in a very different world now. And yet all the advice that we get about financial guidance might as well come from the set of Mad Men. it’s literally that outdated and just about as relevant.

In my chat room, I see traders making 50, 80, 100 pips. Every. Single. Week. Let’s just imagine that they use no leverage whatsoever. That’s 50 basis points per week or 25% per year. Let’s degrade that by half once again and say that when the dust settles, after all the drawdowns and all the transaction costs they make 12% per year without any leverage and while seeing drawdowns of less that 5%. Do you think you could even remotely approach such consistent returns as an investor? Today I read that Carl Icahn and Bill Ackman -- the Titans of Wall Street! -- are down -18% each this quarter. So much for smart money. So much for trusting other people with your savings.

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The future no longer belongs to the organization man. You can’t punch a clock, do what’s asked and expect to live a safe and happy life. The future belongs to those who make the effort to learn and to engage with the financial markets. That’s why trading for life will become a skill we will all need if we want to achieve any semblance of financial security in the new millennium.

Boris Schlossberg

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