Smart Pinoy Investor: What ANIMAL are you in the stock market?

Below is an excerpt from the book The Turtle Always Wins. It's a tiny book by Bo Sanchez relating a story about four animals pointing to four types of participants you see in the stock market. It's also his second book tackling the specific subject of investing in stock market, the first being the My Maid Invests in the Stock Market... and Why You Should Too!

Find out what animal best fits you.

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The Four Animals in the Stock Market

Let me introduce you to the four competitors in the race.

1. Squirrel, the Typical Trader

2. Rabbit, the Trained Trader

3. Sloth, The Typical Investor

4. Turtle, The Trained Investor.

Let's start with Mr. Squirrel.

Squirrel, the Typical Trader

Squirrel represents the newbie who gets into the stock market without understanding what he's getting into.

Squirrel also represents the old-timer in the stock market like the uncle of Julius. He's never learned his lesson. He earns some and loses some. It's true that this uncle of Julius is a wealthy man. But Julius never asked this important question: Where did his wealth come from? He presumed it came from the stock market.

But that wasn't true. His uncle was a businessman. He earned his money running a big hardware store for the past 25 years. Here's the truth: if he wasn't trading foolishly, he would have been richer.

Squirrel represents the 85 percent of people who get into the stock market - and lose their money.

On Hot Tips and Penny Stocks

Squirrels want excitement.

They look at their stock portfolio every day. Usually, many times a day. They're ecstatic when they see their money go up. And they're depressed when they see their money go down.

Like the squirrel in my story, they have so much energy, these typical traders buy now and sell few days later. Sometimes, they buy and sell within a day.

And like the squirrel that doesn't follow the road, typical traders don't follow the rules. Because trading for them isn't a science but an art. It's all about gut and feeling.

At the end of the day, most traders are really gamblers. Sadly, they're using the stock market as their online casino.

As I mentioned above, 85 percent of people lose money in the stock market. (And that's a fact.) Because most people who get into the stock market are squirrels.

Squirrels also try to take a lot of shortcuts. They want to make a quick buck.

They hear a hot tip from an uncle or an officemate or a friend and buy the stock.

Sometimes, they earn a lot. When that happens, it feels like they're winners in the race.

But that's not really true.

Because growing your money isn't a sprint but a marathon.

At the end of the day, all that they earned in the past, they lose in a couple of bad trades.

Nothing is left.

Some Traders Are Devious

That's not all the bad news.

A few of these traders, like the squirrel in the story, are devious. They fool other traders. He told the rabbit to sleep and he pretended to sleep, too - only to escape and run.

Some bad traders tell their friends to buy a certain hot stock, just so that the price will go up. Once it's up, they'll sell, leaving the others to hold an empty bag.

Yes devious squirrels may become rich.

But what kind of wealth is that? In the end they lose all their friends. That doesn't sound very wealthy to me.

Here's the truth.

In the story, the squirrel got lost in the forest and was killed by a bear. Typical traders also get lost in their trading and get killed by a bear market (that's what you call a market that is going down).

And then there is Rabbit...

Rabbit, the Trained Trader

Rabbits are also traders.

But they're trained traders.

Most of them do nothing else but trade. Trading is their full-time job. For them, trading isn't an art but a science. They follow very strict rules.

Like what rules?
Trained traders don't touch penny stocks with a 10-foot pole. They only buy the stocks of giant companies.

Another rule? Trained traders don't put more than five percent of their money in a specific stock. So if it sinks, at least it's only five percent of their money.

Another rule? They never end a trading day with more than 30 percent of their money in the market. They don't like to be surprised. Trained traders are very conservative.

These very strict rules prevent two things: big losses and big gains. Buts that's fine with them.

That doesn't mean rabbits don't do foolish things. Even if they're trained traders, once in a while, some of them break thr rules. After all, they're still human beings. The temptation to gamble is still there - and with all the tools at their fingertips - they occasionally break the rules to earn the fast buck.

Are There Really Trained Traders Out There?

Is it possible to become a very good trader? Like the rabbit who actually finishes second in the race?

Yes. Sightings of these very rare creatures have been reported on planet Earth.

I know of a few of them myself.

For example, my stock market mentor has trained 40 plus highly skilled traders. He cherry-picked them from the best schools. He made them go through rigorous training.

My mentor gave his team of traders a modest goal: To earn 5% a month or 60% a year.

Why such a "small" goal? I mean, if these are great traders, shouldn't they be earning more - like 200 percent a year?

Because they're Rabbits. Not Squirrels. They follow rules - rules that prevent big losses and big gains.

I'm sure you know by now that I discourage anyone to become a trader, especially a Squirrel Trader.

But if some of you really want to enjoy the excitement of trading - to be able to brag about your stock market exploits to your friends - then be sure to be a Rabbit Trader.

Some of my friends have what they call "play money." It's 20 percent of their total money in the stock market. That's what they use to trade. But the 80 percent is what they use for long-term investments, using the Turtle Strategy.

So they're a crossbreed. They're 20 percent Rabbit and 80 percent Turtle.

If you want to do that, go ahead. But I urge you to study about trading seriously. Your play money is still money.

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In market times like this, many are tempted to be trading.
Just like what's mentioned above, make sure you have the skills and knowledge that will make it work for you.

Have fun investing (or trading with strict rules).

Omeng

PS: January 9 is the deadline of super early bird discount to our Practical Money Management + How to Win in Philippine Stock Market Seminar! seminar. Learn