Traders vs. Investors
The Smart Profits Report: Issue #109
Tuesday, May 11, 2004
Traders vs. Investors: Seven Questions to Reveal If You’re an Options Junkie
By Karim Rahemtulla
Chairman, Mt. Vernon Research
I hate Vegas. I only go there to speak at conferences. Then I leave… unless I am off to the Hoover Dam or the Grand Canyon for a day trip.
I know, part of going to Vegas is to “have fun” losing money. God knows how often I have heard that one. But the odds of winning at a casino are slightly higher than the odds that a politician is telling the truth. In other words, it’s not for me. I don’t like losing money.
Most people would say they don’t like losing money either, especially with their investments. But I have to wonder. I talk to more investors than the average guy, thousands upon thousands over the years. I run into at least 3,000 people a year at the seminars that I speak at or host. It comes down to traders vs. investors, they all believe they want to make money, and they do… but some seem destined to live in Las Vegas, wherever they are.
Traders vs. Investors… And Where You Fit In
Within a minute I can usually tell if a person is a trader or an investor. There is a huge difference. Traders make a LOT of money… they also lose a LOT of money. They are into investing for the thrill, the adrenaline rush. The few who succeed are different than the pack. For them the adrenalin rush is controlled with a very strong system.
In contrast to the average speculator, the investor makes a lot of money as well. But he takes the time to understand the strategy. He gives it plenty of time to work. Indeed, he doesn’t get involved in trades that have to pay off immediately, or else. The investor is patient and a stringent rule follower. He’s balanced. He does not have all his eggs in one basket, and he knows when to fold his hand.
What’s better? Being early or right? The answer is obvious to me, but many people want that quick fix. If options were crack, there would be a lot of junkies out there.
Here’s a quick test to determine whether YOU are fit for options investing. Each “yes” answer is worth 2 points. If you score more than 2 points, better read to the end! You may be an options junkie - or well on your way.
Seven Questions to Determine If You’ve “Got a Problem”
- Does the lure of short-term profits (less than 30 days) turn you on?
- Do you go to Vegas, Atlantic City, or Biloxi to gamble more than once a year? (You get four points for Vegas, because you actually pay more to lose there.)
- Do you read AND file direct-mail solicitations?
- Do you pay the minimum on your credit cards?
- Do you get turned on by the prospect of making money from alternative-fuel technologies …12 years before the first product hits the market?
- Is your portfolio studded with oil/gas/real estate limited partnerships from the 70s?
- Do you like disco, wear large gold chains and leave your top four buttons undone on your shirt? (Okay, this one is a trick question!)
If you answered yes to any of the questions on this short quiz - you get 2 points. And if you scored 4 points, uh-oh. You’re ripe to become an options junkie.
But of course, I rigged the quiz a bit…
You’d have to answer “yes” to at least one question - unless you’re a monk or a nun. If you like the idea of making money fast (Question #1) and are willing to take the level of risk it calls for, you may be speculator material.
Investors vs. Traders: Have A System
If so, you better have a system. Most short-termers lose their shirt quickly. Those that thrive all have systems and rules… in other words, they are as disciplined as investors. It is only their time frame and handling of risk that differs.
Both of which I’ll show you how to control in future columns.
Good Trading,
Karim Rahemtulla
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Today’s Smart Profits Cribsheet
- Visit our Smart Profits Glossary to learn more about options trading terms like “put option” or “diversification.”
Related Articles:
- American Options, European Options & Synthetic Options: Threefold Profit Potential
- Option Volatility: A Free Tool for Finding the Best Option Bargains
- Double Your Money: The Truth About Making 300% Overnight in Options
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