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Ray Barros: Busting 4 Investing Myths
Aspire, Thought Leaders | 16 February 2015
By: Lim Si Jie
Articles (169) Profile

Professional trader, Ray Barros was in town for a keynote recently and touched on several trading and investment topics. One of the main topics he talked about was the myths surrounding trading.

Myth #1: There Is A “Holy Grail” That Can Trade Any Market, Be It Trending Or Sideways
Many retail investors believe that professional traders are able to constantly beat the market because of a successful trading system that they developed. There isn’t a single system that can beat the market 24/7 in any market. Every trading system is designed to maximize its returns in certain specific situations.

Myth #2: I Can Beat The Market Every Time If I Am Good Enough.
Let’s face it. “The stock market is a probability game”, that is how Ray Barros puts it. And in all probability, there is no such thing as a sure thing. No matter how apt you are at fundamental or technical analysis, you are only increasing your probability of making a successful trade.

Personally, I used to trade in every single opportunity that I saw. I took trend following and counter trend positions as long as there were opportunities, i.e. taking both long and short positions while the long term trend was a downtrend. But it was only after I understood that the stock market is a probability game that I stopped taking counter trend positions. Why do I want to put myself in a position where I have a low chance of making a good trade?

Myth #3: Retail Investors Can Never Beat Professional Investors
Although we cannot beat the market, there is nothing that says that we cannot outperform professional investors. There are actually a few advantages that retail investors hold over professional investors.

Firstly, we have no qualms or restrictions about keeping cash positions. Fund managers have a mandate to keep a fixed percentage of their portfolio in certain asset classes (e.g. stocks) even in volatile or poor market conditions. However, this rule does not apply to retail investors.

Secondly, nobody knows where the market is going. In other words, retail investors have as much idea of where the market is going as professional investors. The only difference between professional investors and retail investors is that professional investors manage their losses in bad times.

Myth #4: Investing Will Make You Rich In A Short Period Of Time
If you are looking to make returns of 50 percent per annum to become a millionaire by age 40, then you can forget about investing. Even the world’s greatest investor, Warren Buffett, averaged only 23 percent annual return.

“We are going to make a lot of money from small capital”. That is a false statement. Even professional traders like Ray Barros believes that “investing is about slowly accumulating your wealth. It will not make you a millionaire overnight”. Investing is time sensitive. But if you start investing early, it will help you accumulate a great amount of wealth by the time you are ready for retirement by slowly compounding it.

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

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