If you’ve spent a little time on financial twitter or consuming financial media, you might be under the impression that success in trading or investing is easy to achieve. Well, it’s often simple, but never easy; and the difference between simple and easy is another post in and of itself, so I won’t touch on it here. But, the point I’m getting at is, despite what people want you to believe, easy money opportunities in trading or investing are often not what they appear to be.

For example, take the 72 million dollar whiz kid; a high school teen who claimed to have made millions of dollars trading stock during his lunch break. Many people, probably those unfamiliar with financial markets or the finance industry as whole, believed every word this kid said. Later, we “surprisingly” found out that it was a hoax, that he had made it all up. To most people involved in markets it did not come as a surprise, but to those not as educated about markets, it was taken at face value. Unfortunately, things like this happen all the time. Maybe not of the same magnitude or scale, but they do occur. The end result is that unsuspecting potential investors and traders see these stories and think that the business of investing or trading is easy, that they can achieve an unrealistic level of success little work or effort.

This newsletter is an example of the kind of thing I’m talking about.

lucky me

This arrived on my doorstep about a week ago, and I immediately knew it was garbage. In fact, I was going to throw it out right away, but I decided to take a peak at it for a quick laugh and hold onto it for a few twitter jokes or whatever. Why did I know it was garbage? Well first off, I’m familiar with how people in this industry get paid and therefore I know where their interests lie. If there really was a $15 Trillion Gold Rush going on, believe me, you’d be the last person to get information on it, let alone from a free newsletter delivered to your doorstep. Secondly, I immediately knew it was penny stock related and I don’t touch those things with a ten foot pole; I just don’t, and most “investors” shouldn’t either. To me, it was hogwash wrapped in a nice coat of seemingly sophisticated and intelligent language, but to an unknowing investor, it may seem like a real opportunity to make some big money. Why? They are not as familiar with markets and may not be able to recognize just how preposterous of a proposition this actually is.

If that wasn’t enough, one of the pages actually quotes the author saying “Since I launched The McShane Letter in 1970 – more than 700 issues ago – my featured “front page” stock reccomendations have a perfect record of 48 winners and zero losers.” Wow, what a record that is. Not only is this stock tip on the house, but you can subscribe and get all of his insight for only $445 a year. Listen, if this guy really was as good as he said he was, he’d be running billions of dollars at a hedge fund, not writing pennystock newsletters.

Now, this post isn’t about bashing people, but it is about providing examples of everyday occurances that potential traders and investors need to be wary of. If you’re thinking about trading or investing as a vehicle to help you reach your financial goals, please go out and educate yourself on at least the basics so that you can avoid setting your expectations too high. It’s in setting unrealistic expectations that one begins down the road of taking on excessive amounts of risk.

Think about it this way. The S&P 500 returns roughly 9% annually, 13% in 2014, and according to eVest aggregate hedge fund returns were 2.48% in 2014.  Achieving above average market returns is difficult, so much so that the majority of professional investors fail to do it, and why most retail traders and investors have dismal average returns over the long term. If you’re in this business to get rich quick, you’re going to be very dissapointed, but if you’re willing to educate yourselves and set realistic expectations, you can successfully meet your financial goals.

Josh Brown summed it up well in this tweet.

The key is education, and the right education. Only then can you know what you’re realistically able to achieve in trading and investing. Before you go out and begin trading or investing on your own, make sure you’re approaching the task in an intelligent way. If you don’t know what that looks like, continue educating yourself or reach out to a professional for guidance, just don’t fall for the many traps and pipe dreams this industry wants to sell you.

As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.

Managing Expectations
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