Are you a trader or investor type? A comparison I bet you’ve never seen

There is no ‘one size fits all’ solution to reaching financial freedom so I am ready to admit that the FALCON Method is not able to help everyone. In this post I want to highlight the major differences between two approaches: trading and investing. As a result you’ll get an idea which might fit you better and whether you should utilize the FALCON Method.

Those eye-catching ads about quick profits

You must have seen tons of ads that want to convince you to become the next ‘forex superhero’. One thing these have in common is that they are advertising some insane rates of return suggesting that you could get very rich overnight. Are those rates achievable? For some lucky few and for a short sample period: SURE! The problem is that the percentage of people who can consistently make spectacular returns by trading is very low.

In fact I had the chance to see one of these companies from the inside and the percentage of successful clients was in the low single digits! They told me it was the standard level in their industry. What about the rest of the people? The typical client deposited some money which he lost within the first few months of trading. Certainly not the story they signed up for… and this is the reason why these companies have to advertise aggressively: their newly acquired clients’ account balances are converging to 0 at a very rapid pace.

What if you calculate an expected return for trading?

Say that a successful trader makes a 50% annual return on his account balance consistently. I deliberately overstate this figure to illustrate my point. Now say that 5% of the ‘wannabe trader superheroes’ succeed in this quest and the rest of them loses his account balance on the way. (This is a huge simplification, again for the sake of illustration.)

Based on these assumptions the expected return of trading would be the 50% expected annual return multiplied by the 5% probability of reaching it. This amounts to 2.5%. You have never seen such a calculation in those shiny ads, I bet! I encourage you to use your own assumptions as inputs and do your own math.

Why is the failure rate so high?

Mainly because of our inborn psychological biases. The way our brain is wired helps us survive but these same instincts are not the best for stock market success, to say the least. Most people cannot handle the constant stress and decision making that is required for trading success and they fail. The higher the number of decisions you need to make the higher your emotional involvement and the level of stress can be. Trading is not a calm pastime activity for most people. Far from it…

What about investing?

Investing involves long-term commitment. You do not buy some stocks with the intention of selling them within a few days or a few dollars of price movement.  Instead you identify quality stocks that are available on the cheap, buy them and let your money work in them as long as the company is doing its job. Have you read the case study of my Cracker Barrel investment? You can see that this approach is not that stressful and hardly involves decision making after a thoughtful purchase.

This means that the psychological burden of investing is much lighter than that of trading and this translates to a significantly higher success rate among the people who choose this way.
Let’s say that a good investor can achieve a 10% annual return consistently and 50% of the people are capable of doing this. These assumptions would lead to an expected rate of return of 5% that is the double of what we got with the trading scenario. (Don’t let these absolute values freeze you since they are totally meaningless on their own! Again, use your own numbers, I just wanted to give you a framework to think.)

I strongly prefer the low-stress way of achieving great returns with the odds on my side to living a stressful life with the ill intention to get rich quick while fighting against the odds.

As a summary: the FALCON Method will work for you, IF…

  • You think long-term.
  • You have a “saver and investor” mindset.
  • You want performance, not excitement. (This is not an adrenaline-packed trading system but an evidence-based long-term investment strategy. The difference is night and day.)
  • You favor a “trust but verify” approach and want to see for yourself why the FALCON Method has very high probability of superior performance.
  • You are able to stick to a strategy and do not deviate from it.
  • You appreciate that you do not have to devote your whole life to learning and practicing investing.
  • You appreciate transparency and total honesty.

The good news is: there are no more IFs. Absolutely no qualifications, inborn talents or special skills are necessary. Once you feel your mindset fits most of the above criteria, you have found what you are looking for.

“Investing should be like watching paint dry or watching grass grow. If you want excitement…go to Las Vegas.” Paul Samuelson

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