Trading also yields great insights into other people. Sentiment, how the majority of other traders view the stock markets or any given stock at any particular time, is the most important driving force behind price movements. Trading success demands buying low and selling high, right? The only times stocks are low is when they are unloved and out of favor among the majority of traders. Conversely, stocks only get high when they are popular and the majority of traders want to buy them. Observing others’ sentiment gives you fantastic insights into life in general, and human nature, that are extremely valuable.
Trading also develops the wonderful ability to take the long view. The tyranny of the present is intense in this Information Age, everyone worries incessantly about today while carelessly ignoring the past and the future. Trading forces you to transcend today’s worries to see the big picture. In order to buy low and sell high, you have to consider any stock’s history and future potential. This grows into a universal life-wide ability to keep the present in proper perspective, to not dwell on today’s challenges out of proper context.
I’ve always viewed trading as analogous to the wondrous Age of Discovery when great tall ships plied the world’s oceans with exotic trading goods. They would sail to Asia at great risk and expense, and bring back spices to Europe that would fetch a fortune. Traders bought goods where the supply was plentiful to transport them to where demand was great. Stock trading today is like sailing the oceans of time. We buy trade goods (stocks) today, and hope that demand for them (and hence their prices) will be higher in the future.
Tuesday, April 5, 2011
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