Financial markets are basically a zero-sum game. Everybody tries to win, but the cake is not infinitely big and the market adapts ghostly to the group of winners that has become too large, leveling their advantage down.
Yet, for a small minority there is a way to consistently escape the crunching mechanisms of the markets. In order to get an impression of what that could be, let’s have a look at a chart of one of the recent stars of the stock market:
During its steep ascent the price of Hansen Natural’s stock got multiplied by a factor of about 100 in a matter of only 3 years. This is of course hindsight and I presented on purpose an impressive example, but the chart demonstrates something.
It shows directly that you could have made hundredfold back of what you invested. Stocks often have large moves, much bigger than the ones of commodities or currencies. But at risk would have been only the investment itself. This asymmetry clearly favors stocks over all other financial instruments. Their leverage is no compensation for the asymmetric price behavior the stock investor enjoys. Trading on margin with Forex or futures can let the account go below zero, which is simply a linear and not a logarithmic growth behavior. Options have a premium that decreases over time, which destroys the advantage their non-linear pricing pretends to offer at a first glance.
But there is something else. The multiplying happened with a trend that went straight up and was almost always at its current high. In such a situation the market forces that are playing against the small trader are diminished….
Most traders, and investors even more, are not aware that a price at the high is a different situation than a price elsewhere. Generally… Read more…