Don't be a master of none

If you have a harem of 40 women, you never get to know any of them very well. – Warren Buffet

To be a successful stock trader/investor you have to limit the number of shares or instruments that you trade. You cannot seize opportunities if you are trying to trade everything that is available across all markets. This might be difficult to grasp if you are a private trader, especially when you want to take advantage of every move across the markets. In investment banks and asset management companies, traders and analyst specialise in particular sectors. This is because the professionals recognise the fact that you cannot be an expert in all sectors. It takes too much energy to focus on too much and the rewards are either little or non-existent. There’s a proverb that says “a jack of all trades, master of none”. You become a master of none when you fail to limit the shares or instruments you want to trade.

Limiting the number of instruments that you trade is very important for beginners. In most cases a beginner wants to be up and running, placing trades and making profit. However, to make and keep your profits you have to be selective in what you trade or invest in. Decide on what you want to focus on, study past patterns, try and identify patterns that repeat themselves, identify the trend, identify the next move etc.

If you’ve struggled to make a profit in the last month or struggle to hold onto your profits, why
don’t you give this a try? Create a watchlist of about 20 – 30 instruments. If you want to trade shares on the UK and US markets, select about 10 – 15 shares (including the major indices) from each market, add them into a spreadsheet and study the charts of each of them, making comments where appropriate. This exercise might take a while the first time you do it’ but subsequently should not take more than a hour per day. The best time to do this exercise is when the markets are closed.

I’ll cover more about how to place your orders in a later post.

All the best.