Tuesday, April 23, 2013

Why following Warren Buffett won't be good for (y)our trading

For Reader's note : I guess it is better to put disclaimer before starting this article. Please read this completely before coming into conclusion. If you are too sensitive about Warren please read why following Warren Buffett is not good for my (means Guruprasad) trading.

Warren Buffett is an icon of Value Investing and he is so successful that most of the books on value investing has been written based on his success with stock markets. After reading  few books I come to conclusion that Mr. Warren Buffett could never be my role model to make money in markets.

There are  many reasons and I'd like to put all those reasons.

1. Warren Buffett was born at right time and at right place to reap the success of capitalism whereas I've not got that kind of luck.

2. Warren Buffett is a genius, hard worker and he could do complex mathematical calculations in matter of time whereas I'm a mere mortal and have got failed in my Math Examination ( I got failed in my Higher Secondary Final Examination).

3. Warren Buffett is a king of complex analysis and he could easily anticipate things that are no way near to my imagination. I don't even know what would happen to companies that are bought by me in markets ( I don't even know what would happen to those companies the very next day of my purchase).

4. Warren Buffett is a greatest stock picker and I'm a worst stock picker.

5. Warren Buffett is a guy who could easily pick up a phone and could make a call to CEO of a company which he would like to invest for his next winner. I can't even make a call to a GM of a company and even if I make a call only an employee from investor relations could attend my call and answer my questions regarding the company which would be of no use because it was already known to thousands of other people who intends to make investment in a particular company. 

6. Warren Buffett could be bailed out by Federal Reserve whereas in my case I've to pay myself for my mistakes. I know few of you guys might not accept this. In 2008, Warren Buffett had stakes in lot of financial institutions that are on the verge of collapse(WFC is a prime example). He simply lobbied with others and protected his investments. I don't care whether you guys accept this truth.

7. Warren Buffett is so influential and his word could make a stock run in few percentage points whereas no one knows me. Not even a neighbour knows that I trade in stock markets and trade for living. 

"The most important thing is to have a method for staying with your winners and getting rid of your losers."-Gary Bielfeldt

If a trade doesn't look right, I get out and take a small loss.-Gary Bielfeldt

I make my living by trading on stock markets. I've my method to trade stocks and this article clearly states that I'm not a value investor because I don't even know how to value stocks and I don't even know what would happen to the companies that are bought in stock markets. I don't have the knack of anticipating future course of markets and business of companies that are traded in stock markets. 

In order to overcome my weakness I simply follow simple mathematical calculations of 30 Day Simple Moving Average for Short Term Trading, 50 Day Simple Moving Average for Mid Term Trading and 10 Months Moving Average for Long term trading. I normally trade on 30 Day and 50 Day and seldom trade on 200 day average. 

If it goes below any of these averages I simply short the stocks and have stop loss and If it moves above any of these averages I simply buy the stocks and also have stop loss for those trades. 

If my trade doesn't move for a week I simply cut my position and look for another trade. I firmly believe that this seems to be best method for mediocre like me to make money in stock markets. 

I still read Warren Buffett. Now a days I don't have any expectations or false thinking on  becoming next Buffett. 

I never pretend to be a value Investor because I simply cut my losses short and accept that I've made mistake. I know that I'm not a value investor like Warren Buffett. This understanding helps me to accept my mistake and make decent money in stock markets. Most importantly I love the fact that I'm a mediocre and an obscure stock picker.

No comments:

Post a Comment