The other day, my son, who is twelve, was talking conceptually about traders buying or selling a stock. In this case, he was referring to a share of Berkshire Hathaway A shares which trades over $370,000 per share as of this writing. He was wondering how hard it would be for traders to sell a share of this stock.
Today, the average investor’s view of the market is a liquid place where transferring shares happens almost instantaneously. Many forget that in order for a transaction to take place there has to be a buyer for every seller and vice versa. Without one or the other a transaction won’t happen.
If you’re a seller, a buyer won’t always pay what you want for your shares. Over the last thirty plus years I’ve seen the market move away from the quoted price quickly. What matters is the quantity of shares sold. Market makers will only pick up shares at prices they deem profitable unless they have orders to fill on their desk from others, so usually they post small lots to purchase to protect themselves. Computers handle most of this now, but it still happens. It just happens much faster.
Transactions and Traders
The media discounts transactional reality when posting headlines. Current trader headlines are repeats of events and actions that have happened in the past. Even back in the 1920’s there are trader stories that are similar to today. Just read the story of Jesse Livermore. The book is titled “Reminiscences of a Stock Operator” by Edwin Lefevre.
I’ve had the pleasure of knowing as well as studied successful traders over the years, but I don’t know one trader that has survived over the long term. Just try researching the documented history of a successful trader. It’s very hard to find information documenting longevity.
It’s Not a Traders Market
The stock market can break anyone if they don’t respect it. The market was created for businesses to raise money for their endeavors. Somehow aspects of the system appeal to trading much like a gambling casino. Like a casino, where the odds are worse, traders lose over long periods of time because it is difficult to make many small decisions over long periods and be right more than fifty percent of the time.
I spent time researching game theory in college and looked for similarities in the stock market. The funny thing about the market is the further you are away from it usually the better it is for you as the investor. In the end the best way to build wealth by participating in the stock market is to take the market out of what you do, and focus on long term business ownership investing or investing alongside the market with an index. Time is the investor’s greatest of their available four hammers or edges.
Some of the smartest people on this earth work on Wall Street, but the richest people on earth try to get as far away from Wall Street as possible, and instead live their lives first and then invest in good businesses second. Do the same.
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