The Basics - According to the Wizard
About the need to be personally responsible
To trade securities, you will need an agent and possibly an advisor, but I believe that every independent investor has a basic responsibility to look after his own affairs. He cannot rely on others, and in particular Wall Street, to work in his interest. The Street has been an abysmal failure in that regard. Let me explain in blunt words why it is important to take personal responsibility for all decisions related to your investment holdings. The bottom line is that because the capital market is not a level playing field, you have to take steps to protect yourself...
About the Marketplace
Charles Dow knew that the market is the theatre of life, where the play is about time and money. Anything you read from the Trader Wizard will echo the following insightful words of Dow. At the turn of the century, he said: "The man who is prudent and careful in carrying on a store, factory or real estate business seems to think that totally different methods should be employed in dealing with stocks. Nothing is further from the truth." Dow is also father of the Dow Theory, a market technician's bible seemingly at odds with the man's fundamentalist advice...
About conservative investors
In truth, most people are conservative. The conservative investor stresses safety and income. He aims, first, to preserve his capital and, second, to earn a moderate, stable return. Traditionally, the conservative investor tends to buy and hold stocks and bonds of financially very strong corporations and governments. He likely puts a significant percentage of his money into long-term bonds. If he does buy a bond, he usually holds it until maturity, which may be 5 or 10 years or more. He may also keep a significant percentage of his financial assets in the bank...
About enterprising investors
An enterprising investor takes risks somewhere between a conservative investor and a speculator. He looks for total returns (which is income plus capital gains) averaging at least double the current or near-term anticipated rate of inflation and he will sacrifice some degree of safety in pursuing higher than average returns. In a 5% inflation environment, the enterprising investor should be seeking a 10% return on invested capital, roughly 2% in dividends and 8% in appreciation. If a 10% return is the minimum, then 15% (i.e., a tripling of the inflation rate) would be maximum...
About speculative investors
The word "speculation" does not necessarily insinuate gambling or guessing. In fact, capital market speculation may be every bit as much a strategy for success as any conservative or enterprising investor strategy. It must be in your personality and philosophy to be a speculator, of course. Then you have to become good at it. Investment speculators have a philosophy that if something positive, or negative, can possibly happen in the market, it always does! They expect the best and the worst to happen, and they try to turn volatility and crisis into opportunity...
About day traders
People have a misconception of day trading. Most traders on the exchange floors, for instance, are not day traders at all. Because all investors trade and trade frequently on occasion, day trading is a subset of investing. Whereas investing is episodic, day trading is continuous. If it achieves a successful result, whether practised by Wall Streeters or people in their homes, only good should be said. That Wall Street speaks negatively is only because market insiders don't want the public -- the owners of the market's capital -- to share the pie, which is a silly notion...
About stock exchanges
A stock exchange is the key facilitator of capital markets. More correctly, we should refer to it as a securities exchange because it now facilitates trading in multiple markets like stocks, stock options, bonds, investment funds, and so forth. Regardless of evidence of wrong-doing and much self-examination and transformation in recent years, the exchange is still a flawed facility. Management operates them to primarily serve the local financial intermediary community rather than the owners of capital who use them. I know this because I was part of the game...
About broker-dealers
A broker-dealer is neither broker nor dealer -- but both. Therein lies a conflict so fundamental that the capital market is little more than a sham. Intermediaries founded the securities industry on the notion that agents can properly represent us while having a concurrent personal (and frequently opposite) interest in the same transaction. This is such a ridiculous concept any other part of society would scoff at it. Furthermore, these broker-dealers put in place the rules and their people to regulate compliance to their rules, which is a way of saying it is their game...
