What a “trader” can actually teach you about the stock market
You might remember how, in late September, a “trader” going by the name of Alessio Rastani was interviewed by the BBC. In brilliant soundbites, he explained that “governments don’t rule the world. Goldman Sachs rules the world”, that he had “been dreaming of a recession like this”, and that “in 12 months’ time, the savings of millions of people are gonna vanish.”
Ever since, I’ve been thinking and brooding. Should I give even more undeserved airtime to this “self-professed attention seeker” by talking about him? Or should I bottle it up and swallow my frustration? I’ve decided that I can’t bottle it up. So this post is a bit of a rant. As a financial educational specialist and an experienced Investor myself, I fume and rage at how badly Rastani misrepresented my profession.
Besides, I want to tell you what it really takes to make money in a downward market. Spoiler alert: it’s slightly more complex than Mr. Rastani would have you believe.
I couldn’t believe what I was hearing
I am a financial analyst, a financial trainer, a public speaker and a regular guest on TV and radio. In other words, I am what Mr. Rastani pretends to be. And as you can imagine, I’m furious that such vacuous attention-seeking actually gets air time and damages the reputation of bona fide financial trainers – like me.
Especially as what he said does a lot of harm and no good at all. In three short minutes, he managed to strike fear in the heart of millions of already very worried viewers, without offering the tiniest bit of actionable insight.
How very helpful.
Now I won’t go into the detail of each of his highly questionable statements. It would take too long. But as I see it, one of these statements perfectly encapsulates the way Rastani fumbled his way through the interview and manipulated viewers’ emotions, leading them from panic to false hope in a few glib statements.
“Anybody can make money in a downward economy”
Yes, of course. Anybody. Anybody who is a sophisticated investor who understands in depth how markets work, the consequences of market direction on their trades and in some cases, are able to deal with leverage. In other words, anybody for whom trading is a profession or a serious career/lifestyle choice, and not a side business or a hobby.
That doesn’t leave an awful lot of anybodies.
Ah, yes. One more thing. To be able to make money in such conditions, you actually have to, you know, have money to invest in the first place. Money that you can afford to experiment with, not money that you need to pay for a mortgage or your children’s education. Because to make money in a downward market you won’t be investing.
You will be speculating. And that’s risky business.
What “anybody” can do, is make a bit of money in a downward market, in a hit-and-miss fashion, if they’re lucky.
Would you like some snake oil with your panic?
What “anybody” can actually do though, and this time I mean truly anybody, is learn more about the stock market. You can always tell a quack by the way they flatter their audience by implying that they don’t need to educate themselves – especially about a topic as complex as the stock market.
No, don’t educate yourself, rather buy the snake oil or the magic bullet that they are selling.
Mr Rastani advises people to “act now before it is too late”. Act, yes, but to do what? Where should you start? What do you do? How can you know you are not going to make your situation even worse? He didn’t answer any of these questions.
The first step should be to educate yourself about the stock market. You can start with this blog, it’s free (and when you subscribe, new posts will be sent directly to you). There are many resources out there: books, courses, you name it.
This won’t be very flattering, but there is something I absolutely need to tell you: a huge percentage of the general public is woefully financially illiterate. So before you go risking your savings in the stock market, make sure you know what you’re doing.
Do you want to invest a lot of time in understanding how the stock market works? Are you willing to pick out, time-test and try out (on paper and with your own money) some strategies in order to make a return in a downward market? Are you going to really get to grips with the impact of market direction and possible leverage, in order to do so? Because that is what it will take before you can make any money in a downward market.
So how, exactly, do you make money in a downward market ?
For somebody who goes to bed every night dreaming of another recession, Mr Rastani doesn’t do a very good job of actually explaining how to take advantage of this downward market.
What you could do is use two strategies called short selling and put options. And this is what I am going to explore in detail in the next two blog posts.
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