Friday, 7 November 2008

Wealth Creation Technique for Traders

Today i learn a new "wealth creation technique" for traders from Fergus. I wonder why i havent thought about it before.

For example, he said that some of his clients will buy 20 lots of ABC stock and if the trade is a profitable one, he will then sell 19 lots away when he exit the trade and keep the 1 "free" lot. I think that this is an excellent wealth creation technique because it allows you to be vested for a long time when you know that the entire portfolio of stocks is a "free" one. This will also be a source of passive income going forward if there are dividends declared by the company. Perhaps it might even give you a free lunch next time when you are retired and is free to attend the AGM! (not to mention the free annual reports which you can sell to rags-and-bone man).

I think this is an excellent wealth creation technique for traders who trade stocks and may generate the 'passive income' for you next time. I will try to adopt this principle in my trading.

1 comment:

ZhuangZi said...

dude,

I thought of this many years back, and actually did it. My experience tells me it is a bad idea.

Why?

1) Depending on the price of the shares, if and when you decide to liquidate it, the cost of commission out weigh the benefits.

2) You will have the tendency to leave it alone, as in the back of your mind you always think of it as FREE, but it ain't free, it is a lost opportunity cost if the price drops. You could have better deploy the money else where.

3) It does get messy after a while.

ZhuangZi

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