For many people it’s almost impossible not to have opinions about stocks. Even those who use a low-cost indexing approach to investing like me find themselves with a strong opinion about a company’s prospects from time to time. For those who commit real money to their opinions, I have a suggested mindset for trading.
Imagine an office building with 1000 people working away on clusters of the latest powerful computers. The workers are former physicists. String theory wasn’t challenging enough for them and they went looking for greater mathematical challenges. Now they are all working together developing advanced trading strategies.
The next time you trade an equity imagine these former physicists being on the other side of the trade selling whatever you’re buying or buying whatever you’re selling. I’m not saying this just to scare readers; this is a fairly accurate depiction of the trading universe.
I’m a believer in owning equities and taking some investment risks, but trading frequently against multiple armies of former physicists is dangerous. I prefer investment strategies that require very little trading.