Investing in the Financial markets is a "Zero Sum" game; this means for every winning trade, there is a losing trade.
The markets are a battlefield with all types of participants: Professionals, Mathematicians, Technologists, Robots, Bankers, and the every-day person (known as the "retail investor").
Amongst these players, there are two distinct types of strategies: Active and Passive Management.
The style you choose depends on the number of decisions you'll be making and how skilled you are. Active Investing means you are "actively" managing your portfolio, monitoring the markets constantly to make many decisions. "Passive investing" means you'll create a portfolio and set it on auto-pilot.
We've created these categories of Investors: The Shark, Dolphin, and Fish. The Sharks eat the Fish in the market, and the Dolphin is intelligent enough to evade the Sharks.
Active Investing: are you the Shark or Fish?
The active investor is continuously digesting information and determining if the rest of the market has mispriced this information, making buy/sell decisions based on this.
The more skilled you think you are, the more likely you'll gravitate towards active investing. You are betting that your skill to make correct decisions in the markets is greater than others, and that's why you'll generate extraordinary returns.
Examples of things active investors think about:
- How bullish/bearish am I?
- How does what happened in XYZ country affect the markets?
- What investments are underpriced / overvalued?
- How does XYZ announcement affect this investment?
- How do I optimize my market timing?
Many have dedicated their lives to Finance and are still Fish in these current markets. With the growth of technologies and data strategies, Sharks tend to implement some integration with algorithms in their trading methodology.
However, if you are managing your own money, you have some advantage because managing thousands of dollars is much easier than managing billions (which the professionals are doing).
At EquitySim, one of our primary goals is to identify Sharks. We believe that Sharks can be found in hidden places, with their potential unknown even to themselves. We will help you determine if you are at the "Shark" level, or "Fish" level.
If you are at a fish level, your best bet is to stick to passive strategies and become a Dolphin.
Passive Investing - The Dolphin's Approach
Dolphins realize the benefits of investing in the long-term, and want to participate in the markets, but are aware they cannot compete with Sharks. They minimize the decisions they need to make and use passive strategies.
The standard passive strategy is to create a diversified portfolio based on your risk-tolerance and set it on auto-pilot. Re-visiting a few times a year to rebalance their holdings. We'll teach you more about what this means in further lessons.
Most people who are in the profession of Finance employ passive strategies. Passive strategies are pretty easy for anyone who understands the basic principles to implement. Our goal is to teach you these principles and passive strategies to give you more control over your finances.
We are not suggesting you should not seek professional help, but it will put you on even-ground when speaking to advisors at your local bank.
Take our Learning Challenges and become a Shark or Dolphin
Our Learning challenges help determine where you are on the spectrum. Through the challenges you'll find out if:
- You can Actively invest your own money
- You are ready for a job in the industry
- You should stick to Passive Strategies