About a week ago I was involved in a meeting with my group manager and the guy I consider in many ways to be a trading/markets mentor. In it we were talking about how different types of market participants view information and resources. This is something I’ve spoken of before.
The averageÂ trader/investor thinks of things like price data, analyst reports, education and all the various goods and services related to trading and investing as an expense. They are always thinking firstÂ about how much something will cost and are continuously trying to get something free or on the cheap.
The professional trader/investor has a very different mindset. He asks the questionÂ how much moneyÂ service or product can help them make, or help them save money through improved efficiencies and things like that. It is only after they have considered the benefit that they consider the cost. If it’s a good return on their money, the go for it.
In other words, professionals are looking at all of their decisions vis-a-vis their actions as market participants as investment decisions while the average person only looks at their actual buys and sells in the market that way. This is one of the reasons why the average trader struggles.
And lest you be tempted to say that the pros only spend money because they have it to spend, let me tell you that investment banks and trading operations can be some of the most penny pinching folks you will ever find. They are constantly looking for ways to cut costs, which means they will only spend money on stuff they know will help them make or save money in their operations. Every expenditure must have a very solid business case.
Consider this. We were talking about pricing for our analytic services – the one I currently work on and the one he current runs. His is one directed toward portfolio manager in a very customized fashion and he charges $1000+ per month for it. The one I’m on is much more immediate and real-time in nature with a target audience of institutional sell-side folks and prop traders. We charge about $300/mo per user for it. When we talked about those figures, my mentor laughed at how relatively cheap they were. He, of course, looks at it from the point of view of how much money he could make off of the information and analysis we provide the user. It is certainly well in excess of what we charge for it.
Just so you know, my mentor trades the type of size many of us aspire to reach one day. In fact, he was saying that he’s figuring on making a seven figure profit this year from his various investing and trading activities. He’s been in the business in one fashion or another since the 1970s and actually helped create the group I work for now.
Now you might be tempted to think of professional and non-professional traders in terms of whether they trade for a living or are employed to do so. That’s one way to look at it for sure. A better way, though, is to think of it in terms of their approach to trading. Professional traders treat it as a business, regardless of whether it’s their living.
If you want to get the most out of trading, treat it like a business and consider every decision to spend or not spend money on your trading as an investment decision for your business. Also remember that you generally get what you pay for – as in anything else. My mentor’s service is rated as one of the 2-3 best independent research sources out there and extremely highly regarded by its subscribers. They very happily pay what he asks because they’re getting a great service produced by a guy with 30+ years of experience.