I remember my start in trading more than a decade ago. It began with a book I read that just hooked me. It talked about some amazing returns and exposed me to strategies that previously had been unknown to me; strategies like writing covered calls and buying LEAPS calls and selling naked puts. I suppose it was the amazing returns that first attracted my attention, but it was only after trading a few years that I realized that the returns the author used to illustrate his points were annualized, not annual, returns. He would show a trade that produced a 30% return in a month and then discuss it as an annualized return of 360%. Some of the examples as I recall even referred to annualized returns over 3000%! Definitely, that kind of trading was for me so I embarked upon my career as a trader.

At that time, the market was a roaring bull and the tech bubble was expanding. Quite frankly, it was pretty hard to make a very bad trade as long as I entered a bullish position. Though I felt like I was doing pretty well, I could not get annual returns anywhere near the 1000% mark. My naivety was rapidly crushed when I learned that trades could actually lose as well as win, especially when the market turned over and rocketed downward. At that point I understood that if I intended to continue as a trader I needed to do a few more things: I needed to learn how to trade a down market and I needed to set aside the greed factor as much as possible and figure out what I really was trying to do.

Figuring out what I was trying to do was not quite as easy as it sounds. Obviously, the goal was to make money, but underlying that were questions of what expectations were reasonable, what rewards would I seek, what risks would I be willing to trade off in exchange, and how would I go about it? Later, in talking with many seminar attendees and private coaching students, I learned that most people fail to take those things into consideration at first just as was the case with me. Most jump into trading because they see the marvelous potential, but learn as they go forward that though it may be simple it definitely isn't easy.

One of the questions is whether a trader is in it for the big hit or whether he is willing to play the game steadily, being satisfied with a relatively steady advance. I find that those seeking the big payday only rarely achieve it and often take themselves out of the trading business without ever achieving success through inattention to things like reward to risk awareness and money management flaws.

My personal conclusion, and the decisions are personal to each of us, is to treat the market as I would eat an elephant -- one bite at a time. In other words, my primary focus is on regular, steady production of income and increase of assets through a variety of strategies. My secondary focus to which I devote less time, energy, and money is to seek big hits. Those huge returns do come on occasion, but in my experience they are relatively rare and are not frequent enough to satisfy my financial needs and wants.

It is my sincere belief that almost all of us would be well served to establish a variety of streams of income in addition to our own labors. That is the reason I wrote the material I discuss in my new book, "Smart Investors Money Machine." Most of us have differing abilities and differing requirements, but we share a desire if not a need to increase our assets. Before "Smart Investors Money Machine" was released, some self-anointed critic on the blog suggested that the book was just about diversifying, but he is wrong. While diverse methods to create streams of income are an important part of the book, it goes beyond that concept to illustrate how various methods and strategies can be employed by people at various stages in life and with varying amounts of time to devote. It is designed specifically to show the individual reader how he or she might improve their financial lot using investing and trading methods and devices that work best in their own lives. In other words, "Smart Investors Money Machine" was written to help interested readers decide not only what they really want, but also how to get it.

Good Trading!
Bill Kraft

May 30, 2009

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