Medical students start on cadavers.
Pilots start on flight simulators.
Soccer players start on small-sided games.
Investors though should start with real money because paper portfolios aren’t “real enough”. Seriously?
there is a difference, you start with a little bit of money…its not your life…just a bit but its…its like the cost of education
I think starting with a bit of real money is a good thing. I’ll be honest, I lost some real money when I started, but I also learned real lessons. Now I seldom lose money. I may not always make awesome returns, but I seldom lose capital.
Some of my favorite quotes from Reminiscences of a Stock Operator:
The game taught me the game. And it didn’t spare me rod while teaching.
It sounds very easy to say that all you have to do is to watch the tape, establish your resistance points and be ready to trade along the line of least resistance as soon as you have determined it. But in actual practice a man has to guard against many things, and most of all against himself – that is, against human nature.
I’m sure a paper portfolio can teach you somethings, but some of the most important lessons at least from my limited experience had to due with the human nature element.
No one is saying to use a paper portfolio for decades. Try it out for a month or two then dive in with real money. You still learn from the former. That’s what prop desks do when they hire people that never traded before.
Exactly. Just because there are certain things that can only be learned with real money on the line doesn’t mean that there aren’t plenty of things to learn that don’t require risking real money. It’s just bad risk management to say “let’s risk real money to learn things that don’t require risking real money.”
Once you’ve learned those things, then you do have to go the next step, which is to put real money on your ideas. But scale in slowly, and learn about how to size positions (Van Tharp is great for that). What allows you to place bets is to know how you are managing your portfolio risk (and ensuring that you don’t “need” your portfolio for anything other than investing purposes). If you are comfortable with that, it is easier to put on positions.
Remember that you should not put on a position without knowing what it is that will make you get out. It’s easy to enter a position (usually buying, but sometimes shorting). It’s much harder to exit, because you have all these psychological things going on. If you have a plan before you start a position, it’s much easier (though not always easy) to follow through with it.
In trading, the exit is usually determined by either some indicator reaching a value, the price reaching a pre-set profit point, a fall from a high, a predetermined stop from the entry level. It can even be as simple as “get out if you are not profitable after X length of time.”
For investing, exit is usually determined by some change in the fundamental outlook. The appearence or nonappearence of some catalyst, and occasionally the appearence of a better alternative for that capital. In quantitative investing, some of the exits are simply a result of portfolio rebalancing taking a little bit off the table or adding a little bit more.
I compare a paper portfolio to playing poker without money. Few will take it seriously and it quickly loses most of its meaning. It doesn’t take much, but you should put a small amount into a few things you find interesting, follow its ups and downs, go through an earnings season (or lockup date for a real adventure), and give yourself some real motivation to find out why you just gained/lost X%.
You guys are too focused on money. If you cannot focus without having money at stake, then you’re probably not serious about getting better and don’t have a true passion for the subject. Those who do focus will get better at it due to repeated, focused practice.
Security analysis and investing isn’t about making money, it’s about passion and excitement and creativity. You have to approach security analysis the way Frankie would romance an HCB. All the fun’s in getting there!
Do you not invest with real money or something? I don’t understand why you are so passionate about paper portfolios.
for those looking to start with paper, anyone have any thoughts on the best simulator for stocks? how about futures, I would like to take a run at the futures market, but I want to start with a paper portfolio since I have no experience trading contracts, looking specifically at agriculture. Is there a good sim platform to run a paper portfolio of stocks and other classes, like futures?
Most internet brokers have simulation environments. So, it might be most convenient to use the simulation from the broker where you would want to trade eventually.
you will never run the paper portfolio the same way that you run a real portfolio.
one of the key things you can’t learn properly with paper portfolios is what to do when the stock is down…i found it extremely difficult to put more money down despite my positive thesis when the stock was down almost 50%…its just one of those things that you have to experience…under simulator, either you say…“oh, lets just average down” or “just sell”…its not that easy when you got a decent sum of money at play
Not true. You can. It’s called discipline. Set rules similar to a real world portfolio and do the work.
Having a vested interest is a huge factor. I don’t care how disciplined you are you act differently when you have some skin in the game.
I really don’t understand the argument for paper portfolios except in the case of large initial capital requirements. Then I could understand running a mock portfolio. But if you’re just picking some stocks put a few thousand in an online broker and knock yourself out.
I think the discrepancy is that I think investing is a skill that needs to be developed with years of painstaking practice and study, and others view it as a way of making money/fun.
If you set rules for yourself, you will react the same way with fake money the way you do with real money, for example, say you’re in a competition. Or say you invest 10k in a paper portfolio, and set yourself the goal of beating the market for the next calendar year. You’ll immediately start behaving as if it was real money.
Exactly, if you put down goals to reach, you will take it seriously.
I bet I could make a pretty good guess at who’s buy side vs sell side based on this thread.
You think the fact that you are hesitant to open a real portfolio because it takes “years of painstaking practice” tells us nothing about how you’d act differently with real money on the line? I really don’t know if you are just trying to argue a point or actually believe this. Seems like you are being ironic on purpose, but I really can’t tell on this forum sometimes ha ha
I was a beast with my paper portfolios in 7th-11th grade (won the competition each year). Much easier when I didn’t have bills, retirement, or a real desire for the actual money. Sometimes I wish I could get my 7th grade self to assist in my equity investments lol