Wednesday, May 9, 2007

Investors' Best Friend

who are investors' best friends?

Impatience of traders(no matter professional or retail) and fear of other amateur investors.

There are more and more traders on the market compared to 30 years ago. The key developments during those years to make this happen have been:

1. Personal computers and internet make "home trading" possible. You are spared of the hassle of calling a broker to place orders. This means a huge barrier has been removed.

2. Discounted online brokers such as Scottrade and Interactive Broker provide another incentive for frequent traders. Fee per trade seems low, but it quickly adds up if you trade frequently.

3. Hedge funds targeting absolute return have mushroomed. Most of them engage in high frequency machine trading with up to 200x margin leverage.

More and more traders are on the street, sitting at home, or trading during their work hours.

What does this mean? It means Mr. Market can be much more irrational, and the extreme can be pushed even further. There are bigger fools everywhere.

For real investor, today's opportunities are much better than 30 years ago.

Buffett started to buy his USG at $18, and later it dropped to single digits. Still some hedge funds offered to pay interest to borrow his shares to short at unbelievable $4.

So if you are a real value investor, just be more patient. Never catch falling knife. Extremely good bargain can become even sweeter, since you have more and more best friends out there.

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