The one where the magic finally starts to happen..and it is real

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" Maybe the journey isn’t so much about becoming anything... Maybe it’s about unbecoming everything that isn’t really you, so you can be who you were meant to be in the first place.” - Anonymous

I have outlined my journey into investments in my earlier blogs below under how algorithmic trading changed my perspective on investing parts 1 to 3…

  1. The one where investment ignorance is bliss…
  2. The one with the reality about realty…
  3. The one with the with the aftermath of skydiving..

I also explored several other options, like life insurances, IRA , 401k, business investments like franchises, personal lending etc, details of which I have reserved for another discussion. In this article, I will be concluding this series of how algorithmic trading changed my perspective on investing. 

My next stop in my journey was path breaking, which  was “Algorithmic Trading”. Algorithmic Trading, which accidentally entered my life, thanks to Koalla.Tech, changed my perspective about investment. It made me realize that you need to make smart investments, and not necessarily safe investments, or right investments. 

It made me realize what Mark Zuckerberg told  that if you don’t take risks in life that is the surest way for failure. ( “The biggest risk is not taking any risk,” Zuckerberg said in a 2015 interview. “In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” )

What is algorithmic trading? Before I get into this detail, I need first explain what is trading, and the pros and cons of the same. 

Most people know what trading is at a very high level. I did too, but I did not really know the pits and pearls of trading. Trading is essentially trading in stock markets, and trading in all kinds of entities like stocks, futures, precious metals, real estate, ETFs etc.  I never ventured into it, because it seemed very risky, and really for seasoned investors, rather than someone like me, a conservative, small time investor. However I attended one of Koalla.Tech webinars (more than once), and also watched this video on how market works and realised that making smart investments need not be hard. I understood in a nutshell the bigger picture and how the US economy works. Yes, we will never reach a state where we will have all the answers, the current market reaction to the pandemic is proof of that. But are we on the right path? That seemed to be the case for me. 

If you have not attended Koalla.Tech webinar ( a venture with the right mindset, and the right heart), you are missing something. If you have not watched this video paying attention, and are not asking honest questions fueled by curiosity to learn, you are missing something. 

Now please see below a few pros and cons of trading from my experience..

Investment Type

TRADING IN STOCK MARKET

Pros

  • If invested in the right stocks at the right time, investor can make some money
  • Can make money faster than other investment options
  • You can quickly liquidate your funds
  • There are many research, statistics and data, available online that will help with your decision making
  • Instead of investing in hard real estate, you can invest in real estate stocks, keeping your investments light and easy to manage
  • Instead of investing in hard precious metals like gold, you can invest in gold shares, keeping your investments light and easy to manage
  • Easy way to invest in current market trends and innovations

Cons

  • Risky, stocks can go up and down pretty quickly and in a volatile manner
  • You can only predict the outcome of a stock to a certain degree
  • Subject to panic and emotional upheaval and stress
  • Can be subject to large investors manipulating a certain stock
  • Market is easily manipulated by news and crowd mentality
  • Company valuation can be bloated and hyped up, leading to a perceived higher value, and then sudden drop.

Given all the above, you can see that all of the options I tried earlier like real estate, gold, funds etc have an alternate option in the stock market like real estate and gold shares, ETFs respectively, but came with higher risks, and lesser baggage. 

So essentially my thinking now was what are the ideal things I need in my investment option?

  1. Good return on investments (being smart)
  2. Making money continue to work for me in the long term (being smart)
  3. Ability to still have cash when needed(my maiden investment)
  4. Ability to trade in gold (which was my first favorite)
  5. Ability to use the money when I want (similar to bank deposits)
  6. Ability to take risks (more than I am conditioned to)
  7. Not being emotional and panic stricken (which happens a lot with stock market investors)
  8. Transparency (to have some sanity in this chaotic world!)

I found that Algorithmic trading can essentially meet these needs. 

Now coming back to the question, on what is Algorithmic Trading? 

Algorithmic Trading is essentially a set of algorithms based on statistical model, that prescribe how/when/what to trade in the stock market, after analyzing years and years worth of historical data from various data sources available. They are designed keeping in mind the risk profiles, the factors affecting the returns, and are not based on human intuition. They would also then make the prescribed investments using the selections in the stock market. 

Pros and cons of Algorithmic Trading

Investment Type

ALGORITHMIC TRADING

Pros

  • Can be based on risk profiles
  • Invests in relevant stocks and in relevant percentages based on specific algorithms
  • Not influenced by human emotions
  • Transparent
  • Flexible to meet various investment options
  • Easy to liquidate
  • Good return on investments
  • Can be designed to have balanced portfolio
  • Becomes smarter with time/ evolves (machine learning)

Cons

  • Risky, to some extent, as no investment is risk free.

Given how my journey has been.. I finally feel that now, essentially I am on the right path, where I am not bound by my humanly intuitions and preconditions of my life. This has hence given me the financial freedom I needed to spend the currency of life in the way I want to spend, rather than being forced to spend in a way that I don’t care about. I can live my life more joyfully and meaningfully now, by focussing on the things that matter to me. At the same time, I am assured that my money is working for me, in a smarter way than I ever imagined without me having to babysit it. Now does this mean that I am very rich? No, it does not. Investments can begin with low amounts too, and you don’t have to be rich to invest. 

At the same time the thing to keep in mind is that for our ventures to be successful, and not take us down through the rathole, we need to have a certain dispassion associated with our outlook. So smart moves + dispassion, can essentially be the right attitude to investing. Wishing you good luck and yes, thats me right there!!….

…and that is how Algorithmic trading changed my perspective on investing. 

All the above opinions stated above are from the authors personal experience, and is not meant to provide any kind of professional advice or assistance in financial planning or investments. 

This was a Guest Blog by Sushma Bhat, a good friend, one of our early investors and the brain behind this website.