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Apprenticed Investor: Prepare for Battle

I'm not suggesting that you should throw up your hands in desperation and hand over your accounts to the so-called pros. Rather, I want you to understand exactly what's involved and what you are facing before you plunk down your hard earned do-re-mi. It isn't that you cannot do it yourself -- my point is you darn well better get up to speed before you start doing it yourself.

I'm sure that some people will disregard all of this as self-interested blather. After all, my firm profits by having people pay us a fee to manage their money. And for many people, that's the best route. They are self-aware and realize they lack the time, discipline or interest to do it themselves. If you are reading this, I assume you want to do it yourself. This advice is to help you understand that you best get up to speed.

Still, even the most cynical amongst us must admit the following: It is outrageous folly to imagine that, in just a few hours a week, you can best the world's sharpest, best-equipped, fastest traders.

This is the not-so-secret problem with the online trading business model, i.e., why E*Trade (ET) and Ameritrade (AMTD - Get Report) are reportedly in merger talks. It's also why Schwab (SCH) set up its "trusted investor advisory." They all know the dirty little secret of the business: All too many frequent online traders eventually grind their assets away. (It also explains why E*Trade has diversified into banking, mortgages and other financial services.)

The most skilled and talented amateur traders eventually go pro (i.e., direct access), while many of the rest hack up their capital, sandpapering away their accounts through poor risk management and over-trading.

Knowledge vs. Wisdom

Just because someone hands you a bat doesn't mean you can hit a home run off of Roger Clemens (yes, another sports metaphor). The explosion of Web-based market data may have given everyone similar tools, but it did not grant them an equal ability to use those tools. There is a huge difference between information and knowledge, and between fact and wisdom.

I believe that many people can compete on the Gladiatorial trading fields. It requires hard work, discipline, intelligence and a willingness to learn things that are counter-intuitive. In coming columns, I hope to show you many of the tools you will need to succeed on that field of battle.

1. Expect to Be Wrong 2. Your Fault, Reader
3. The Wrong Crowd 4. Bull or Bear? Neither
5. Know Thyself 6. Prepare for Battle
Check back for more of Barry Ritholtz's
Apprenticed Investor series
Barry Ritholtz is chief market strategist for Maxim Group, where his research and market analysis are used by the firm's portfolio managers and clients in the U.S., Europe and Japan. He also publishes The Big Picture, his macro perspectives on the economy and geopolitics, entertainment and technology industries, and is a member of the board of directors of, a streaming media software company. At the time of publication, Ritholtz had no position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ritholtz appreciates your feedback and invites you to send it to .
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