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How to Become a Full-Time Investor

Recently, I received the following email from a RealMoney subscriber:

Currently, I am in a transitional stage in my career, moving from a small business owner into a stock trader/investor.

As a teacher, you no doubt encounter many young, enthusiastic students ready to leave their mark on Wall Street. Undoubtedly, many succeed while others (probably many more) fail.

Would you pass along a prevailing trait -- maybe to the most prevalent -- which you believe separate the successful vs. the unsuccessful investors?

This individual is not alone. They are not the first and will not be the last to decide to become a professional investor. However, taking this step requires taking far more risk than the inherent risk in buying and selling stocks. One big mistake that is currently made is extrapolating a few good trades into a plan for a full-time income stream. But before I get into planning, at a bare minimum, there are a few personal traits which are core prerequisites to jumping into investing on a full-time basis. These traits are:

  • The ability to take and manage risk.
  • The ability to control your emotions.
  • Solid quantitative skills.
  • Now, before you take the professional plunge, there are a few fundamental steps in the process that you will have to walk through in order to be ready to start an investment business.

    Step 1. Get Organized, Write a Business Plan: Before you go into any business you need a business plan -- and being a full-time investor is a business. At the very least, your business plan should include: "pro-forma" (forward-looking) financial statements, such as income statement, balance sheet and statement of cash flow that project at least three years; marketing strategy (if applicable); and technology, occupancy, licensing, registration, legal and administrative requirements.

    Going through the process of developing a business plan will make you think carefully about whether becoming a full-time money manager is right for you.

    I found this process to be profoundly helpful. Putting together a business plan enabled me to put in writing what I thought I wanted to do. Then I worked together with other individuals, such as consultants, friends and family to refine the plan. During this iterative process I was able to transform my original concept into a workable business model.

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