What’s a Reasonable Return?

Yesterday I was asked what is a reasonable return. I answered, it does not matter what I think, nor what other people think is reasonable.

Let me illustrate with an example. Frank (stockguy22) was given as an example of what kind of returns to generate as he was deemed to be conservative. I again replied it does not matter what Frank generates, it matters what you generate. Imagine if the returns Frank generated was due to the fact that every morning Frank ran naked through downtown Toronto yelling “I have the biggest kahunas, I have the biggest kahunas”. Would you do that? I know I sure would not and if I tried to do that I would be uncomfortable about it.

You see that is the crux of the entire discussion. Are you able to do the trades of Frank? Can you sleep at night? Will you get stressed? If you are going to get stressed then you can’t trade like Frank because you will make errors that Frank will not make. If then you become stressed about how you can’t trade like Frank you are starting a spiral where you will blow up your account.

Step back and think about this. Frank makes money and you don’t. The only reason being because your psychology is standing in your way. So the question becomes what is a reasonable return? Because obviously for you Frank’s return is not.

I am not saying that Frank takes unnecessary risk, actually far from it. What I am saying is that before you follow anybody and compare yourself to anybody compare yourself to yourself. Ask yourself are you taking too much risk? Or are you taking too little risk? After that self-discovery if you find out that that the best that you can do is increase your earnings from 5% to 6% I say congratulations because you made money! Remember 6% returns means that you earned 6% when others did you. That 6% goes into your pocket as profit! And if people say, “oh I could do that easily” ignore them because you are you, and they are them. This is about YOUR money, not THEIR money.

To close this question I have seen all sorts of returns from 5% to 120% per year. While that 120% sounds great it always, and I REPEAT comes with the caveat that within any single month the account can blow up. So while you might like 120% can you handle that your account might blow up any given month? There is no such thing as a “safe” high returns. Its easy to make money, but very very hard to keep it. Trust me on this one. I have seen small traders, medium traders, and institutional traders and they all live by the same rules as you do.

Posted in General Trading