Thursday, April 18, 2013

Business Thursday: I lose money on this trade!

Another day, another moron letter:

This one informed me that I'm doing it wrong, since I sold the implant for 100M that I bought for 99M the day before. I do lose money on taxes on such trade, I'd be better off not doing it. What happened and why did I do it?

The day before the implant was 97M buy and 108M sell. So I set up a buy order for 99M and a sell order for 106M, for a 7M profit. Half day later I logged in, I found the buy order filled, and the sell order being undercut to 105M. Since I had enough implants now in stock, I simply moved the sell order to 103M. Half day later it was undercut by several 0.01-ers at 102.99999M So I undercut again, this time to 100M, which finally sold.

Did I lost money on the trade? Yes I did. But what else could I do? I have no control over the price, nor a crystal ball to see the future. I assume that the prices don't swing overnight. They usually don't. Sometimes they do. If they swing downwards, I lose money. If they go upwards and I have stocks in my hangar, I gain money.

The author of the moron letter would probably say "stick to the 108M price until it returns". However this advice has two problems: one is that I can't guarantee that the price will ever return. It would need serious investment research to guess how its price will move. Secondly is more importantly, until it happens, I can't trade the item since my money is locked in the unsold wares. Instead, I accepted that loss, regained my money at 100M and use it to buy more items at 90M to sell them 100M again.

The moral of the story is that you must decide if you are an investor or a trader. I choose the second, which means that I sell my wares at any price the best market gives. I always sell, no exceptions. I only make choices when setting a buy order and it depends on "is there enough margin between buys and sells?". If something has buy orders for 100M and sells for 102M, I won't bother. But if the margin is larger than 4%, I take it, and I can't care less if it's 80-84 or 160-166.


PS: very nasty philosophical post incoming tomorrow.

6 comments:

maxim said...

The more interesting part for me here is tha nature of that Moron letter.

Is it just someone out ot bash a famous person?
Is it someone who believes that investment is the only way to go and thinks that everyone who doesn't believe that is an idiot?
Or is it just a random person trying to be friendly and helpful?

The "clown" in the title heavily suggests that it's the first, but hey, i still have faith in mankind :D

Anonymous said...

Nitpick:
80-84 is a 5% increase.
160-166 is a 3.75% increase.

3.75% < 4%.

Anonymous said...

Why i never receive such letters? I did negative trades on a lot of items because of competition and no fanmails :()

Anonymous said...

another perfectly valid reason would be long sell orders
instaid of lowering your price buy out the competition and resell at your origional point

comments like that, regardless of the reason why, do say a lot about the person

Anonymous said...

I wonder though wich is more profitable waiting for the price to rise or trading it as fast as possible.
Never selling below cost garantees profit but lowers the speed of "trade"(investing).
Is there a sweet spot or not?
Selling it as fast as possible or wait in cycles of a week, month or year?

maxim said...

There is a sweet spot, but it is not fixed.
It varies from product to product, from market to market, from week to week.
Hunting for that sweet spot is not a reliable strategy for earning cash.

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