April 26 - Why Trading

I'm still waiting for more developments on the BIDU trade, so I thought in the meanwhile I would post on why I like trading as a business.

Trading is a Scalable Business
It is important to have a scalable business to make money. Now what do I mean by scalable?!
Essentially a business that you can expand quickly and without adding too much costs; to gain more money from relatively the same costs. I'll give you an example of what business isn't scalable and what is.

A bakery shop is an un-scalable business. If a baker has a shop that makes and sells 100 cakes a day, that's its capacity. It has employees, equipment, and raw materials to handle that amount of cake making. If the business starts growing and the demand is now 1000 cakes a day, the baker has to hire more employees and buy more equipment and raw materials. The costs go up with more sales.

Microsoft on the other hand, runs a scalable business! Let's take the Windows OS for example. Considerable costs go into making the first copy of the new Windows 7; when it is complete, the profits are scalable. The amount of sales or demand for the product has nothing to do with the costs of making the product - cost will remain relatively constant no matter what the sales. So with the same costs, the business has the potential to make way more money! It all depends on how good the product is and the company is at marketing it.

Trading is a scalable business! The BUY/SELL/HOLD decisions are the same whether you have bought 100 share or 10,000 shares. You have the potential to make more money given your decisions are the correct ones. Your costs (time and effort of research and set up costs) will remain relatively stable, no matter how much money you put into the idea.


Profits Are Directly and Simply Measured
This is another reason why I like the trading business... It is not like working in a corporate culture, where the sum of everyone's efforts drives revenue. Your time, efforts, and efficiancy is direcly measured by how well you did at the end of the day! You can't blame the BOSS for your low income or bonus, and you don't dish out the fruit of your efforts to useless executives. You eat what you kill! Your profits (and losses) are 100% the fruit of your efforts and go into your pocket!