Son, You're a Trader

A speculator's lessons to his son.

I’ve thought a lot about what I want my Substack to be and not to be. I don’t want it to become just another trading newsletter. There are already too many voices in the space.

As my son gets older, I will be teaching him how to trade. My Substack will be the lessons I teach him. Some will be will be basic, and some will be complex. We are going to start from the beginning.

We invite you to follow this journey.

Lesson 1: You Are a Trader

Son, For years you’ve watched me look at computer screens filled with blinking colors and weird-looking charts. You know I trade stocks but I’m sure to you it must seem like some kind of strange video game that is less interesting than the PlayStation games you play. And still, you see me devote so many hours to it.

You’ve probably asked yourself what is the appeal of trading. Perhaps it just doesn’t seem that interesting, perhaps it does. But I have a secret for you—You are a trader. Everyone is a trader. I’ll say that again. Everyone is a trader.

Most of the world trades their time for money. For most, it’s not a particularly a particularly good trade. Across the world, people break their backs to make a few bucks and scrape out a hard existence.

In this country, you have the opportunity to aspire to greater goals and achieve your goals. You can obtain better skills and leverage your trade time trade for more money. Son, understand that it is still a trade. A lawyer who toils off the skills he developed from law school is not much different from a farmhand who toils in the fields. Why does the lawyer get paid more when the work is less physically demanding? The lawyer has leveraged his time to develop a skill that fewer people have but people need so there is more demand. Limited supply for a skill means the price you can sell that skill is higher.

For most of the world that’s a good enough trade. People find a good enough job, a good enough spouse, a good enough house, and get a good enough return on their investment to afford the lifestyle they want.

Understand that once you accept a status quo, it’s very difficult to improve it. Your peers will go to college, get jobs, and then get excited about a 10% raise and being able to vacation a week in Orlando. Is that freedom?

Always see the other side of the trade.

Whenever money is involved, ask yourself: Who is on the other side of the trade?

Even for the $ 400-an-hour lawyer, there’s a bigger force on the other side of the trade. Depending on the matter, perhaps his client took the trade and is leveraging the lawyer’s time to make far more. Perhaps an entrepreneur uses a lawyer to acquire a business or obtain regulatory approval to build a factory. In such instances, the legal costs are just a cost of doing business for the entrepreneur. This is an important lesson, once you have traded for capital, you can trade your capital for other people’s time and leverage their time to make capital.

For most people, however, the other side of the trade is the employer. The employer is trading the employee’s time for more money. The employer can then leverage his employee’s time to make more than the employees individually can. The lawyer charging $400 an hour is likely getting paid much less than that, his employer is on the other side of the trade and keeps the difference as profit. Sounds great right,? Just hire other people to do the work you want to do, pay them less than you receive for the difference, and keep the difference.

But there’s risk in every trade.

What if the employer doesn’t make enough to pay his expenses? The entrepreneur needs to be able to sell his employee’s time for more than he has to pay the employees or there’s no profit. Without profit, the business will fail. In such circumstances, the employees can leave and find new employment. The employer can be left with the aftermath of a failed business, loss of capital, debt, and perhaps ruin. Conversely, a skilled or lucky employer can generate magnitudes of profits beyond his costs and become wealthy beyond his wildest dreams.

So that’s the playing field.

As you become a man, the choice is yours as to how you choose to play the game. Like the video games you play, you must choose a character. How do you want to trade your time? Are you willing to spend time and money to develop skills that you can sell for premium rates? Do you want to be an employee or an employer?

There are a lot of ways to play the game, there are a lot of ways to be happy. Above anything else, I want you to be happy. No way of playing is right for all people, but above all you have to recognize you are playing the game whether you want to or not. You are a trader.

Cheers