Posted by Brent_IL on August 30, 2003 at 24:45:40:
I, too, dabble in commodity futures. I don’t know if I can agree that trading commodities is so much simpler than real estate investing. I like both, so we aren’t on opposing sides. Calling a broker is certainly much easier than finding and negotiating a good real estate deal.
It may be true that most people lose at commodities because they don’t follow the rules, but the rules are not absolute. That’s why trading systems that are backfitted fail. Some theorize that there are no rules. As you alluded to when you said it was important to keep from losing money, IMO, the improper or the non-use of stop-losses is the major contributor to trading failure. Well, maybe under-capitalization is up there with it, but it?s a related concept because once you are whipsawed, your ability to out-wait the change in market direction has vanished.
Leverage is a big factor in real estate profits, but futures are the ultimate game of leverage. However, that double-edged sword can cut quicker and much, much deeper. Real estate is slow moving. Compared to futures, everything moves at a snail?s pace, so investors have a chance to react in a manner that will help them improve their profit or cut their losses. Contrast that to the futures market where accounts are marked-to-market daily. Those aren?t paper losses; that?s real money vanishing.
Overall, the percentage of long-term successful traders is small. The percentage of successful day-traders is infinitesimal.
I think I like futures for the same reasons I like using an assortment of terms to buy real estate. Since buyers-on-compound-terms seem to be in the minority, I can?t help wondering how many creative real estate investors would actually do well in futures.
It?s nice to hear from someone who?s combined real estate and commodities successfully.