Monday, May 19, 2008

Running an Import/Export Business vs. (Day) Trading

I have recently learned that someone close to me is having financial trouble due to the slowing economy. That was what I was first told. I soon found out that this person, whom I shall name Rick, is more than just having a difficult time with his business. Rick is actually have a major issue financially!

(I'm trying to avoid a long drag-out post with too many paragraphs here, so I'll just highlight the situation and my thoughts.)

  • Rick runs an Import/Export business with his wife. It's been a 2-persons operations for the past 20-30 years or so.
  • Business hasn't been good in the past few years.
  • He re-financed his home, and took out home equity to keep his business afloat.
  • To make things worse, there were a few business deals where clients took the product without ever paying. He had to pay the manufactuerer himself!
  • Now bills are piling up, and there's no income whatsoever. The bank wants him to pay up the mortgage but his home doesn't even worth what it was mortgaged for.

That's the highlights in 5 bullet points. I'm sure you all get the picture.

After learning what is happening to Rick, I thought to myself...

  • Mom & Pop Businesses like Rick's are a dime a dozen.
  • Business/Financial situation like Rick's is NOT unheard of either. My Father went through similar situation too!
  • Yet, when you tell someone that you "run/own your own business", the general perception is (I'm generalized without prove here) that you are successful, talented, and maybe even admirable. But very seldom a gambler or a risk taker.
  • But try telling someone that you are a Daytrader! (You all know where I'm going from here.)

Another thought is...

  • I think I have read 10 or so books in Stock Trading so far, plus all those blogs.
  • I have already read/learned/reminded that never re-finance your home for cash to stock-trade.
  • Yet, using your home to as a lien to run your Mom and Pop business is fairly common, and perceived to be acceptable.

In Rick's situation...

  • Could it be a lack of education? But hey, he's been doing this for the past 20-30 years, it worked!
  • Which led me to my next thought... do MBA schools teach/tell you NOT to re-finance your home to run your business? I highly doubt it.

Stop-loss...

  • With Stock-trading, I can set a stop-loss to limit my loss
  • In Rick's situation, there were deals that he had to take at a complete loss! Where's the stop-loss for those deals? (Yes, I'm sure there are ways that he could have done to protect himself.)

So...

  • Why is stock tading (for a living, I shall say) is viewed by so many as gambling, but not 'running a business'?

PS. My son just turned 6 months old. I'm beginning to get some more sleep. I'm preparing to 'come-back' (more like re-starting from scratch now) soon. I still have a large project involved at work, resulting in plenty of 'meeting room' time during trade hours. I shall return as soon as this project dies down. I can't wait!

Thanks to those who still kept me in their Blogroll! I'm still here! And... I'll be back... soon!