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The Psychology of the Best Traders

Think before you executeBill Ackman, the CEO of one of the world’s largest investing firms, has been buying up shares of both Freddie Mac and Fannie Mae. It’s a very interesting choice, especially because these are two companies that focus on mortgage origination.

As you probably remember, mortgage companies suffered in a big way in the aftermath of the housing crash in 2008, but these two companies did survive with government help. Having them in an investment portfolio right now, though, is strange, especially because of the uncertainty that everyone has been talking about with the U.S. economy. If this were what Ackman honestly believed was the case, taking on a risk like this would be too big, especially because his company manages $18 billion in funds. He seems to know something that other investors and traders don’t.

This is one of the reasons why watching the world’s most successful traders can be beneficial. They have a lot more information than we do, and they have the resources to interpret it more accurately. These are people that never make trades without thinking them through, and this is definitely something that Ackman has invested a lot of time and thought into–in addition to his money. We might not understand the reasoning behind it, but that doesn’t mean that there’s not a perfectly valid reason that was acted upon.

Fannie and Freddie did receive major bailouts from the government a few years ago, and are now being heavily regulated and watched over by the U.S. government. However, Ackman has commented that he believes that the government will soon see that less regulation in this sector is better for the country’s economy. If this does happen, he sees the stocks going up as high as $47 per share. What makes this even more interesting is the fact that the stock is currently just above $2 per share. It’s a huge difference in price and it indicates that there will likely be a slow and steady push upward, but over a long period of time.

How do we interpret this information? First, remember that other people–and not just famous and successful traders–have information and experience that we don’t. This can be used to expand our abilities and increase our profits. Second, keep examples like this in mind. Ackman is expecting Fannie and Freddie to increase in price, and they are in a good spot to do so. It might take a while to get to that point, though. You probably don’t have the same need to keep your money in the market tied up like this. But, you can remember that a situation like this one has been set up and you can wait for it to start rolling before you hop onto the trade.If you are looking at a bigger, more popular asset, you can do this without sacrificing profits by using binary options. Otherwise, you will just need to act quickly to avoid losing money by entering the party late. Set watch alerts on your brokerage page to help manage this. Also, subscribing to various news services can allow you to gain more information and stay on top of the things that are relevant for your assets of choice.

This particular trade is very risky. Freddie and Fannie could get huge a gain, but they also could lose even more. However, the housing sector does have more potential to go up than to go down simply because of the growing population in the U.S. If it does work, it could take many years. But that doesn’t mean that the opportunity isn’t there. Spotting things like this and filing them away for later use is a sign of a good trader.

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