A man named Bob Miller once said, “You can get poor a lot faster than you can get rich.” These words have never been truer.
In the fast-paced world we live in today, it’s even easier and faster to lose money with the help of technology. We can easily drown in a vast sea of information. At our fingertips we can chart a stock or mutual fund, follow breaking news, subscribe to a trading e-newsletter and at the touch of a button or click of a mouse vote with our money and make a bet.
With all the trading platforms out there and recent advertisements by firms catering to Do-It-Yourself investors, it’s easy to think that you are in control.
I’ve met plenty of folks who take a snippet of a quote by Warren Buffet about investing in what you know and then go to the extreme and invest all they have in stock of their company or industry. I can’t tell you how many times I’ve heard investors tell me that because they work for a large multi-national company that employees thousands that they know what’s up with the firm and invest the bulk of their retirement savings in it. And I can’t tell you how often I’ve seen the results of that type of thinking. Lucent, anyone?
So as tempting as it may seem to place all your chips on #14 at the blackjack table, more often than not the odds are against you hitting it big all at once. I remember the man who walked up to the tables once when I was visiting Foxwoods. He changed his money and proceeded to place chips on several numbers and a few corners as well as on red and the bottom of the middle column. After the ball stopped rolling, he lost and the chips were swept away. But before the next roll, he did the same sort of strategy. This time one of his numbers that was straddling the corner of four numbers came up. At a payout of about 9:1 he made back his money and then some. Sure, if it had all been on one number, the payout would have been larger but the risks were greater.
On the other hand, I knew an accountant I’d met through my classes at Bentley. He regularly went down to the casinos, too. He would typically place his bets on one or two numbers at a time but with a large number of chips. Usually, he ended up back at the ATM in the casino lobby getting a cash advance to try again.
Which person would you rather be?
There are lots of lessons you can take from this story. “Don’t bet the mortgage money” might be one of them. Don’t enter the casino in the first place. Maybe you might think that the stock market and Wall Street in general is nothing different than a casino.
I think one of the lessons is this: Avoid making mistakes. You win by not losing.
Next lesson: Control what you can. And what you can control is the process you use to manage your risk and your emotions.
There are proven strategies to help investors over time. So instead of trying to double down to make up for previous losses quickly, focus on the factors that you can control: Putting in place a process that helps control risk, using time to build wealth steadily without undue risks and the Power of Compound Interest.
Ultimately, building and preserving wealth is more than investing. There are other strategies that need to be considered ranging from cash management to taxes to insurance to estate and asset protection. In the end it doesn’t matter how well you do in the market (or the casino) but how much you keep and take home. So over the course of this series of posts, I’ll explore a number of non-investing strategies like the Infinite Banking Concept or IRA Trusts to help you keep what you have as well as proven investing strategies to help make it.
Winning by not losing. Sounds good, doesn’t it?