It was an interesting book. The Psychology Of Money it is called. It was interesting as I found it. It talked about the principles of building wealth. It gave real-life examples to boost the points it made. For example, it talked about the greatest investor that ever lived, Jim Simons, who acrued an astonishing investment returns of 66% a year for more than 2 decades.
When I was consuming the contents of this interesting book, the writer placed Warren Buffet's investment achievements side by side with that of Jim Simons. And that makes Buffet look pretty small. Buffet has had a longer time investing than Jim but Jim is far more successful. To understand this better, according to the book, if Jim had invested as long as Buffet he would be worth more than a quadrillion dollars. Well, I found that astonishing.
That same chapter also talked of another incredible investor called Jesse Livermore known as the Wolf of Wall Street because of his nearly superhuman ability of predicting stock price movements accurately which helped him earn over a billion dollars.
The book drew comparisons between Buffet and Simons and then Livermore. While Buffet and Simons thrived as investors for many years, Jesse Livermore only did for a short while before liquidating all his assets and ultimately taking his own life. The book laid emphasis on the idea of risk management for Investors.
I found this idea interesting enough to borrow a leaf from it. I had had a few trials with investing myself, with considerable success. But I still got a lot of things wrong. I decided to do things differently according to the book I was reading.
I decided to aim for “financial unbreakablility” as the book said. That is, protecting and growing your wealth in a way your chances of losing most or all of your money are greatly reduced.
I talked this subject over with a friend that week.
“For now I'm focusing more on accurately predicting asset price movements. I'm taking lessons and doing lots of study to that effect.” He said.
“Making accurate predictions is not my problem, I've been doing that lots of times. My main focus is disciplining myself to abide by the core rules of investments and avoid my investments being wiped out. To make myself greatly invulnerable to losses.” I voiced
“That's one important aspect, but…” he went on. We dwelt on this subject for some time, each presenting his point of view. I stuck with the new insight I had gained from the book I was reading.
“My main focus now is the survival of my principal or my capital, in such a way that even if I take repeated losses my principal or capital would still be standing.” I said.
Funny enough this my friend was vehemently against the use of stop losses in trading until the market showed him how flawed that kind of thinking was.
Well, I applied this knowledge I'd gained from this interesting book and it helped my trading and investment endeavors. It happened that I could take several losses in a day and still by the end of that day my principal would have grown considerably. Slowly, I was becoming immune to losses.
My principal isn't yet into the hundreds of thousands of dollars but I'm making steady though slow progress. I had learnt to accept losses as a natural part of the investment and trading journey while still aiming for the highest level of accuracy in predictions. I remember telling my friend:
“Even seasoned professionals experienced bad trading times, it's all part of the investment experience.”
I remember him arguing against that point but it's just true. I never wake up any day expecting to predict the market 100% correctly but I wake up with the desire to protect my principal against losses because they are inevitable.
Well, sometimes greed and desperation can take me off from doing that but I recalibrate myself each time. Investing involves lots of emotions and discipline is deeply needed to keep them in check.
To sum it all up, the percentage of my principal I risk per trade is usually small in comparison to the principal itself, so small that even if I experience five or say ten failed trades in a row my principal would still be unshaken. But when I make profits I usually make about 10 times the amount I lost. That's making 10 times the amount you lost in ten losing trade in just one or two winning trades. I've borrowed a leaf from the book that slowly and surely is the way to go.
I have read of many investors, especially in cryptocurrency who liquidate millions of dollars in one or two bad trades. I consider that nothing short of madness. I choose slow and steady instead. In the long run, say in 10 years from now, I would be far much better off. That's the Warren Buffet's way. That's the Jim Simon's way. That's the right way to do it.
Thanks for stopping by.
