We invest in markets to make money, not lose money. However, timing is everything and sometimes our timing is off. How can we solve that? Typically, people spend eons and lots of money trying to create models that attempt to pick tops and bottoms perfectly. The reality of that endeavor is much harsher, as there has yet to be one entity that has achieved that goal and made it public.
What happens when you think you can determine what is coming, but you in fact have no idea because you are misinformed? That is called getting blind-sided. That is how you blow up your account. That is, lose all your money very fast. It sucks and it hurts, and it is a common occurrence amongst market participants. How do you solve that?
The fact is, there is no unique solution for either of the above problems. Both problems require time for them to be solved. In both scenarios, you are in the red, or negative in your account balance relative to your starting capital. As such, you need a price to come back to where you entered to break even, not including expenses, to acquire the position. How does price get back there?
Outside of the market being bought back to the level at which you entered, the only other determinant in that scenario is time. Therefore, understanding that operating from a position of strength is the key to success. If you are looking for a quick flip, then your risk tolerance better is in line with that time frame. That is, you better be ready to exit the position as soon as it goes wrong, otherwise, the loss becomes too big for that trade to remain a “quick flip.” That is the life of a trader.
Enter experience and logic, along with the desire to optimize your capital’s return. When you finally come to the realization that the above issues are true, you realize time is your lone friend and your perception begins to change. Once you can traverse the line between intraday and day-to-day, you can start to find your way towards the required perspective to operate in markets successfully. Being methodical in the way you accrue assets can change your life.
Balance sheets are relevant because it is a financial statement that is a snapshot in time of what you own and what you owe. It is a good general gauge of financial health. The key for the novice is learning what are the items that specifically make up a balance sheet for analytical reasons. Your understanding of those items will help you prioritize your strategies over time. In essence, you want to be accruing assets, and using liabilities to position yourself to accrue more assets.
The idea is to accrue assets while accruing fiat to accrue more assets. Until one has enough assets to be able to leverage them for use to then accrue more assets, one must accrue assets by accruing fiat. Putting the cart in front of the horse can lead to disastrous results, and this is what ends up happening when one overextends oneself financially before it is time. The short-term goal for those that cannot use assets to accrue more assets, is to find ways to enhance their fiat income to allocate to accruing assets.
Bear markets, or severe price corrections, are opportunities for those with the proper mental framework, and proper alignment of their priorities. While we may hope to achieve our financial goals quickly, we are best served by deploying methodologies that enhance our process such that the outcome is a guarantee of sorts. Process > outcome, as the inputs determine the outputs. Properly developed and thought-out methodologies are typically transferable to other endeavors. Those other endeavors are how we keep growing our bankroll.
Everything we do and attempt to succeed at in life is in the mission to enhance our ability to have what we need when we need it. At times we find ourselves without and in need. How do we avoid that scenario from presenting itself on our doorstep in the future? By having a process in life that allows one to constantly be prepared. Note that time is the answer once again.
In this instance, to obtain peace of mind in life. Finally, delaying gratification is analogous to being methodical in one’s desires and the process to achieve them. When it comes to operating in markets, it turns out to be no different. Exercise diligence and pounce on opportunity, friends. That is how the patient wins.
I hope you have enjoyed this post by one of my fellow Hexicans. His knowledge and expertise come from working with Wallstreet and learning all he can about financial institutions. If you are interested in earning yield even during this bear market be sure to check out Hex.com.
Until next time, this is Sunscape
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