The most important aspect to your trading,
is money management. Money management is that portion
of one's trading system that tells you how many units (position
size) of your investment should you put on a given trade. How
much risk should you be willing to take?
Each and every day thousands of
money management experts go to work to give you their expert
opinions on how to best invest your money. There are tons of
money managers out there, from full service brokers with
excellent executions, to mutual and hedge fund managers with the
most up to date research information. The end result is simply
managers such as Warren Buffet, Peter Lynch or any other
investment guru by reading their strategies is a hopeless task,
simply because the real reason for their success, money
management, is rarely discussed. Yes, we all know that
Buffet is a value player, but so are millions of other value
investors, so why are they not as successful?
The truth of the
matter is that very few money management experts truly
understand the science of money management. Walk into any
broker or investment advisor and have a meeting. You will find
that the whole process is simply geared toward putting you at
ease, or, as one broker once told me, "We are not in the
financial business; we are in the relationship business."
times out of 10, you will end up leaving your money with the guy
that makes you feel the most secure, and not the guy who is
truly the most qualified. The same mistake is often repeated by
most investors who often buy supposedly safe stocks recommended
by analysts, as opposed to buying stocks that truly have the
It took me 13
years to deprogram my mind from the constant barrage of Wall
Street's misguided expertise that on the surface seemed
logical, but worked against me in real investing. If you
want to be successful, you too have to deprogram and take
control over your own finances.
I have messed up an incredible
number of trading opportunities by not following proper money
management routines. In the end, it was all Murphy's Law in
action. The stocks I was sure about hurt me the most, and the
stocks I was afraid of went up through the roof.
Today through the use of
my Strategy, I simulate a mutual fund in my own personal
portfolio. I don't look to make a fortune on one pick, but
I don't lose big either; it's my overall portfolio's growth, and
ability to sleep at night that makes me successful.
That's good money management.
Position sizing and
buying at the wrong time will be your biggest mistakes. Buy
1,000 shares of a stock and watch it go down the next day. By
the time your stock would come back up, you will be a much
humbler rabbit, ready to sell just to break even. Then several
days later, the stock is 10 points higher, but you are already
out of the game.
Instead of investing
aggressively, GetFolio subscribers practice good money
management, slowly building positions in stocks in
small increments. Our risk in each stock is drastically reduced,
and we have what it takes to stay the course. Instead of taking
major positions in each stock, we spread ourselves across a
variety of stocks using multiple small buys. Less risk, and