Under the spotlight: Josh
I’m starting a new ‘occasional series’ where we put one of our 7 Millionaires … In Training! – or, any other reader – under the spotlight when there is an interesting or unusual aspect of their journey towards their Number / Date that needs to be discussed.
Josh is the lucky first participant, as a result of some discussion that we have had online (with this post) and via e-mail (that I will summarize below) …
… this is designed as a discussion – Josh and I are looking for YOUR thoughts!
I told Josh (via e-mail):
Listen, you’re keeping me up at night … and, believe me, this project isn’t usually what does that! So, here’s my concern:
Professional poker players KNOW that they need to manage their bankroll carefully; this means:
- Not risking more than 15% of their bankroll in any one session
- Breaking up their ‘windfall’ winnings in a similar manner to the 1/3 x 3 method that I outlined for you in that post.
Note: if your income comes from external sources you can ‘fiddle’ this a bit e.g. to make it 50/50 passive v trading or even 1/3 passive and allocate fully 1/3 x 2 to trading. Also, I’m not here to tell you how much of your trading account to risk on one ‘bet’ …. if you want to follow your system for 100% of the trading account in one ‘hit’, go for it.
But, if you DON’T come up with a better bankroll mgt ‘system’ than Bet It All, you will have problems later; look, this is MM101 For Traders and if you don’t make the habits now when you DON’T need them, you definitely won’t have the habits when you DO need them!
So, I’ve got some ‘special homework’ for you, Josh:
1. Buy/Read that Jesse Livermore book (you’ll love it, anyway) … esp. for how high he ‘flew’ and how far he eventually crashed. You have to KNOW this will happen to you one day if you don’t do what’s necessary NOW: http://www.amazon.com/Jesse-Livermore-Worlds-Greatest-Trader/dp/0471023264
2. Come up with a ‘bankroll management system’ that will work for you under all circumstances (i.e. now when Josh = No Commitments and later when Josh = mortgage, school fees, family commitments, etc., etc.) … and, I don’t want to hear “bet it all now so that I have a LOT of money to split up more wisely later” One system for all circumstances!
3. Think about what/how you will deal with the ‘passive investment account’; read this series of posts CAREFULLY:
I’m happy to bounce ideas around, but this is your ‘homework’ … and, it will help me sleep better if you come up with a GREAT plan – one that you, hopefully, actually intend to keep to
Josh responded with:
[I] hear what your saying, basically discipline myself now, so when I have a lot of money, it won’t be an issue (is this what your saying?).
I agree in theory, and in 95% of practice, but right now it seems foolish to have cash sitting on the sidelines in a sub-par investment when it could be really working, because blue chip or good MLP dividend stocks aren’t going to help me GET to my number, but will help me maintain it. And right now I’m still not there.
This is my plan. Lets assume I have 500,000 now. The minimum I would like to start a hedge fund with is 500,000, but I would also like to purchase an apartment soon which costs between 750,000-1.2mill, the purchase of the apartment is important because I would like to get married soon (six months). So I’m thinking….
Once I have the apartment = 1.2 mill (worst case) I can start the hedge fund = 500,000 Lets just round up to 2 million dollars.
Once I have the apartment + the 500,000, I can understand dividing the cash into separate investment strategies to minimize risk at that point because there’s nothing to rush for, since I’m basically retired at that point anyway.
Also I plan to break the 20% rule, and own my house free and clear. This stems back to basic biblical principles of the borrower being servant to the lender. Let me know your thoughts
BTW: Josh also says that his “closing value of assets under management for today is $477,000″, which is quite a sum for a young man …… to build from and protect
Josh and I would love to hear your thoughts