Warren Buffet is Wrong

It was he who first said.... "Rule No. 1: Never lose money; rule No. 2: Don't forget rule No. 1". 

Warren Buffet has taken losses, just like the rest of us. The idea that one has to never lose in order to win in the world of investing has to die a horrible death. Of course Mr. Buffet knows losses are apart of the game, especially when years ago he took a $900 million loss on the US dollar when he shorted it, thinking the dollar was doomed, only to see it surge soon after it bottomed. Or recently when Berkshire Hathaway lost $11 billion in the recent stock market sell off a few months back. 

No matter who the investor is, they have all taken losses, a lot of them. The goal though is to make more money than you lose. It's just that simple. Can you lose money overall if you win 90% of the time? You sure can if you're constantly over leveraged. Can you become incredibly rich being right only 40% of the time? You bet. The goal for every trader/investor is to simply work out a strategy and system that is favourable in the long term and effectively produces profits that when added all up, out weigh the sum of the losses. 

The reason Warren Buffet is so rich, is because he doesn't let the fear of loss stop him for going for the win. I think what he meant with this quotation was "play to win". He's taken losses but his winners vastly out shine his losers. That's how you and I need to be. Act on a winning system consistently despite your fear of loss. Being a trend follower, the losses will come... and when they do remember, they are the precursors to large financial gains. 

The 10% Rule

If you have a thriving trading account and you're making profit, congratulations on getting to that point. If you're trying to make a living as a trader, you should sit down and figure out a fair percentage of income to draw from the profits, all while retaining enough of that profit to reinvest and compound the value of your account. Just like every business, it's important to be profitable but it's also important to understand how much income one should draw from his/her account. Not only will this allow you to enjoy the fruits of your labour, but this will create a great habit of paying yourself first and slowly growing your net worth. We humans are very bad at taking action today, for a better tomorrow. We tend to think about the here and now much too often. So it's very important that you get in the habit of simply taking out at least 10% from your profits, every month for yourself. Open a bank account and name it "Financial Freedom" and every month, put 10% of your profits in there. Even if you only profit $100, take $10 out and deposit it in your Financial Freedom account. Over time, the deposits will grow and so will the balance. Don't wait for the magic day when you have "enough" money to start to save or withdraw profit. Do the same thing for $100, that you would with $1,000,000. This is the secret to building wealth and what many traders fail to understand, even when very profitable on paper. Pay yourself for your hard work and success and allow your savings account to grow along side your investment account. Patience is needed but this approach curbs the thoughtlessness we often have with money. Over time as the account grows, you'll be amazed at how phenomenal this concept truly is.