Getting money and keeping money are two different skills. Getting money requires taking risks, being optimistic, and putting yourself out there. Keeping money requires the opposite: humility, fear, and acceptance that some of what youâve made can be taken away just as fast.
Many people are good at one of these but not both. The rare few who master both become truly wealthy over time.
Jesse Livermore was perhaps the greatest stock trader who ever lived. In a single day in 1929, he made the equivalent of $3 billion in todayâs money by shorting the market during the crash. He had won.
But by 1940, Jesse Livermore was broke. He took his own life. The same traits that made him spectacularly successfulâaggressive risk-taking, bold bets, unwavering confidenceâeventually destroyed him.
There are two ways to think about making money:
Nassim Taleb puts it simply: âHaving an âedgeâ and surviving are two different things: the first requires the second. You need to avoid ruin. At all costs.â
The first rule of compounding: never interrupt it unnecessarily. If you earn good returns but blow up even once, you might never recover. Survival is the foundation on which everything else is built.
Consider two investors:
Investor A: Earns 20% returns for 5 years, then loses everything in year 6.
Investor B: Earns 8% returns for 40 years without interruption.
Investor B wins by a landslideânot because of skill, but because of survival. Compounding only works if you stay in the game long enough.
1. More Than I Want Big Returns, I Want to Be Financially Unbreakable
If you can survive the worst that markets throw at you, youâll be around to capture the gains when they come. This means having a plan for when things go wrong, not just when they go right.
2. Planning Is Important, but the Most Important Part Is Planning for Things to Not Go as Planned
No plan survives first contact with reality. The plans that work account for uncertainty by building in room for error.
3. A Barbelled Personality
Be optimistic about the future, but paranoid about what might prevent you from getting there. Combine ambition with caution. This sounds contradictory, but itâs essential.
The most common mistake is to take the skills that got you wealthy and assume theyâll keep you wealthy. But the mindset required to build from nothing is often the opposite of the mindset required to preserve and grow what you have.
If you can combine the optimism necessary to take risks with the paranoia necessary to survive, youâll be positioned for long-term success. Neither trait alone is sufficient: