Most people who get into trading, do so because they want to get rich. Maybe it’s because they want to take coals that life has dealt them and turn them into diamonds, or perhaps they received a $100k from a loved one that passed away, and they feel propelled to gamble it away in the stock market. There are tons of reasons why, and for most of those that dabble or jump into the market are sorely disappointed when they leave poorer than what they started with (and many times they leave with nothing).
The purpose of this article is to talk in depth about something that I believe is at the heart of most people’s trading problems – and that is “The Love of Money”.
It can take many different forms – you can love money so much that you take ill-advised risks that costs you everything and more.
OR…
It can take the form of a person who loves money so much that he’s afraid to risk or trade it at all, and as a result you miss out on some very nice profits.
AND…
Because of this fear you take on some bad trades because of the psychological damage caused by missing out on those previous big winners you were too fearful to take.
I’ve been around trading long enough to know that this is a prevalent problem. And you may doubt me and ask by saying “So what should I do then? Hate the money?”
Well…..Perhaps…
That doesn’t mean you should cash out your life’s savings and pile it up and strike a match to it. Instead, I’m simply saying, putting money on too high of a pedestal will be detrimental to your success. Trust me.
For those who’ve followed this site for any length of time, know that I’m a born-again Christian that tries to read the Bible each day. And I know from reading it,that there are lessons that can be taken from this Book that has helped me out quite a bit over the years. There are a couple of verses that I’d like to point out, whether you believe God or not, if you apply them to your life, will make a dramatic difference in your trading…
“Keep your life free from love of money, and be content with what you have…” Hebrews 13:5
AND
“Whoever is greedy for unjust gain troubles his own household…” Proverbs 15:27
Now I realize there is no mention at all of risk management, technical breakouts, etc. (that was a joke!)
But there is some key points of wisdom in those two statements. Frankly, there’s so much in the media, television, and movies that makes riches just at the tips of your fingers. All you have to do is call a certain phone number or buy a certain program. In the movies you have movies like Wall Street, and others living by the mantra “Get Rich or Die Trying”.
Unfortunately most of them just die.
From another perspective, loving money can lead to Madoff like Ponzi schemes, the “misallocation” of $1.2B at MF Global, the book-cookin’ at Enron and Worldcom, countless hedgefunds that blow up, and last but not least, euphoric house flippin’, excessive leveraging, and predator lending that led to the biggest housing bubble in this history of the United States.
Put it another perspective, had there not been a love of money, and instead those involved with the aforementioned scandals, had simply been ‘content’ – would any of these problems ever have happend? I would argue “no”.
Now on to a trading perspective and how each of us trade on an individual basis…like I mentioned above the root of our trading issues is often psychological and the fear/greed that surrounds a trade. All of this revolves around the love of money.
When we make 2% in our portfolio on a given day, and get upset that the stocks kept moving after you got out causing you to regret that extra 0.25% you could’ve had, or being angry about missing a trade, that you didn’t take for good reasons, or for choosing to miss a good trade for the wrong reasons – the core of these problems will often lie at our perspective of money.
There’s countless examples and some that you can probably identify with yourself.
For me, there was a time when I would get bored with success in the financial markets. I could consistently make 1-2% in my portfolio each week, but I became discontent with it, and wanted bigger gains – sort of like a drug user, that needs bigger and bigger fixes. As a result, I’d ignore risk, and so forth, because I wanted the big gains and the big profits that came with it. At the end, it was wrong and was like what the Proverbs verse above said, about “being greedy for gain troubles his own household.”
So what can we do differently? That is for you and the strategy you employ to decide. Only you know that answer. I’m just here to provide some insight, examples, and personal instances in my own life to help you better decide of how to go forward with your trading.
But here’s a thought. If a farmer over-plants his field, because he wants more of a harvest, and more of a return for his crops, what happens?
In the end, the farmer will have exhausted his field’s resources and nutrients in the ground and as a result the havest will be few, and even put at risk any hope for a harvest in the years to come.
So make sure you plow and till your field accordingly.
