here is a common tendency among investors and especially traders to over-invest. In other words, they employ unreasonably large amounts of capital compared to the amount they have in their brokerage accounts. They end up being under-capitalized and suffer all the associated consequences.
The problem is not under-capitalization. The problem lies almost exclusively with the investor or trader and decisions they make. This is something we need to recognize and it can be solved with proper mindset and planning. Proper mindset actually helps us stick to our plans that are developed in isolation from market-induced emotions.
There are generally two drivers behind over-investing:
- Greed (or any variation thereof, whether disguised or not)
- Influence of the system which is designed to rob investors of their capital
While first one may be a matter of character, the other one exploits unsuspecting investors and traders alike. Solid Wealth Strategy is designed to take care of both of these unwanted drivers directly or indirectly.
In terms of their market behavior, there are actually two ways investors can end up over-invested and scrambling for money. Both ways are serious strategy breaches. Success is achieved by following the strategy and thus the following practices should be avoided by all means and at all times:
- Applying the strategy without fully funded solids
- Borrowing from a brokerage house (i.e. using leverage or margin)
trategy calls for solids to be designed prior to starting their application. Each solid, irrespective of its shape has a cost that can be calculated. Basically, cost of a solid represents the total amount of capital that is ever going to be needed in its application. Cost also covers every possible (or perceived impossible) scenario with respect to the price of the underlying instrument.
Solid Wealth Strategy is devised so there is no need to predict things. That way we eliminate the risk of being wrong. We simply cover every scenario right off the bat.
The above holds true as well for the amount of capital we need in our investing. Thus this simple procedure can be followed to help ensure each solid gets fully funded and the investing process stays on track:
- Complete the design of your solid
- Calculate the cost of the solid
- Make sure your available capital is equal to or greater than the cost of the solid
- Transfer the capital to your brokerage account
- Let the capital settle in case there is a holding period
- Start applying the solid
- Solid is your blueprint — do not deviate from it
If you follow these steps, your investing will be fully funded and you will never experience scrambling for capital for the life of your solid.
Please note: If or when you make adjustments to your solids, make sure you calculate new costs and re-evaluate capital needs of modified solids.
his sounds more like one of the commandments than a simple strategy principle. It should be clear but we will repeat it every time we have a chance to do so. Countless investors and traders have been destroyed by leverage financially and emotionally. So don’t take this one lightly.
Just because you can borrow from your broker, it doesn’t mean you should do that! There is a good reason why brokers want to lend you money. And the reason is NOT because they expect YOU to benefit from it. They expect THEM to benefit from it to your detriment. Great majority of times, their expectations are justified. So don’t even try to outsmart the system.
Solid Wealth Strategy does not approve use of leverage or margin. The reasons are manifold, but at this time it will suffice to say that fundamental principles of the strategy are in opposition to the principles of handling margin by brokerage houses.
Simply, strategy is not congruent with the concept of margin. If you venture in that direction, it is highly likely that you will get a margin call before you know it and your portfolio will turn into smoldered mess in no time.
Do we need to say one more time? Stay away from leverage and stay safe!
etting into habit of breaching strategy’s principles will get you eventually. Even though you may get away at times, there will be other times when you will deeply regret not following the rules. We don’t want you to end up disappointed or broke. There are too many investing failures already. For that reason, we cannot emphasize strongly enough the importance of proper planning, sticking to your plans and avoiding the margin.
Scrambling for a capital is not part of this strategy. Take responsibility for your investing actions instead of shortcuts to riches. Follow the strategy and success will be yours!
