Have you seen those Voya Financial commercials? The ones featuring cartoon, origami rabbits – one orange and one green?
It opens with the orange rabbit explaining to a man,
“I’m Vern, the orange-money retirement rabbit. I’m the money you save for retirement…”
“Who’s he?” replies the man, pointing to the green origami rabbit.
The orange rabbit answers,
“He’s green money, for spending money today… you know, paying bills, maybe a little online shopping.”
Now, here’s the thing…
Both the “orange rabbit” and the “green rabbit” are identical. They’re both $1 bills.
But Voya wants you to think about them as if they’re completely different animals!
This form of psychological differentiation, or compartmentalization, may be useful in Voya’s goal of getting clients to save for retirement. But when it comes to being a disciplined investor, this line of thinking can be outright dangerous.
Consider the term “house’s money”…
Casino regulars know what I’m talking about when I say “house’s money.”
Whereas “my money” is the money I walked into the casino with, the “house’s money” is the “extra” money I’ve won from the casino that night.
Before I go on, let me say that I’ve never stepped foot in a casino. And while analogies between the two can sometimes be made, good investing is not gambling!] Back to my point…
Many people (mistakenly) think that the “house’s money” is somehow different from “my money” – as if, like in that Voya commercial, one is green and one is orange.
The thing is… it’s not!
And here’s why I believe that…
For one, the house’s money can just as easily be your money as your money is. All you have to do to make that so is walk away from the table.
With such a simple act separating the house’s money and your money, how can they be different things?
More importantly, though, I believe whole-heartedly that it hurts just as badly to lose the house’s money as it does to lose your money.
How many times have you accrued a hefty open profit… and then mentally spent that money on something? You’ve thought, “Great! I can buy that <insert expensive, luxury item> now with the $50k I’ve made so far this month!”
And then, after suffering a hefty giveback of those open profits – aka, the house’s money – you’ve decided you’d better hold off.
I’ve worked with enough investors to know it usually works this way. Human nature leads us to mentally spend our profits, even before we’ve locked them in. Then, when the house takes some or all of those profits back… it hurts!
That’s why I think there’s no such thing as the house’s money.
It’s all your money!
This truth can be psychologically frustrating, and economically destructive, for many investors.
Some investors like to play fast and loose with the so-called house’s money. They may reckon that it wasn’t their money to begin with, so it’s fine if they risk too much and lose it all.
Other investors become psychologically attached to the house’s money, causing them to mentally spend it, and worry excessively about losing it. They’re too conservative with the house’s money, often locking in profits too early, thereby leaving even more money on the table.
Truly, it’s a tricky balance to strike… made worse by the false idea that the “house’s money” is somehow different from your money. Again, it’s not!
I shared this concept recently with my 10X Profits readers, as part of my commitment to turn them into disciplined investing machines!
The solution to seeing the house’s money as “play money,” and doing foolish things with it, involves detaching yourself, emotionally, from the profits you’ve accrued on open positions.
That’s easier said than done, I realize.
So I gave my disciplined 10X’ers two tactics toward this goal.
The first one is simple: check your account balance just once a month.
If you believe, like me, that each time you check your account balance and open positions presents one opportunity to second-guess your strategy and do something stupid… then you’ll agree that checking your positions every day, versus once a month, only sets you up for 22-times more temptation.
If you’re following a systematic strategy, like 10X Profits, you don’t need to make decisions every day. So you shouldn’t be tempting yourself to “check and fiddle” every day!
Keeping tabs only occasionally means you won’t fall victim to the emotional rollercoaster of watching the so-called house’s money swing up and down.
The second tactic is also simple: prepare to “give back” some of the house’s money.
I think education and anticipation is key to keeping a cool head in turbulent markets. If you’ve done your research and prepared yourself for negative scenarios, it’s much easier to stay the course when things get dicey.
When you expect you’ll have to give back some of the house’s money, some of the time, you won’t be as shocked or concerned when it actually happens. You’ll know it’s a “normal” function of investing… and nothing to worry about.
The bottom line is…
It’s psychologically challenging to give back open profits. It’s psychologically tempting to override your strategy when you check your account balance too often.
And that’s why you need an objective, systematic trading strategy… like my 10X Profits
Editor, 10X Profits
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