It is essential to understand money management before you enter the market. In fact, learning the essentials is important before you try anything. I learned this lesson years ago while caring for my neighbors animals.
Last summer, my neighbors went on their annual camping trip to Beaver, Utah. Every year they ask me to take care of their pets while they’re away. The number of pets they have is always growing, and that year consisted of 12 chickens, 2 fish, 1 cat, and 4 bunnies. I never have, and am doubtful that I ever will, own a pet, but I agreed to help them out. I received 3 pages of typed instruction, and training on how to place the labeled chicken food into the labeled chicken pen using the labeled chicken scoop (I may have accidently mixed up the cat and chicken food the year before). I even practiced feeding the chickens with their daughter two days in advance. They left feeling reassured that not even I could mess up their detailed instructions, and I watched them go feeling confident in my ability to keep their animals alive for five days (one year the cat jumped into the fish tank, resulting in a decrease in the fish population).
The next day: I fed the fish, I fed the cat (not the fish), I fed the chickens, gathered the chicken eggs, and opened the door to the bunny cage. Unfortunately, the bunny in there ran out as soon as the door was opened, and I spent the next hour chasing it around the backyard. Finally, with the bunny safely in my arms, I returned it to the cage with the other bunnies. I replaced the food and water, and left feeling like a champ.
The next five days passed uneventfully, and I was delighted with my success. My neighbors returned, and immediately checked to see if their dear pets were still alive. I happily informed them that they were all alive and well. Their daughter, inspecting the bunnies, turned around and said, “Mom? Why is the boy bunny in with the girl bunnies?” One month later, they had 34 baby bunnies.
Truthfully, I’m uncomfortable with animals. They sound easy to take care of, and I had the instructions and means to take care of them, but I had no experience or any idea on how to actually handle them. Now, relate this to money management. I know it can feel like a stretch comparing caring for animals to your money (though I wish my money could reproduce as fast as those rabbits), but the similarity isn’t between animals and money. It’s between knowing how to handle and care for them.
Proper care and handling of money in the markets is key to successful trading. In the same way improper handling of the neighbors farm resulted in unintended consequences, improper handling of money can have unintended effects – loss of capital, longer hold periods, lost opportunities. However, with some basic knowledge, a good set of instructions, close attention to details and discipline you’ll discover that you can manage your results with much greater control… And who knows, maybe your monies can grow like bunnies.