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2. Lesson: Never Lose Money

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One of the most critical factors for gaining wealth and reach financial freedom is to never lose money. It is far easier to lose money than to gain money. Whether you are an investor, a 9-5 employee, an entrepreneur or freelancer, you have either lost money on investments or spent money on useless products. You have to protect your money far better than you are currently doing. You might think that you are already protecting it, but my guess is that you can do an even better job.

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As Warren Buffet says:

“Rule No. 1: Never Lose Money. Rule No. 2: Never Forget Rule No. 1.”

I have risked a lot of money to gain more rapidly. That worked initially, AS I GOT LUCKY, but luck runs out. And let’s face it, unless you have extensive and unique knowledge of a certain market, you are bound to luck to outperform the market. Since I made some large sums of money with lucky investments, I got far too confident in my own skills. And I continued with investing in different stocks and commodities, I even used CFD (Contracts for Difference) to speed up the process.

With CFD you can trade and “bet” on different stocks, indexes and commodities with far more money than you hold on your account. That’s called margin trading. You can earn far more money, but you can also lose more money than you currently have. The risk is dramatically increased. I highly recommend you to not trade on margins unless you know exactly what you do and have a clear stop-loss strategy.

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In 2016 I lost a substantial amount of the money I earned the previous years on trading. I should have been more careful and taken Warren Buffet’s advice. However, I’ve learned the hard way and now I’m more careful with my bankroll. That is why the advice is so important to remember and to accept. Never lose money.

What does this mean?

If you are looking to invest your money in stocks or commodities, you have to be sure that you won’t lose your money. This is nearly impossible to know, but there are some steps you can take. If you look at the historical trends, the one investment strategy that never have failed is to invest in index funds. Indexes follow the market, and even with some major financial crashes like the one in 2008, you would still have earned more than you invested pre 2008 if you had invested the same amount on a yearly basis. There are some exceptions like the Japanese index Nikkei 225:

As you can see from the graph above, if you started investing in Nikkei 225 from 1989 with the same amount on a yearly basis, you would have suffered a quite substantial loss. But still, the Nikkei Index is currently above all other periods before 1985, and my guess is that we will see Nikkei 225 above 40 000 within the next 20 years unless the entire economy goes under (which is an unlikely but possible scenario).

Investing smart is not the only solution

The entire idea is to never lose money. If you are not currently investing because you have too little money to play with (yes I say play), then you still have a lot of options to secure your money. My golden rules are the following:

  1. Cut your monthly expenditure
    • Do not use credit cards, if you have a credit card debt: pay it as fast as possible.
    • If you are able to; pay e.g. 20% more on your mortgage where the end goal is to become debt free as fast as possible.
    • Buy fewer products. I’m sure you can cut down your consumption with at least 25% per month. I urge you to set up a spreadsheet with all your monthly costs and go through everything you spend money on. If you go clubbing every weekend, could you reduce it to twice a month? If you smoke 6 packages a week, could you reduce it to 3 packages? I’m not saying that you should stop smoking or stop clubbing, as that might be too hard to do, but I’m sure you are able to reduce your consumption quite drastically.
  2. Focus on the money
    • I am not a greedy bastard, but I’m aware of what I’m spending my money on. The money you spend is money you won’t see again. You should not be obsessed with money, but you should still focus on it if you want to become financially independent.
  3. Don’t risk your money
    • If you are looking to invest your money, I would say in 9 out of 10 cases, never invest in anything other than index funds or assets that have shown a steady rising trend over the past 50 years. If you invest in a specific stock, or cryptocurrency, you are actually betting against the market. You then believe you can outperform the market, which in 50% of the cases, you really can’t.
  4. Ensure cashflow
    • If you have a cashflow, either from a job or your own business, focus on that and make sure that you won’t lose it. The best way to increase your wealth is to earn more money. If you got a 9-5 job, you are stuck to your monthly salary but you can still find other ways of increasing your monthly cashflow. What if you can do a side gig? What if you can offer your services on your spare time and try to build a small client base after your normal working hours? Maybe that can help you, in the end, quit your job and run your own business?

What are your thoughts? Leave a comment below and let me known.

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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5 Comments

5 Comments

  1. Fishytackle

    June 16, 2017 at 5:55 pm

    Hi, I wouldn’t say not to use credit cards. If you manage them correctly they can be great. They are giving you 60 days money credit for nothing. ALWAYS pay back in full. If you can’t do this don’t touch them. Just my opinion.

  2. NoHomeJerome

    August 15, 2017 at 11:30 am

    Theory question about index funds:

    Let’s take S&P 500 as an example. Suppose you are able to identify some of the worst performing companies in the fund. Let’s say even a small number like 10 companies. Wouldn’t you then be left with an index fund of 490 stocks (instead of 500) and shouldn’t this fund of 490 companies outperform the other?

    Or do you suggest it is virtually impossible to identify some “bad” companies at all?

  3. nsmith

    August 23, 2017 at 8:32 am

    Credit cards can build credit score if have lousy credit which is the vast majority of Americans. I learned to be be cheapskate never buying anything at market value. But I disagree that hard baselines is indices and crypto is betting against.. Crypto is betting against fractional lending which is a way elites rob valentine from all fist based currency. Anything listed in USD has to fight fractional reserve, modern asset forfeiture.

  4. nsmith

    August 23, 2017 at 8:38 am

    Terrible typo. Elites rob from all fiat by constantly devaluation.. The rates just vary. It’s like entropy.. Everyone is predicting sovereign debt crisis very soon.. Like years.. The only way I see Btc going to a million real fast is every time USD, YUAN, EURO start to tank. A country like Greece can devalue and entirely euro denominated economy right?

  5. Acewriter

    September 11, 2017 at 11:24 am

    I have a question. Back in 2008 when everything crashed, cash was king. Margin calls, plummeting housing prices, falling stock prices…suddenly everyone needed cash. People were forced to sell good assets along with the bad to pay their margin calls, mortgages, buy food, etc. Even my much-loved physical gold went down, for about six months, before starting a three-year uptrend that culminated in $1,910 gold.
    And finally, my question — do you see a high probability for a similar reaction by BTC/alt coins in the next crash? This might make a good subject for a full article.

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Fidelity Investments is Mining Cryptocurrency

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Fidelity Investments is a multi-billion dollar brokerage  that just so happens to be mining cryptocurrency. In fact, it has been at it for three years, using its own computers to harvest bitcoin and Ethereum.

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Profitable Experiment

CEO Abby Johnson recently told Fortune that its U.S.-based mining operation is “making a lot of money.” This comes despite running a relatively modest operation.

Hadley Stern, Senior VP of Fidelity Labs, described his company’s venture as an “experiment.”

The real reason we began mining, and still do, is to learn how the network works, how consensus works, how difficulty levels work,” he said in reference to the mining process.

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The key to profitability has been the dramatic rise in cryptocurrency over the past year. Bitcoin and Ethereum are the world’s No. 1 and 2 cryptocurrencies by market capitalization, and no-one else comes close.

Well Ahead of the Pack

The fact that Fidelity has been at this for three years speaks volumes about the company. Other, much bigger players are still dipping their toes in the market, but are unsure about how to proceed. Goldman Sachs is reportedly on the fence about starting a cryptocurrency trading operation, while J.P. Morgan has already begun handling customer orders for bitcoin-based instruments.

Fidelity is doing a lot more than just mining tokens. Earlier this year, it reached an agreement with Coinbase to let customers view cryptocurrency prices alongside other assets on their Fidelity homepage.

Coinbase is the world’s most funded cryptocurrency exchange with more than 7.4 million users.

Cryptocurrency Prices

The cryptocurrency market ended the week on a firm note, with bitcoin (BTC/USD) reaching a session high of $4,425.00. At press time, the index was up 1.6% at $4,368.

Ether is also trading higher against the dollar, with the ETH/USD rallying more than 3% to $305.

Ripple (XRP) lost momentum on Friday, but still managed a weekly gain of 21%.

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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Chinese Government Eyeing Fresh Bitcoin Legislation?

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The Chinese government could roll out fresh cryptocurrency regulation in the coming months permitting licensed brokers to operate, based on recent information from Xinhua.

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The state-owned news publication recently revealed that the government is mostly concerned with stamping out illegal activity involving bitcoin and other cryptos. Government authorities could be planning to regulate the market by creating a licensing program with strict Know Your Customer (KYC) and Anti-Money Laundering (AML) systems.

The Case for AML

The need for KYC/AML protocols has long been raised by cryptocurrency proponents, especially in reference to initial coin offerings (ICOs). In response, the blockchain community has come together to create the Simple Agreement for Future Tokens (SAFT). The SAFT is both an instrument and open-source framework for token sales that vets accredited investors.

SAFT activity is quickly gaining traction, with the likes of Gizer recently issuing a presale of its ICO through SAFTLaunch.

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SAFT was officially created by Protocol Labs in close collaboration with AngelList and Cooley.

China’s Stance Looms Large for Cryptocurrency Market

Although digital assets have recovered from the China-induced flash crash of September, favorable regulations on the mainland could mean big business for bitcoin exchanges. Prior to the ban on ICOs and bitcoin brokers, Chinese investors were responsible for a quarter of all BTC trades.

According to Xinhua, China is likely to pursue a licensing program similar to Japan, a country that recently approved 11 cryptocurrency exchanges. CnLedger, a leading source of cryptocurrency news in China, recently had this to say:

“Xinhua News, official press agency of CN: Virtual currencies have become the top choices of underground economies. We shall adopt ‘0-tolerance policies’ towards crimes hidden underneath and take measures such as record-keeping, licensing, AML processes, real-name, limiting large transactions.”

Is China’s cryptocurrency ban temporary? It certainly looks that way. Regulators must already know that the ban hasn’t stopped mainland investors from buying cryptocurrencies next door in Hong Kong or Singapore. A saner approach to an all-out blanket ban is a tighter regulatory framework that will stamp out money laundering and other underground activities.

«Featured image from Shutterstock.»

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Analysis

Tim Draper Has Made Over $110 Million Since 2014 With his Bitcoin Investment

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Tim Draper, the billionaire technology investor and prominent venture capitalist who has invested in some of the most successful technology startups in the likes of Coinbase, Patreon, SpaceX, Tesla, Box, FourSquare, has profited over $110 million from his investment in bitcoin less than three years ago.

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In 2014, Draper participated in the auction of 144,336 bitcoins by the US government and the US Justice Department, which were seized during the investigation into Silk Road, a dark web marketplace. Draper was granted the permission to purchase a batch of 30,000 at around $600 from the US government.

Upon securing 30,000 bitcoins, Draper told Fox Business:

“[I’m] very excited about bitcoin and what it can do for the world. Bitcoin is as big a transformation to the finance and commerce industry as the internet was for information and communications. If bitcoin were here in 2008, it would be a stability source for our world economy. Everybody should go out there and buy a bitcoin. Every investor who’s a fiduciary should at least be partially involved in bitcoin because it’s a hedge against all the other currencies. There’s a whole ecosystem being built that’s going to make commerce much easier with much less friction and safer.”

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Today, Draper’s 30,000 bitcoins are worth $129.9 million. Considering that Draper had spent $19 million purchasing the batch of 30,000 bitcoins in 2014, Draper has recorded a profit of over $110 million in less than three years.

While Draper held onto his investment in bitcoin, the US Justice Department was quick all of the 144,336 bitcoins seized during the Silk Road operation. According to various sources, the US government sold the majority of its 144,336 bitcoins at a price of $336, at $48 million. If the US government had sold its bitcoins in 2017, it would have generated an additional profit of around $573 million, as 144,336 bitcoins at today’s bitcoin price of $4,330 are worth $624.9 million.

Bitcoin price was below $350 in 2014. Today, it is over $4,330.

Since 2014, in addition to purchasing tens of thousands of bitcoins, Draper has funded some of the most successful bitcoin companies in the cryptocurrency market including Coinbase and Korbit. Earlier this year, Coinbase secured a $100 million investment at a $1.6 billion valuation, while Korbit was acquired by the parent company of a $10 billion gaming company in Nexon at a $140 million valuation.

Furthermore, Draper has not sold his stake in Coinbase and earlier this year, Brian Armstrong, the CEO of Coinbase, revealed that Coinbase is still at an early stage in terms of developing and scaling. Armstrong noted that it will evolve into the safest and most trusted exchange in the global market.

“Digital currencies are having their ‘Netscape’ moment. The pace of innovation has been accelerating and we are now seeing exciting projects and companies being built on top of digital currencies. We’re beginning to transition into phase three of our secret master plan. Our goal is to be the safest, most trusted and compliant, and easiest to use. Not the first to market with new assets. Especially at scale, it takes time to ensure any new asset we add is well tested and secure,” said Armstrong.

Coinbase is also one of the two exchanges in the US market apart from Gemini that is targeting institutional and retail investors by providing sufficient liquidity. As Coinbase and its flagship cryptocurrency trading platform GDAX continue evolve, Draper will position himself at the forefront of cryptocurrency innovation and disruption.

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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