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MONEY MANAGEMENT TIP #3: PURCHASE YOUR INITIAL CHIPS!

October 27th, 2011

PURCHASE YOUR INITIAL CHIPS: Buy in with a sensible portion of your liquid assets. It’s almost impossible to think objectively when you play a risky game with scared money.

From the preceding example, choose a round number like $10,000 to put at risk in your trading account. Now break that amount into 10 equal size “betting” units or a “chip size” of $500. At a Las Vegas Craps table, this is like a guy with $200 in his wallet who buys in with a hundred dollar bill and asks for a stack of twenty $5 red chips. He has defined the amount of money to play with, the amount of money in reserve, and the dollar value of each betting unit. This important exercise helps an investor develop the disciplined money management mindset that is necessary to play the stock market game under control.

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“Tolerance of risk? ‘To each his – or her – own’ applies, but only after honest soul-searching. No investment is without some risk. Sometimes the acceptance of higher risk is dictated by personal circumstances.”

Robert Metz and George Stasen ~ Authors of “It’s A Sure Thing” (1993)

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