Never Count Your Money, When You Are Sitting at the Table
Posted on | February 4, 2010 | 1 Comment
Word of wisdom from a professional gambler and holds true in the world of investing. As long as your money is on the table, it is not your money. As long as the money is in the market, it is not your money. It belongs to the market. If you have been in the market long enough, any market for that matter, you will know that the market gives, the market takes. That is why we have profit and loss. Until the money is safely in the bank, it is not your money.
The fact that your investment in stocks, real estate, commodities or whatever appreciates, does not mean that your net worth has increased. As a matter of fact, that word net worth means absolutely nothing. It is an opinion about how much you are worth, which may not stand the test of time, when the tyre hits the road.
The fact that your estate agent tells you that your house is worth N100 Million naira means nothing, until you have a cheque for that amount in your hand. It may be worth N100 Million on paper, but by the time you put the house in the market, the best offer you get for it may be N60 Million naira. That is the reality. That is what your house is worth – the amount a potential buyer is ready to pay, money in the bank, not wishful thinking. When this happens, the agent that made you feel funky by telling you your house is worth N100 Million will not chip in the balance of N40 Million.
Same goes for your fleet of sleek automobiles, golf clubs, yacht, large screen TV, you name it. When someone tells you, you are worth so and so, that is just an opinion, and has nothing to do with reality. That is why serious investors do not take the word net worth seriously. It is a cliche to make the middle class feel funky, rich (a false sense of wealth) and overspend in the process. It amounts to counting your chicken before they are hatched, or counting your money while still sitting at the table. Until you exit the game, the money is not yours. There is time enough to count it, when the game is over.
The object of the game is to get your money off the table, and still remain in the game. As a professional investor, you want to invest in an asset, get your money back, still keep control of the asset while you move your money into a new asset. It is called “playing with house money”. Your money is long gone, while you still keep the asset.
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Let me give a classic example using shares. Some years back, First Bank gave a bonus of one for one. That was a perfect opportunity for a professional investor to wait for the right time to sell the bonus (get his money back) which still holding on to his original shares, which is now free of charge (house money). Your money is off the table, but you are still in the game. The same can be done with the banks money (other people’s money), where you refinance your mortgage, get your money out and move on while the property still belongs to you (you can use that money to make a down payment on another property. This is called velocity of money. You don’t put your money in parking gear and go to sleep, you keep it moving, in and out of different tables, as you play with house money.
When you start counting your money, while siting at the table, you lose focus, and miss opportunities to pull your money out, ending up giving back your gains and even losing money. The term “Indian gift” stems from the practice of early American Indians you give, and ask for it back. They give you a blanket as a gift today, and ask for it back tomorrow. Professional investors are like these Indians. They give to the market, and then take it back. Hence when the bottom falls out from the market like it did recently, their money is long gone. This holds for any investment, including your own business
Never count your money, when you are sitting at the table (as the money is not yours yet), get the money home (or to the bank) safely before you start counting. This time, the bank teller will gladly join in the counting
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Related posts:
- Velocity of Money
- Not Everbody Loses Money in Market Crashes
- Invest in Your Education Before You Commit Your Money
- Have an Entry and Exit Strategy
- When Debtors Win
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April 14th, 2010 @ 4:16 pm
Wonderful insightful write up. I have never thought about networth that way!