Getting Wealthy, Staying Wealthy

Many traders can make money. Few, however, are masters at keeping it.

There are as many different strategies for creating wealth as there are, arguably, for staying wealthy. Charlie Munger of Berkshire Hathaway defined wealth as “the freedom to do what you want.” Sounds like something we all could agree on, but how does one become and stay wealthy?

In our line, day trading options on the SPDR S&P 500 ETF Trust (SPY), one would need to start with a good dose of optimism. A positive attitude makes earning money easier. There is something to the law of attraction, where if you expect great wealth, you are somewhat predisposed to getting it. Perhaps you are just fundamentally, unconsciously attuned to be more open to the opportunities and hence capitalize on the moments when they present themselves. I can recall the difference in my own trading when I was timid or apprehensive with placing a trade. To be clear, I have endured many losses due to my cowering under a losing trade. Seasoned DayTradeSPY’ers know all too well the many occasions the market provides enough to skim a little off the top, and therefore, enter with a winning confidence. Don’t take my word for it. Look at any option chart to see the many price ranges for both calls and puts. It is no secret that, even if you traded a mere 20 contracts, spooning a nickel off the top on repeated trades, you could earn well in excess of $1,000 by noon.

Creating wealth involves concentration. Prudent long-term investment strategies often entail diversification, but to create great wealth quickly, simply focus on just one great instrument. Our one stock, SPY, covers the entire top 500 stocks. Become a specialist using our one outstanding scalping strategy and you should be able to ramp up your wealth swiftly. Our day trading strategies zero in on the end game with a laser beam focus. It’s an approach that requires significant knowledge, strong conviction and a healthy appetite for risk. When you understand our system and simply pay attention, it is uncanny how quickly you can elevate your wealth.

Creating wealth also involves a high-risk tolerance. Traders need an active investment plan, often embarking on risks the passive investor would never consider. We trade options, dancing around volatility issues, time decay and rapidly changing markets. The slightest news can derail our trades, but through experience and solid money management techniques, we can guide our positions to profit, even if they detoured to short-term unrealized losses. Trading is not for the faint of heart but requires nerves of steel to weather the economic storms.

Now that you have earned it, keeping your great wealth is another story. Author Morgan Housel quotes: “There are a million ways to get wealthy… but there’s only one way to stay wealthy: some combination of frugality and paranoia.”

Once you have accumulated your cash in the options world, the focus needs to change to actually keeping your cache. Switch out your perspective to a more pragmatic, even somewhat pessimistic outlook. As we mature in our investing career, it may be better to reign in our resilience to market forces. Inevitably, investors will unintentionally avoid some good opportunities, but ultimately, it is about capital preservation. When you have achieved your accumulated wealth, diversification can, at that point, be an effective way to preserve your wealth by spreading the risk across a greater number of assets. Once there, consider lowering your risk tolerance and reduce your exposure. In my case, for example, I no longer have the financial need to invest heavily in options. I may buy only 10 or 20 contracts to stay mentally sharp and enjoy the game.

Both growing your wealth and keeping it requires different strategies and mindsets. Ultimately, it is the wise trader that can understand and apply the principles of each that will find long term success.

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Create great trades!

Hugh