The Traders Journal

Your Canary In the Trading Room



In the sports world, parties debate whether a premiere defense defeats a premier offense or whether great hitters beat great pitchers. Successful long-term investors have no such debate. They know that after making sacrifices to accumulate their assets, they build a premier defense first and then they focus on offense or asset growth. Most of the reasons are apparent. Others are less obvious but perhaps even more important. 

One of the keys to maintaining and growing wealth is avoiding anxiety. Since I manage only my own family money, I am often asked by extremely accomplished business school classmates for my impartial advice about managing their assets. They’ve succeeded in their careers and mastered asset accumulation, which is Stage 1, so now they are anxious to plunge into the stock market, not realizing that, in fact, that’s Stage 3.  At this point, we sit down over a beer and I pull out my Stage 2 “sermon”. I try to explain that before they can jump into the “exciting stuff”, they have to address the mundane basics of asset protection.


Can you remember back to a time when your life was discombobulated by some negative event? Can you recall its impact on your life then? Most of us also have acquaintances who’ve fallen apart because of some unusual catastrophe or who’ve spent months trying to recover their identity after it was stolen.   Just as coal miners in the past kept caged canaries in mineshafts to signal the presence of toxic substances, your trading room requires a canary of sorts, too.
As I’ve written in previous blogs, it is a fact that your personal equilibrium affects your performance as an investor, and if you fail to address the asset protection elements of the equation, you will have a high probability of experiencing toxic personal disequilibrium and your investing efforts will suffer. Don’t ignore it. Deal with it. The fun stuff is just around the corner.

So what are examples of key elements of Stage 2? I’ve listed a few examples below but this is by no means an exhaustive list.

  • Estate Plan:  Find a competent estate attorney and keep your will up-to-date.
  • Insurance:  Proper asset coverage, medical insurance and liability insurance could save you from immense anxiety.
  • Identity Theft:  Be prudent in protecting your information with shredders and secure mailboxes.  Devise proper password protocols and hire a firm to monitor your credit agency accounts.
  • Record Keeping:  Install software to inventory all your assets and reconcile your net worth annually.  You have to know exactly what you own.  Your kids might appreciate the good record-keeping if you fall off a cliff!
  • Tax Strategies:  This is asset protection from those government employees who spend their time thinking up creative ways to take more away from you!  You can’t avoid taxes, but a good tax accountant will help you minimize them.
  • Attitude:  This is a catch-all which includes teaching your kids about money, maintaining a low profile lifestyle so you don’t put a bulls-eye on your back, developing a savings mindset which means learning to live off 50% of your income, and finally avoiding scams.  Understand that there is no such thing as a sure deal or easy money. 

The bottom-line is that having the patience to first focus on protecting your assets before you concentrate on growing your assets builds a foundation upon which future success can stand. Think of it as “AA” of another variety. Asset protection comes first; asset growth comes next.  Your proactive defense and your personal awareness with respect to your own equilibrium become your canary in the trading room preventing the disequilibrium that can be so toxic.

Finally, remember that there are only two loses you can experience: capital and opportunity. If we protect the capital, there will always be another opportunity.

Trade well; trade with discipline!
-- Gatis Roze

Gatis Roze
About the author: , MBA, CMT, is a veteran full-time stock market investor who has traded his own account since 1989 unburdened by the distraction of clients. He holds an MBA from the Stanford Graduate School of Business, is a past president of the Technical Securities Analysts Association (TSAA), and is a Chartered Market Technician (CMT). After several successful entrepreneurial business ventures, Gatis retired in his early 40s to focus on investing in the financial markets. With consistent success as a stock market trader, he began teaching investments at the post-college level in 2000 and continues to do so today. Learn More
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