04 Nov Debt and Investing
Debt and Investing go hand in hand, if you are in debt you really shouldn’t invest and if your investing successfully then you probably are not in debt.
At Cansliming we do not believe in debt. As an investor we look for stocks with little to no debt so why should our personal affairs be any different? When you are in debt you are holding risk, if you lose your source of income your debt is a massive risk. If you lose your house, car or other assets you are going to have to work doubly hard to get those items back, and in many cases you will need to get those items back. So trying to keep a level head while investing, if you have money to do so, will be nearly impossible.
I have seen investors that have debt and lose a job or are wiped out for some reason and they take a long time to recover because of their house payment, 5 car payments and the like. I have also see people with no debt take a hardship in relative stride. If you are trading stocks you should make a definite effort to relieve yourself of your debts including your house!
Now I know as a trader you think you can earn your way out of your debt, habits and shortcomings. However the only thing that can get you out of debt is your mindset, and once you get your mindset right then the rest will come easy. Its amazing what can happen when you finally get focused on a goal and achieve it, or even if you havent achieved it yet the discipline that you will gain from working towards a personal goal will effect you in other aspects of your life. As you get more disciplined you will automatically be a more disciplined person, and you brain will find ways to keep you on the disciplined path. You may lose weight, sleep more and be on time to more things just because you started to work on a great personal habit.
Well what does this have to do with Canslim you ask! Well EVERYTHING.
If you know of William Oneil then you know that good personal habits are part of his trading style, it isnt spelled out in his books however he is known for looking down on traders that have large ego’s and for people that cant stand back and look past themselves. It is known that his traders would be looked down upon if they drove a Ferrari to work, not just because its bad for resale value but because it implies something about that person, that they probably have a tendency to be selfish. That same mindset to not have a large ego, not show off is the same personality traits that you need to have to not get into trouble with debt. It doesnt matter if you make $50k per year or $500k per year you can get buried or become free depending on your debt level.
When you have debt, in the back of your mind you know that you NEED to make money, that thought process skews your judgement and can change your trading style. If you have bills to pay then you will always want to trade, sometimes even forcing trades with little risk reward just because you have a house payment coming up. When you are relieved of that pressure you can open up your mind and trade clearly, because as traders we are training ourselves to look logically, clear emotion and view objectively and these are hard to do when your wife is wondering if your next trade is going to be profitable.
So do the right thing, grow a little slower, take some of that capital and pay off that debt that is a risk line on YOUR balance sheet, make yourself look like a company that you would want to invest with.