Wealth-building Secret #2: Never Lose Money
The second secret to wealth-building is to never lose money. The first wealth-building secret, if you recall, was to develop the ability to spend fearlessly. This means spending money from a position of faith, courage and confidence, not from a position of fear or recklessness. The point of this wealth-building series is to help you understand that becoming rich isn’t about acquiring things. It’s simply a mindset; it’s a mindset that can be developed and applied in your life. And, in doing so, you will see doors opening up, opportunities presenting themselves repeatedly and money flowing your way from a variety of sources.
Developing this mindset will help you see opportunities where others see challenges. This perspective will be crucial in your efforts to build wealth and become rich. Today we will build on the principle we learned in the first wealth-building blog. Today our focus will be on protecting assets and learning the importance of never losing money.
Average people don’t focus on protecting the wealth they already have, they focus most of their effort on making more money. They are always trying to make the “perfect investment”; an investment that is going to take them from middle to upper class. This is a risky mindset to possess. This causes people to take on more risk than is necessary, leaving them exposed to big and devastating losses. This isn’t how wealthy people think.
Wealthy people focus on protecting themselves from loss, first and foremost. They focus all of their energy, in every business deal and investment opportunity, on creating total downside protection. Their number 1 goal in any venture is to ensure that they never lose money. They place more importance on this than they do on making money.
Take Warren Buffet for example. He is a legend in the world of investing and, as most of you are probably aware, he is one of the richest people on the planet. You would think that a man who has accumulated such a ridiculous fortune would have amazing advice for how to build wealth by perfectly timing the stock market, or by implementing incomprehensible straddle-option strategies in markets that are inaccessible to average investors, or maybe he is simply a magician capable of outsmarting the genius Wall Street firms with super sophisticated investment techniques that you and I have never even heard of.
Sounds like it could be true, but, if you believe that, you would be wrong.
Warren Buffet is one of the biggest advocates for the hands-off “buy and hold” approach. He believes in long-term value investing. He does tons of research before he makes an investment. He understands that stocks will go up and stocks will go down. The market will outperform expectations at times and it will disappoint your expectations at other times. But, the key to having success in such a tumultuous and fearful environment (for most), is to simply place a higher important on protecting yourself from possible downturns and catastrophes.
Warren Buffet has realized that it’s way more difficult to recover lost money, than it is to simply protect what you have and grow it in a more conservative manner. Successful investing is founded on the principle of understanding how to protect yourself and never lose money. Your investment portfolio will still have good years and bad years. You will never be able to completely alleviate that. In fact, most investors understand how to use the cyclical nature of the stock market to their advantage (that’s a whole other blog though).
Warren Buffet places such an importance on protecting and playing defense with your money that he actually simplified his entire investment philosophy into 2 simple rules. His rules are easy to follow and incredibly simple. They are:
- Never Lose Money
- Don’t Forget Rule #1
Warren Buffet credits much of his success in the market to his ability to effectively protect himself from the unexpected. It’s this focus that has enabled him to make huge moves while everybody else was sitting on the sidelines. He is always positioned magnificently. And if you think he has never picked a losing stock, you would be wrong again. Of course, he has. It’s not that he has never seen a down market either….. He has lived (and invested) in more of them than you and I…..put together! He’s been around the block, so to speak.
He has always focused his mental energy on protecting the wealth he has already built. He seeks investments that offer upside potential, with very little downside risk.
He is not a gambler. He is incredibly strategic.
There’s a reason the man is an absolute Gajillionaire (is that even a word?).
Buffet’s #1 priority is to ensure that his money never goes backwards.
Growth and accumulation are his secondary concerns.
This is how wealthy people think. They are focused in areas that the average person is not. And, it’s not just Warren Buffet. It’s all of them. They all think like this.
Richard Branson is another perfect example of the philosophy that you should never lose money.
Branson is a billionaire who founded Virgin Airlines, yet he negotiated a way to build an airline without putting ANY of his own money at risk.
Sounds impossible, right?! Wrong.
Sit back and enjoy another incredible story that further proves that wealthy people have developed a mindset that alone is the catalyst for their incredible success. They focus their energy on protecting the downside, ensuring that they never lose money, even if they fail.
Lose Your Virginity, Not Your Money
Richard Branson was a very successful entrepreneur long before he started Virgin Airlines. He was already extremely wealthy at that point in his life. He had lots of money to invest in new ventures. That’s when the idea for an airline came about.
He recognized enormous potential in the airline industry. But, he also saw something else. Risk. Lots and lots of risk.
He recognized that starting an airline would be extremely expensive. He would need a fleet of jets, he would need millions of gallons of jet fuel, he would need to pay pilots, stewardesses, customer service representatives, etc. Not to mention, he would need a MASSIVE MARKETING BUDGET to be able to promote his airline and get it off the ground……(get it?!)
Richard Branson wanted to create reliability and predictability for his soon-to-be passengers, but he wasn’t willing to personally take on the enormous risk associated with a start-up airline.
That’s when he started thinking outside the box.
He started to negotiate terms with Boeing, the leading manufacturer of commercial Jetliners.
He didn’t want to be personally responsible for dozens of jetliners if his airline happened to fail, which he recognized as a real possibility. He needed to create a way to eliminate his financial exposure to that magnitude of risk.
He wanted to buy Jetliners from Boeing, but he wanted them risk-free.
It seemed impossible to most people, but most people are not Richard Branson.
Branson ended up negotiating a 2-year deal in which he agreed to purchase the Jetliners if, and only IF his airline succeeded at the end of 2 years.
If his airline failed, he was allowed to return the planes without owing a single dollar.
He ensured, with absolutely certainty, that he would never lose money in the creation of a new airline. He protected himself from financial catastrophe. This wasn’t pessimism, this was simply Richard Branson ensuring that he positioned himself for victory and if the worst-case-scenario became a reality, he could simply walk away. Without losing money.
Victory Isn’t Always a Win. Sometimes, It’s Avoiding a Loss.
Richard Branson didn’t ensure his victory in the airline business, but he ensured that he couldn’t lose.
This is how the wealthiest and most successful people in the world think. They are not “extreme risk-takers”, like most people think, they are extremely calculated in their wealth-building ventures.
They place 100 times more importance on protecting their wealth, than they do on building wealth.
Successful hate losing money more than they enjoy making it. However, this is the aspect of wealth-building that is rarely talked about. That’s because it isn’t fun and it isn’t sexy. It’s somewhat boring, in fact. But, it’s a crucial principle to master if becoming wealthy is important to you.
It’s a mindset that you must slowly adopt. Don’t believe in the “get rich quick” material that spreads like wildfire in the world. People think it exists, but that’s another secret that’s been exposed in this blog. Warren Buffet didn’t get rich “quick”. He was patient. He took calculated risks and he stuck to the principle of never losing money and always protecting himself from financial ruin.
The same is true of Richard Branson.
He is always focused on the long-term and before he enters any new venture, he ensures that he has himself protected from financial catastrophe. He ensures that he will never lose money.
I’m not writing this to give you a negative and fearful perspective. Not at all. Any negotiation that you become a part of should be predicated on the upside. Why the hell would you pursue an opportunity that didn’t have tremendous upside?!
You wouldn’t. That’s the point.
Don’t pursue opportunities that you haven’t identified as having “tremendous upside potential”. Don’t waste your time exploring opportunities that don’t stand to provide an incredible return on investment for yourself.
Recognize the potential, but always protect yourself from risk.
It’s really easy to convince yourself and others of the possibilities. It’s a really good thing when you get excited about the potential of a new opportunity, but it’s important to remain objective in your professional pursuits. Seeing upside and being able to communicate it is an incredible gift and it’s extremely important to be optimistic, confident and courageous about your pursuits, but there’s a simple characteristic that the best businesspeople in the world possess.
They can be optimistic, confident and courageous, but still focus on creating terms that ensure they cannot lose.
And, that’s exactly how you and I should be approaching new opportunities.
You’ll probably never be able to completely eliminate risk and potential failure, but simply focusing on ways to reduce your exposure on the front-end (not once it’s too late), and focusing all your efforts on never losing money are crucial mindset-shifts that will help you think like the wealthiest and most successful people in the world do. Thinking like them is the first step. Becoming them, is step number 2.
Just like the great Bruce Lee once said, “As you think, so shall you become.”
Related Blog: Wealth-building Secret #1: Spend Fearlessly
P.S. If you enjoyed this post, I have tons of additional material that I know you’ll love too. Check out my other blogs here, or better yet, get weekly inspiration, motivation and strategy sent directly to your inbox by downloading The Official Relentless Forward Momentum Action Guide (it’s free, of course).