It’s no secret that the financial markets provide a mechanism for ordinary people to make extraordinary wealth. Some of the most popular books on trading include “How I Made $2,000,000 in the Stock Market”, written by Nicolas Darvas in 1960 (when $2 million dollars really meant something). In the 1980’s Richard Dennis won a bet by teaching essentially random people off the street, known as “turtles”, his trading strategy. That book is titled, “The Complete Turtle Trader: How 23 Novice Investors Became Overnight Millionaires.” There are countless others.
But a key note on all of them before you load up your Amazon cart: these high-yield claims come with exceptionally steep risks, so steep that most investors simply can’t trade them as written. At some point, the majority of these strategies (all of them I’ve studied, actually) have maximum drawdownsGlossary: The fall in value from a peak to a later low, as a percentage. The bigger the drawdown, the bigger the gain needed to recover: a 50% loss takes a 100% gain to undo. of more than 50% and many as high as 70%-80%.
For an investor starting out with $1 million dollars in their retirement accounts, that translates to looking at a balance of $500,000 or even $300,000 or $200,000 at some point during the trading journey. That’s not tolerable or sustainable.
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