"What Capital Management and Rules Bring": A Column Published on Toyo Keizai ONLINE

Good morning, this is Matsushita.

We’ve entered the final week of this year.

Because domestic exchanges will be closed in the first half of next week,

let's make sure to adjust our risks accordingly.

In January of this year, I conducted a survey with newsletter readers

about the profit and loss results for last year and the full year,

and the reasons behind them.

The results show that

"2016 Individual Investor Performance Report"can be confirmed there.

Among these, 75% of individual investors

have been losing since they started investing.

and the two major reasons for those losses were

the lack of capital management and rules.

This is something I can relate to.

I believe those who are losing understand the reasons correctly.

Individual investors lack capital management and rules.

This can be said to be fatal.

In fact, during the first year and a half after I started investing,

while my funds were continuously decreasing,

I did not have capital management or rules.

However, afterwards I learned capital management and rules,

and began to make profits.

By mastering capital management and rules,

what changes in investing?

It means that your funds will no longer decrease significantly.

The decline in funds becomes smaller, and

drawdowns caused by losing streaks

also decrease.

This helps stabilize the equity curve.

Investing inevitably has ups and downs,

there are times you win and times you lose.

On the Internet, sales pitches claim endless wins or almost no losses, but

for ordinary individual investors, that is almost unattainable.

Some of them may be lies as well.

In investing, if you want to steadily make a profit,

you must weather the times of losing gracefully, preserve capital until the next time you can win,

and increase your capital when you can win again—this rhythm must be built.

By creating this rhythm, and during losses

capital decline is kept in check by

capital management and rules.

To put it simply,

you won’t suffer major losses.

If you don’t suffer major losses, the rules that work will eventually bring the next profits in.

This is the efficacy of capital management and rules.

I have witnessed this power for more than ten years

firsthand.

However, without capital management and rules,

relying on momentum or market trends to make profits

won’t prepare you to avoid substantial fund reductions, so

sooner or later you will lose a lot of capital.

When that becomes fatal,

this investor/trader

will not be able to rise again.

Investing, as long as you continue, means losing equals losses.

That’s why time and again you must

stand up again.

To rise up again and again,

capital management and rules are necessary.

Once you realize this,

focus on obtaining capital management and rules.

If you have them, your funds will grow.