Archives of “Parables” tag

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The Richest Man in Babylon Rules

  
Analysis, Education
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The Richest Man in Babylon is a great little personal finance book set as an ancient fictional tale that explains the ‘The Seven Cures to a Lean Purse’ and ‘The Five Rules of Gold’.

The Seven Cures to a Lean Purse:

  1. Start thy purse to fattening. Pay yourself first. Save money before you pay any bills.
  2. Control thy expenditures. Don’t spend every penny you make or you will be broke no matter how high your income becomes.
  3. Make thy gold multiply. Invest capital in assets that go up in value.
  4. Guard thy treasures from loss. Your number one priority is to keep your investment capital safe from loss.
  5. Make of thy dwelling a profitable investment. Buy a home in the right location as a hedge against inflation and to create equity and ownership over the long term.
  6. Insure a future income. Convert your earned income into assets that can create future case flow.
  7. Increase thy ability to earn. Grow your earning power through education, building skills, gaining experience in a field, or promotions to higher levels of responsibility.

The Five Laws of Gold:

  1. Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family. Save 10% of your income each time you are paid and convert it to investment capital.
  2. Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field. Invest your capital for growth and compounding.
  3. Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling. Find a successful model or system to copy for investing your money.
  4. Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep. Never put money in something you don’t fully understand.
  5. Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment. This fastest way to go broke is to try to get rich quick.

the richest man in babylon

The Blind Traders and the Market

  
  Education
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blind-men

There is an old parable known as “the blind men and the elephant.”  In this story, there are four blind men who are asked to determine what an elephant looks like.  The first blind man feels the leg of the elephant and says, “The elephant is like a tree because it is large and round like a pillar.”  The second man feels the tail and says, “The elephant is like a rope because it is small and coarse.”  The third man feels the ear and says, “The elephant is like a fan because it is flat and thin.”  The fourth man feels the trunk and says, “The elephant is like a snake because it is long and curves.” 

A king comes to the four blind men and says, “all of you are correct.”  The king goes on to explain that each one had drastically different descriptions of the elephant because they are all feeling different parts.  So, they are all correct.  The elephant has all the features described by the four blind men.

This parable is a good analogy describing different types of profitable traders. Many of the arguments that erupt between traders on social media are due to not understanding the others  time frames or not understanding the other trader’s position sizing, stop loss level, or expected winning percentage. Also too many cult members of Elliot Wave, Trend Following, Market Profile, Day Traders, and option traders etc. think their way of trading price action is the only way when their way is only one of many paths to profitability. There are as many ways to trade price action to be profitable as there are profitable traders.

The elephant in the room is that profitable traders do a few things in common: (more…)

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