Hire Yourself a Banker

Back in 1989 I took my nest egg of about $100,000 and plunged into the tropical plant business. I found out very quickly that those monies did not go very far. But over time the business grew. I funded expansion through internal cash flow. I liked the idea of being debt free.  Then in 1992 I had the opportunity to acquire a larger piece of property that was in foreclosure for $200,000.  Having had the property on it’s books for quite sometime, the bank seemed motivated to give me the loan with a nominal down payment.

A short 3 months later Hurricane Andrew rolled through Homestead, FL  and upended my world. My inventory and nursery structures were gone. Cash was non-existent. I was wiped out.  I calculated that I needed about $500,000 to rebuild the operation and get back on track. Back to the bank I went.

This time however the bank was much more skeptical of my ability to repay a loan of that amount. Bankers know 80% of small businesses fail.   To make a long story short, they agreed to fund me with $200,000 but with lots of strings attached. Each quarter I was required to submit financials with cash flow statements and forward looking projections.  They kept me on a short leash.  Over time, I rebuilt the operation and held true to the covenants of the loan.  About 5 years later I went back to the bank and requested another tranche to the loan. With a proven track record of prompt payment and with a growing business to support the debt load,  it was easier to get funded.

Now About your Trading Ambitions
You’ve worked hard over a long period of time to build your nest egg. You have big dreams about parlaying that nest egg into a vast fortune through trading. That’s fine. Most trader’s are optimistic and probably think that way. But what if your own Hurricane Andrew hits your trading account?  Remember 90% of would -be traders fail. What if you’re not as good as you think you are?  Are you really willing to put your entire nest egg at risk out of the gate without a demonstrated track record of success?  Once your trading capital is gone, its gone…..you are out.  It’s a risky proposition.  It’s also true that your family has a stake in those monies as well.  Would it be responsible to head off to Las Vegas with your entire net worth in hundred dollar bills in a briefcase?  Think about it.

Hire a Banker
When I got my operating loan from the bank, I absolutely hated all those hoops the bank forced me to go through not only to get the loan but to remain in compliance with the covenants. But you know what? It enforced a discipline both on myself and the business.  It protected the capital that was at risk. There was another set of eyes watching me. It instilled fiscal discipline.  It forced me to perform. I think that same forced discipline would be helpful to traders.

Designate someone in your life to be your banker. Could be your spouse, could be your parents, could be someone else you trust implicitly.  Put them in charge of your trading capital.  Let’s say you are starting with $50,000 for trading. Fund your account with $10,000. Set up a quarterly reporting scheme whereby you visit with your “banker” to review your progress. Establish the covenants of your trading account. If after 3 months your trading account is down 50% ( which is very easy to accomplish ) do you think your banker will be inclined to offer additional funding toward your trading efforts?  If however after 6 months or a year you’re up  50% and have demonstrated continual improvement in your trading, your banker may see fit to extend you additional trading funds.   It’s a forced discipline and a check on you the trader.  It makes you accountable to another human being for your performance.   Will it be a pain in the butt?  Yes.  Will it save you from yourself?  Probably.    Hiring a banker will put a fine point on what you need to do to perform and make progress.   I recommend you giving this idea strong consideration.

Happy Hunting and Good Trading!

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