I heard about “Money Master The Game” years ago. As a trader I thought “Meh, what could possibly be in here that Schwager, Tharp, O’Neil, Minervini, and others haven’t covered?”
It fell further and further down the list… until now.
Turns out that even with 20 years of trading experience under my belt, there were still lots of great lessons in this book!
Here are my 9 biggest takeaways from Money Master The Game by Tony Robbins that I believe will help you in your trading journey.
1. Taxes Kill Compounding
No surprise here. The less money you have, the less it can compound.
But did you know how bad it can be??
Here’s a quick example:
Let’s keep the math simple. You start off with 100k.
You’re able to make it compound at 20% a year.
Solid. At this pace it’d take you 13 years to hit 1mil.
Now let’s tack on a measly 3% tax, fees, or other expenses. 3% is nothing right?
Guess what? That measly 3% costs you 2 years of your life! Instead of 13, it now takes 15 years to hit 1mil.
Not a big deal? 2 years is nothing? Alright…
What if you were to take a look at both accounts after 20 years?
The first account ends with a balance of 3.8M. The second only has 2.3M!
…But hey, what’s 1.5M between friends, right?
Think of your cash like precious seeds for your money garden.
The more you can plant, the more you can grow and harvest faster! Taxes and fees are holes in your bag of seeds. Patch them up as quickly as you can!
2. Three Steps To A Breakthrough
Tony says that in order to have a breakthrough you must:
- Change your strategy.
- Change your story.
- Change your state.
Awesome! How can we do all that?
1. Model Success
No one needs to come up with their own trading strategies from scratch. There are TONS of successful strategies already out there.
One of the best spots to find them is in Jack Schwager’s Market Wizards series. Those books are transformative and I highly recommend them.
2. Stop Sleep Walking
Your story is the limiting beliefs you have. You might be hanging on to them consciously or unconsciously. Do you have awareness of them? Do you know where they’re leading you too?
I wrote an entire blog posts about the 4 Walled Prison Of A Trader’s Mind. Give it a read and it’ll help you gain awareness.
3. Shake Things Up… Literally
Your physical and emotional state can keep you exactly where you are. Think about it, when you’ve made any kind of bold decision in your life, how have you felt? Were you sad? Depressed? Or were you excited?
In this clip, Tony discusses how motion creates emotion.
When you’re able to get all 3 of these aligned, that’s when you get your breakthrough!
Be careful! When you don’t have all 3, you could be jumping out of a plane without a parachute!
Think about it, suppose you’re feeling bold and decide to go skydiving. You’ve gained awareness that it’s one of the most freeing experiences a human can have…
Excited, you immediately charter a plane, fly to 10,000ft and jump!
…Do you have a plan to land safely on the ground or did you forget to check your parachute?
That’d never happen though… Right?
Well, you might not literally jump out of a plane without a parachute. But if you don’t have these three in place, you’re likely doing the equivalent with your trades.
3. How Much $$$ For Financial Freedom?
A lot of people say they want ‘financial freedom’ but they’re not clear on what that actually means in real dollars. It can also mean different things to different people.
For most, ‘financial freedom’ is some pie in the sky number that ends up being an excuse not to act rather than something that inspires action.
To gain clarity, Tony breaks ‘financial freedom’ down into 3 steps: Financial Independence, Vitality, and Absolute Freedom.
Think of financial independence as being able to cover your basic living expenses. Mortgage or rent. Credit debt. Food. Utilities. Basic Transportation. Student loans.
How much do you need to cover those things each month? Take a moment and figure it out. We’ll wait…
Got it?? Good.
Now multiply that by 12. That is your financial independence number!
I was too!
When I did this exercise, I thought I’d need at least $250k/year. Turns out, I only needed $84k for my family of three! A LOT more manageable!
Think of financial vitality as being able to do and buy the things you want.
Buy the car you want. Donate to whom you want. Give the kind of gifts you want. Take the kind of vacations you want to take.
How much are those things? What would you spend on average per month for them?
You know the drill. Take a moment and figure it out.
Got it? Great!
Now multiply that by 12 and add it to your financial independence number. Congrats! This is what you need for financial vitality!
I was shocked that I only needed another $48k for this. $132k/year gets me and my family of three to financial vitality!
Absolute Financial Freedom
Now for absolute freedom! Go wild!
If you’re living your wildest dreams what would that cost? Where are you traveling to and how often? Do you own boats? Jets? Mansions? A sports team? What do those things cost on a monthly basis?
You’ve come this far. Take one more moment and tally them up. How much are they per month?
Now add those together, multiply by 12, and add it to your vitality number.
BAM! You’ve got a pretty clear idea of what you need to achieve absolute freedom!
Exciting, isn’t it?
Was your number higher or lower than you thought it would be?
For most, its dramatically lower.
At the onset, I thought I’d need to be clearing at least $5mil a year for absolute freedom. Turns out $500k does it!
When goals are Specific, Measurable, Attainable, and Relevant like this, they become a lot easier to hit.
But we need one more thing… We need to make them Timebound.
When are you going to start taking steps toward these? Next month? Within 6 months? A year? …Or right now?!?
4. Pay Off Your Mortgage 2X Faster!
If you consistently pay next month’s principal this month, it ends up cutting the time to pay down your mortgage in half!
Sounds difficult? It’s not! Especially in the beginning.
Take a look at your next statement. Next month’s principal might only be 5-10% of the full payment if you’re still early in the process.
Wouldn’t it be worth it to throw in a tiny bit more to cut your payment time in HALF??
5. Where Can You Start Saving Right Now?
This isn’t “suck it in and tighten the belt” advice, but if you’re like most, there’s likely a few spots where you’re wasting some money. Remember, every dollar is a seed towards YOUR freedom.
What subscriptions haven’t you used in a long time that are just giving you another bill?
Where does your money go each month? There’s lots of helpful sites like mint.com that can help you figure it out.
What recurring payments can you cut or reduce?
My friend and blogging mentor Bob Lotich has a LOT of great ideas for how you can cut costs. Check out his blog, SEED TIME.
When trading or investing for retirement, ALWAYS get something with a tax benefit. IRAs are a great place to start.
6. Diversify Where It Counts!
This is the one spot where diversification really matters… among asset classes! If you only own a single asset class and it tanks, you’re screwed!
Think about it like this, suppose you own 50 different stocks.
You tell yourself that you’re diversified. You even made sure to not have more than 2 stocks in the same industry group.
What happens when the next crisis like 2007-2008 rolls around? All stocks tank and you have a diversified mess on your hands.
You need to own several non-correlated asset classes.
Here’s a few: Cash, Stocks, Bonds, ETFs, Forex, Crypto, Real Estate, Businesses, Insurance, CDs
David Swensen, Chief Investment Officer at Yale University
David suggests diversifying both within an asset class and among asset classes.
I’ll add that you want to diversify your timing as well (don’t buy all at once).
Trends can persist for a long period of time. If a trend is going to be meaningful, you’ll have lots of opportunities to get in. But if you go all in at the wrong time, you’ll blow yourself up very quickly.
Here’s how Ray Dalio, Founder of Bridgewater Associates, the largest hedge fund in the world approaches asset allocation.
According to Money Master The Game, Ray’s asset allocation in the “All Weather Portfolio” looks like this:
- 30% Stocks
- 40% Long Term US Bonds
- 15% Intermediate US Bonds
- 7.5% Gold
- 7.5% Commodities
Ray aims to be diversified among the top performing asset classes so I presume this mix gets tweaked accordingly. However, the principal remains the same. Diversify among top performing, non-correlated asset classes.
7. Better Questions Get Better Results
Tony says that if we want better answers, ask specific questions.
For example, suppose David Swensen asked: “How can I make the most money for Yale?” This is way too broad.
“How can I invest Yale’s accounts to maximize profits while minimizing drawdowns to no more than -10%?” Now we’re getting somewhere. We know where to focus our efforts.
I’ll add that we don’t want to get TOO specific either… There is a sweet spot.
What if David asked “How can I day trade Yale’s capital on the 5min chart using options on SPY?”
Super specific. He’d have found an answer. But would he have built Yale’s endowment and investment funds to over 25 billion?
Questions are the answer. Specificity is great. But if we are too narrowly focused, this can become a roadblock. We want to see the whole picture. The forest, trees, and the leaves (something I get into in my E.A.G.L.E. Trading System).
Tony and Ray believe the market can’t be timed consistently…
In a sense this is true. You’re not going to be right all the time. But do you need to be right all the time in order to win?
Of course not! You can be right 30% of the time if your reward:risk is 3:1 or better and still come out ahead.
Paul Tudor Jones goes for 5:1 trades, is also interviewed by Tony in Money Master the Game, and is one of the best traders of all time.
Timing the market can be done. Trading the market successfully can be done.
To become elite and beat the averages at anything, you must take the actions the average are not willing to take.
This comes back to the question “What is your trading goal?”
If your goal is to achieve average returns that match the market, just buy the index. A great way to do so is to buy the ETFs “SPY” (mirrors the S&P 500) or QQQ (closely resembles the top 100 stocks in the NASDAQ).
If your trading goal is super performance, then read the rest of this blog, and grab the free Trader’s Thoughtbox while you’re at it.
** This is perhaps THE MOST IMPORTANT LESSON from Money Master The Game… Self Awareness. Understanding what you want and going after it. **
8. Four Rules Of Billionaires
- Don’t Lose
- Risk a little to make a lot
- Anticipate and diversify
- You’re never done
This doesn’t mean never having a losing trade. Even the best traders in the world have losing trades.
What it does mean is that you have a system with a positive expectancy. If you trade it 100 times, you’re coming out on top.
It also means that you’re able to consistently execute this system. A system that you can’t execute is worthless to you.
You want to be operating like a casino. Casinos don’t care if they lose a few hands. At the end of the night they always come out on top. Why? Because the odds are stacked in their favor and they have the risk management strategies in place to win.
You can and should do the same with your trading.
Risk A Little To Make A Lot
You want asymmetric reward to risk. Remember Paul Tudor Jones. He risks $1 to make $5 on every single trade! He’s able to consistently find opportunities like this because he’s constructed systems to do so.
Again, you can do similar. What you want is a system that provides you with an edge that you can consistently execute. THAT IS HOW YOU TRADE LIKE A CASINO.
Anticipate And Diversify
There are many ways that you can anticipate market moves. I do so by studying historical price action. I diversify in all of the ways mentioned earlier. Across non-correlated assets, within asset classes, and across time.
You’re Never Done
We’re all students of the market. Our education is never done. We’ll only ever know a small fraction of what can be learned.
Be open to fresh perspectives. At the same time, be aware of limiting beliefs, especially when you hear things like “can’t” or “won’t”. Due your own due diligence. Ask questions. What beliefs do you want to hold? What will bring you closer to your goal faster? Joyfully?
Our discussion group TRADER’S MINDCHAT, is continuously pushing the boundaries and expanding our trading awareness.
9. Other Key Learnings
Charles Schwab: Part of the key to success is the struggle. Don’t completely take that away from anyone. The goal people need is progress.
Where focus goes energy flows. Focus on what you have vs what you don’t.
Buy experiences for yourself. Buy time for yourself. In the end, those are the things that matter most.
Giving is healing.
“Being the richest man in the cemetery doesn’t matter to me. Going to bed at night saying we’ve done something wonderfully. THAT’S what matters to me.” ~Steve Jobs
Suggestion from Tony: Divide your money into thirds.
- 1/3 give to yourself
- 1/3 give to those you know
- 1/3 give to those you don’t know