It is perhaps counterintuitive but obvious to start a discussion on increasing wealth by saying that increasing wealth has one fundamental and essential focus: how to prevent a loss big enough to wipe you out. Indeed, what does not kill you makes you stronger. Death however is final and, by extension, a wipe out of your portfolio is also pretty final. So how do we avoid this: simple but hard to implement. First, diversify or as my dad used to say- do not put your eggs in one basket. Baskets fall and eggs break so better have several baskets. Secondly, do not borrow or keep your borrowings or leverage to a minimum. We can recount countless stories about investors you came upon great ideas, leveraged their investments convinced that the ideas were foolproof only to lose everything once that unexpected, once in a million, once in an era event happened to take place.
There is a reason as to why teachers of investment theory by far exceed the number of successful investors. Keeping emotions in check is a difficult and challenging task. Sticking to the rules of diversification and leverage involve saying to oneself-every now and then- than he or she may be wrong. We do not know it all and we never will. Humility is the first tenet if you want to continue having money and eventually making somemore.