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c02 JWBK182-McDowell April 25, 2008 15:39 Printer: Yet to come
Confidence in Your Plan 21(outside our zip code area), another 1,000 homes were also lost. Yes, 90 percent
of those who lost their homes did rebuild.
An odd thing to note about the nature of the fires is that they seem to
have a mind of their own. They even create their own weather system and wind
direction. When you would look at an area the Cedar Fire had moved through
after the fire was over, it seemed almost random, as the fire would destroy a
row of houses and then in the middle of the row, there would be one lone house
standing completely untouched.
Who could predict or explain why that one house escaped the devastation?
No one can explain, not even the firefighters. They will tell you that the fire
moves where it wants to, and sometimes seems to have no logic other than its
own powerful path. Again, it is much like the markets, since there are times that
they, too, seem to defy logic.
How timely for these fires to occur just as I am working on this book. The
similarities between Mother Nature and the markets are dramatic. They are both
powerful and unpredictable, but they are manageable. The value of bringing up
this wildfire experience is to illustrate how there are risks all around us that we
are managing every day. Some risks are more catastrophic than others, but the
idea is to use the same common sense that you would use in managing your
day-to-day risks—use that common sense in your trading.
Editor’s Note:The author’s house survived the “Witch Fire of 2007,” but
this fire was so devastating that the area was declared to be in a federal state of
emergency: 500,000 people were evacuated with the reverse 911 telephone an-
nouncement system (the largest evacuation in history); 1,700 homes and struc-
tures were destroyed.Risk—that’s what this book and trading is all about. It’s about tak-
ing on calculated risks that you can profit from. And the only way to
profit consistently is to have a plan to manage your risk and assess your
risk—effectively. So now the question to you is, do you truly believe that
you need a money management system? When your answer to this ques-
tion is yes, you will be able to design a sound money management system
that will ensure profit and avoid the risk of ruin.