It pays to be a little paranoid when it comes to investing. To develop a strong "survival instinct". To be ready for adversity at all times, even when things are going well.
Here's a story about Warren Buffett's grandfather that will teach us about saving money for rainy days.
Ernest Buffett, Warren's grandfather, ran a simple business. In Omaha, he owned and operated a grocery store. Warren and Charlie worked for Ernest when they were young.
Ernest never finished high school. But he understood financial risk very well, both in business and in personal life. Early on, he realized the value of a rainy day fund or emergency fund, which is a stash of money set aside for emergencies.
Ernest was the father of five children. He established a rainy day fund for each of them. When they were old enough, he gave them the money, along with a beautiful letter explaining why it was given to them. The following is a letter he wrote to his son Fred (Warren's uncle):
Ernest wrote that letter in 1939, leaving $1000 to Fred. In case you're wondering, $1000 in 1939 is equivalent to $18,600 today, and 1,013,225.70 in Philippines peso.
Even today, most people do not have Php1,013,225.70 or anything close to that amount set aside for emergencies.
Before investing in any risky assets, I believe we should first concentrate on 4 points:
1. Learn to protect your income.
2. Paying off high-interest debt.
3. Established an emergency fund.
4. Learn the basics of Financial literacy.
In Finance, we tend to focus on what stocks to buy, dividends and disclosures. But all that should come only AFTER taking care of these 4 basic items.
This is Financial Survival 101. You need to take care of the downside risk first and the upside return will take care of itself.
Some people are hardwired to think this way. They have the "financial survival" gene. Buffett and Munger clearly have this knowledge of financial survival 101. They are are now billionaire investing icons.
People who survive in investing tend to do well over long periods of time.
Wan't to know more stories about investing? Grab a copy of "The boring minimalist" and learn on how to start your personal finance journey the right way.