Rule #1 of Building Wealth: Play Defense With Your Money

Building Wealth Defense

I used to play basketball in high school. My coach was a highly defense-oriented person.

When I was 17, and in my last year of high school the Detroit Pistons won the NBA Finals. The team was coached by Larry Brown, known for his defense-first mentality.

My coach was a huge fan of the Pistons and their style of play. During our training, he focused more on shutting down the other team and getting “stops.” 

The idea of a stop in basketball means you prevent the other team from scoring by pressing the basketball, which forces errors like steals or bad shots (which you need to rebound).

This is the fundamental idea of basketball. A team that’s good at offense but lacks defense will likely lose more than they win. But a team with excellent defense and good offense has a better chance of winning.

This is how basketball works. Instead of scoring every time your opponent scores, simply prevent them from scoring, and you can take your time to score. This is a much more confident and effortless way of playing the game.

One thing that people forget about modern basketball is that a team like The Golden State Warriors (known for their excellent offense), usually has the top 5 defense in the entire league. 

Take their 2022 NBA championship run. They had the BEST defense in the entire league. This is not a coincidence.1Source: Statmuse

Good defense is key. Not only in basketball but also when it comes to building wealth

Play defense with your money 

The Wall Street legend Paul Tudor Jones said in the book, Stock Market Wizards:

“The secret to making money is playing defense. You must protect your capital and resist the urge to make wild bets that have a low probability of success.”

To me, this is Rule #1 of building wealth. As the investing legend Warren Buffett says, “Never lose money.”

Why is that important?

In today’s market, many investors focus on high-risk, high-yield investments without understanding the importance of protecting their capital. They have no clue how big of a risk they are taking when they go for speculative investments.

They don’t understand finance and investing. And yet, they put their money on the line. I’ve done that too. The first time I bought stocks, I was 17 years old, and took about a day to do my research.

Naturally, I lost money.

One thing that most people assume is that “playing defense” with your money means you’re a loser or timid. And that you need to take risks to make money.

Playing defense with your money doesn’t mean you can’t build wealth. It means you’re taking a calculated approach to your investing decisions.

To me, that’s what every sane person must do.

Investors who understand and follow the proven rules of building wealth have a much higher chance of getting rich than those who take gambles with their hard-earned money. 

How to become more defense-oriented

The key is to always be mindful when making investment decisions and to do the proper research beforehand.

Here are a few ways that playing defense with your money can help to achieve financial success:

  1. Never put all your money on the line – Some people believe you have to bet big to win. In theory that might be true. In practice, the tradeoff is just not worth it. “Maybe I get rich, maybe I lose EVERYTHING!” I’ll pass on that.
  2. Diversify – Have multiple ways you’re building wealth. Invest in the stock market, buy property, build a business, invest in your skills, create products, and so forth. Look at diversification that way, not simply diversifying your stock portfolio.
  3. Adopt a philosophy for simple living — I look at investing and money as a spiritual and emotional pursuit. If you have greed in your internal system, you cannot play defense. Your greed will force you to play offense. Study philosophies like Stoicism or Mindfulness; try to live simply. That will help you to neutralize greed and be okay with what you have.
  4. Be skeptical — “yeah right” should be your first reaction when you see or hear financial success stories. There’s no such thing as easy money in our world. Even the people who make easy money in markets have an edge. Nothing comes for free. So look at the world through that mental model. It helps you to stay grounded and avoids gullibility.

Defense starts with a mindset. 

My former basketball coach made us aware that winning games start with executing defense. Likewise, you’ll want to remind yourself that avoiding financial loss is your key to building wealth.

When you don’t lose, you can give yourself the gift of time. And isn’t that the most important thing if you want to get rich?

Compounding wealth isn’t about the returns you achieve. It’s about how long you can keep up positive returns. And even if you’re achieving single-digit returns for decades, you’ll still win.

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