Friday, June 18, 2010

The Dealers Edge

The cards are stacked against you

Just like the 6 deck black jack tables at a Las Vegas casino

They have an arsenal at their fingertips

Billions of dollars in media and advertising

IQ's that would make Einstein jealous

Education at the best schools on the planet

So many Nobel prizes I have lost count

They have armies of mathematicians, scientists, computer programmers, attorneys, accountants, analysts etc.

More PhD's than you can shake a stick at

They use words like efficient market theory, beta, EBITA, and stochastics

They use artificial intelligence modeling on the fastest super computers in the world

Feel inferior yet?

That's by design

You see if you feel inferior, then the dealer maintains his edge

The more you don't understand, the more money the dealer makes

This is the dealer’s main weapon, its edge

Who's the dealer? Wall Street

The dealer makes you think it's easy

Have you seen those E Trade commercials?

Investing is so easy a cute little baby can do it

Give me a break

If it's so easy, let me ask you how is your self directed portfolio stacking up these days?

That line of BS is fed to the 80 million Americans daily

Through RSS feeds, real time business news, to real time investment quotes on you cell phone etc.

So much investing information it’s overwhelming and confusing

Information overload just sharpens the dealer’s edge

So the question is simple

Can the individual investor beat the dealer’s edge?

Without a doubt, I made it my mission in life to do just that

I often get asked how I consistently beat the markets

One heck of a lot of time and effort

Did you expect me to say it would be easy?

Did you expect me to say that all you need to do is to log into a very special website, check out this one indicator, open an account, and turn $22 bucks into 1.4 million in less than 30 days?

Yeah I got three of those ridiculous emails today as well

And the dealer just laughs and sharpens his edge

What is it going to take to beat the dealer?

Well, if think you're going to show up to gun fight with a mechanical pencil and win you might as well turn your money over to a professional right now

There is no magic potion, no pill, no indicator, no guru that can get you there

If you're not willing to roll up your sleeves and put the work in, you’re finished before you even started

The good news: if you are willing, the dealer can be beat and here’s how

Step 1- Get yourself a good library of investing books

My top 5 favorites are: How to Make Money in Stocks by William J. O'Neil

101 Investment Lesson from the Wizards of Wall Street by Michael Sincere

Market Wizards Interviews with Top Traders or New Market Wizards Conversations with Americas Top Traders by Jack Schwager

One up on Wall Street by Peter Lynch

Any book by John Murphy- If you want all the details read Technical Analysis of the Financial Markets. If you want the cliff notes version read The Visual Investor

These books are easy to read and will give you a solid foundation to make informed investment decisions. Remember this is just a starting point

Step 2- Find an investing methodology that works for you

There are countless ways to beat the dealer at his own game

Through many years of effort I have found a system that works for me

What works for me may not work for you

If you look at the investment methodologies of the greatest investors, you will be amazed that each one of the greats invests differently

Some like to dive into a company’s financial numbers, others like statistical analysis, some like charting, some like growth companies and still others like value investing

All these approaches when put into the hands of a passionate and skilled investor can be successful

You must start sharpening your own edge, honing your own skill, finding your own niche

Find what works well for you and work hard at making it better

Step 3- Deliberately choose who and what you get your information from

Late night stock picking infomercial man probably is not the best source of good investing ideas

One place to start is the authors of the very books you just read. The amount of resources on William O’Neil's website alone, is amazing

I have posted a lot of good resource links on my website here

Don’t let Jimbo on CNBC tell you what a great investment this or that stock is

Do your own analysis, how do you think the company is doing? How are the fundamentals? How are the technicals?

If you can’t answer these simple questions then the dealer has you right where he wants you, confused and in his sights

Go back and read more, study the markets, find out what successful investors do and replicate

Don’t stop learning…ever. Trust me, the dealer never quits

He is always dreaming up new ways to take money out of your pocket…can you say CDO’s?

So it comes down to this, I commend you for your effort

Successful investing is a work in progress

You can beat Wall Street

You can beat the dealer’s edge

You just need to turn off the noise, learn the fundamentals, and put in the work

And when you get the opportunity to beat the heck out of the dealer be sure to drop me a line, I would love to hear about it

Until next time…be Cents-able.

Saturday, March 27, 2010

Lessons Learned Part 2

Lessons Learned Part 2

Have you ever had one of those reality check moments. You know the kind. You're driving down the interstate having a great day, listening to your favorite tunes, its sunny, everything seems great then you look in the rear view mirror. Your brain finally engages that the flashing blue and red lights are not because you just won the American Idol vehicle solo competition. You could swear you were abiding all known automotive rules and regulations (or at least most of them anyway). Of course you were only going 60... then officer shiny shoes proceeds to articulate that you were actually traveling at a velocity in excess of 79.5. He gives you some paperwork designed to lighten your wallet a couple of C notes. Basic reality check.

What does this have to do with the financial meltdown over the last few years you ask? Reality checks come in many different forms. How many of us have had a major reality check when it comes to our retirement planning, investments, family budgets, or mortgages over the previous year? Were you like most, driving down the road at what you swear was 60? You had the latest and greatest emerging markets funds, plenty of cash to spend (courtesy of your every increasing home value), and an interest only mortgage that would reset at the perfect time just when you receive that big raise at work. Then you saw the blue and reds.

At one time or another this has happened to all of us (unfortunately for me a few more blue and red moments than I would ever admit). When we push the financial envelope (or any other activity for that matter) at some point there will be an inevitable financial reality check. For example, you knew you hadn't saved enough for retirement but yet you still pushed those risky small cap investments to eke out just a little more yield. Then before you can say boo, small caps are down 50% and you just added 10 years to your retirement date. Sound familiar?

So how do we prevent reality checks from turning our financial world upside down?

Step 1- Call a duck a duck. Markets and economies go up and down in predictable patterns. When your financial life seems like easy street don't be arrogant enough to think that it will last forever. On the flip side, negative Nellie does not last forever either. You must play what is. If you have not saved enough for retirement, if you are spending beyond your means, if you are not protecting your downside (read insurance) etc. you are at risk of a major financial reality check.

Step 2- Take the time. Realize with just a little time and effort you can make big improvements. Studies have shown that the richest 10% of our population spend less than 10 minutes a day on personal finance. So come on, get off your Facebook page and put down that texting device and let's roll up our sleeves and get to work. First we need to develop a budget. Spend some time tracking your expenditures, so that you will understand your spending trends. For some help on a down and dirty emergency budget check out Lessons Learned Part 1. Next identify your biggest risks. Common sense can help in this area. For example you say you have 5 small children and a $50,000 life insurance policy. Common sense would say this is not even close to enough life insurance. How is anyone going to take care of your children's needs for years to come on $50k? You have 5 years till retirement and $250,000 in your retirement accounts. Common sense says that you need to save much more. What happens if you live to be 95? Do you think that being in retirement for 30 to 40 years with $250k is enough? Quantify your risks in the areas of retirement planning, estate planning, property casualty, life, disability, and health insurance etc. And make a plan to mitigate your risks as much as possible. Seek out professional advice if needed.

Step 3- Take action. Put a plan together and take action. When I say put a plan together I don't mean spend a bunch of time to develop a plan which is put on a shelf to collect dust. Be proactive and take some action every day until you have completed all of the tasks necessary for success. Do whatever it takes to make your financial plan a priority and complete the tasks required to make it a reality. Cut your spending, reduce your debt, save more, protect you and your family, live the American dream.

Taking action on these three steps may not keep officer shiny shoes out of your rear view mirror but at least you will have enough scratch (read money) to cover your next financial reality check. Please feel free to email me your thoughts, comments or questions.

Until next time…be Cents Able.