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.