Lesson 20: Gotta save money to make it.

I got a thingy in the mail today (snail mail actually) from smartmoney.com that listed 10 sneaky ways to build a nest egg. A few of these things I actually do and I think you guys should too. It's important to stash money. I'll start with my first hint, which I think I've shared before, which is: Put your money where you can't get to it. I use Scottrade to trade stocks. To get my money out of Scottrade I have to send a snail mail letter and wait almost a week to get my money. That's a pain in the ass and I don't even own stamps, so I won't be taking money out of there anytime soon. Here are some of the best ideas smartmoney had: 1) Get an envelope or jar and put away the same amount every week. $5 or $20 or something. This will add up quick! 2) Tip yourself. Everytime you go to a restaurant, take the same amount you tipped the waitress/waiter and put that amount in your savings jar. (If you tip the waitress $2.50, $2.50 goes into your jar.) 3) Live one raise behind. This goes without saying. If you get a raise at work, DON'T SPEND IT! Pretend you didn't get it. 4) Get cash back at the market/store. Get $1-5 dollars back and just put it straight into your savings jar. 5) Pay your old bills to yourself. If you pay off your car, keep making the payments, just pay them to yourself. 6) Use Market Discount cards and put the amount you saved into your savings jar. This is a great one. I actually do this. I use coupons and Vons or Ralphs club and I've saved up to $44 off of my bills. Take that money you would have spent and throw it in your savings jar. 7) Bill yourself when you hit a drive-thru. Anytime you use a drive-thru, it costs you $1 to yourself. (I'd be broke from that one! It's a good idea though.) 8) Save all of your change. I do this, I've done it for a few years now. I save a crapload of money this way. Every night when you come home, throw all your change into a jar. Don't count it, don't look at it, and forget it's there. Do it every day and you'll have a few hundred dollars before you know it. Sometimes I'll even throw $1 or $5 bills in there, especially if I'm about to get a pay check or something. My tips are: DO NOT COUNT THE MONEY. It'll make you want to spend it. Put it out of sight where you aren't staring at it. Maybe even put it into some sort of jar you can't see into. I took a screwdriver and cut a hole into the top of a jar so I could drop coins into it like a piggy bank. I get home, I go straight to my jar and dump my coins in. DO NOT USE THOSE COINSTAR MACHINES! Don't be lazy! Those stupid machines take up to 10% of your money! That's insane! Don't lose $10 for every $100 you have. That's horrible. Roll the stupid coins! Keep all the cash! Or, when you have $1 swap out $1 in coins for the bill. Make it easy on yourself. If you aren't planning to buy anything and you're going out to a store, don't take your credit cards! If you want something bad enough, you can come home, get it and go back (and by the time you do that, you probably won't want it anyway!) Bottom line is, we all spend wayyyyyyyyyy more money than we should, so hide it from yourself before you spend it. Hope these tips help. :) PS - Merck update - Merck (MRK) fell $0.80 today, but it went up $0.07 after the market closed, so it looks like it still has some upward momentum. Still way ahead on that.

Lesson 19: Exact steps to setting up the proper view in Yahoo

1) go to http://my.yahoo.com 2) click the "Need Help Signing In" link 3) click the "Sign Up Form" link on this page 4) On the Registration Completed screen, uncheck the "Install Yahoo Companion Toolbar" crap, and then click "Continue to Yahoo" 5) Click on "Get Your Free Page Now" button 6) Click on the "Choose Content" button 7) Uncheck all the crap you don't want, but be sure that under Business & Finance that Stock Portfolios is checked! That's the only thing you need checked. Once you've made sure that's checked, scroll to the bottom of the page and click the "Finished" button 8) On the left side it will say Portfolios and in that is a Yahoo Privacy Information thing. Click on the "I Agree" link to make that go away. 9) The screen will reload and now under Portfolios it will display "My First Portfolio" which has some stocks and industry stuff in it. We'll just edit this because it's easier. 10) Don't click the "edit" button, click on the word "Edit" that is a link that is on the same line as "My First Portfolio" 11) Under "Portfolio Name" put anything you want. Mines "Watchers" but you could put anything. 12) In the "Ticker Symbols" box delete everything that's currently in it and type in the symbols of the stocks you are currently watching. Separate them with a space like: MSFT WMT ERTS HDI HD K etc... >>> Note: My opinion is, you should only choose Companies that are NAME MONOPOLIES! This means, a company that you think of immediately when you think of their PRODUCT. For example, if I say Soda Pop, you (and 90 bazillion people) would say Coca Cola or Pepsi. If I say Motorcycle, most people would say Harley Davidson. If I said store, most people would say Wal-Mart. If I said Computer Software, most people would say Microsoft. This is a NAME MONOPOLY and is hugely important. The possibility of these companies going out of business is about .000001%. It's not going to happen. This greatly lowers your risk. Do NOT invest in crap industries that are always changing (IE: Cellular phones, electricity, gasoline companies, etc...you're setting yourself up for heartache here. If you want to do that, look into ETF's. (www.amex.com for info on those.) >>>> End of Note 13) Add the Dow Jones Industrial Average to this list. The symbol is ^DJI. This will tell us how the market is doing each day. 14) On the same page scroll down to where it says "Step 3: Basic Features" 15) Click on the "Sort symbols alphabetically" box 16) Skip Advanced Features and click on the Finished button at the bottom of the screen 17) My Yahoo will reload and now your stocks are all listed in alphabetical order and it shows what the current price is and the change for the day. 18) Now, click on any of the stock symbols you have entered (they are all links in blue.) This takes you to the Quotes and Info page for this stock. This is very helpful, it has the current news for that company, the 52 week highs and lows and all that. 19) In the menu on the left under "Charts", click on Technical Analysis. This is your friend! 20) The chart will open up. In the gray line near the top of the page it says "Customize Finance" click on this link 21) Click on "Charts" 22) Choose 1 Year for the Small and Big Chart and Moving Average for the Big Chart Type 23) Click on the "Finished" Button 24) Click "Finished" on the Customize page too 25) Now you have the view you want. The blue line (the stock price) MUST MUST MUST be either at, or below both the red and the green line or you don't buy it. Anything that is above both lines is already purchased and is priced too high! 26) To get back to your "My Yahoo" page, click on the "My Yahoo!" link at the top of the page to go back. Now all you need to do every day is go to http://my.yahoo.com and look at the portfolio view. What you're looking for is the DJI to be -80 or more and look for the stocks on your watch list that went UP that day. Then you click on them and choose the Technical Analysis link on the left and look at the chart. If the blue line is below both the red AND the green line, it's a candidate to buy. If it's above the red and green lines, it's risky (IE: It's already been bought more than the average price, so there's a much higher chance it will go down.) Hope this helps. It's worked for me so far. Just remember, sometimes you'll buy a stock that's below the averages and it will go down even lower, that's ok! Patience is key. This strategy lowers your risk, it doesn't create automatic immediate gains. And remember, USE STOP LOSSES! Protect your money! Buy and Hold is for suckers! Mail Me

Lesson 18: Fundamentals aren't all that great

If you've traded stocks at all, or watched a TV show related to the market, you know a lot of people talk about fundamentals as a way to trade stocks. From Warren Buffett to the Motley Fool guys, they all preach fundamentals as the way to choose stocks. While this is a decent idea in the long-term, it's not always so great an idea if you think about it rationally and I believe you can achieve the same results without worrying about the fundamentals, but rather the 'name monopolies.' First of all, these major companies pay CFO's to make sure that their books are made to show the most possible profit allowable by using all sorts of accounting tricks. Not all of the companies are doing illegal things mind you, but they are using the law to their advantage, just as you do when you do your taxes. Many companies, (see Enron, etc....) just outright lie about their profits and their fundamentals looked great, but were a bunch of crap. Strike one. Secondly, many companies had GREAT fundamentals awhile ago and now no longer exist or are about to perish such as Woolworths, K-Mart, Toys R Us, Kay Bee Toys, Cisco, Sun Microsystems, etc....things change and change quickly sometimes. A good company today could be gone tomorrow. Think of all the great companies that produced Music Cassettes or Beta video cassettes or black and white TV's or 'beach cruiser' bicycles or beanie babies or a million other products that were HUGE and made billions at one point and now no longer exist. Just because their books look great, doesn't mean their future is great. Strike two. Thirdly, let me make a basketball analogy. The Lakers, on paper, should never lose a game. They have arguably one of the best Centers in history in Shaq, the best power forward in history in Malone, one of the top guards of our time in Payton, one of the top guards ever in Kobe and the most successful coach ever in Phil Jackson. They have a string of championships a mile long and just came off a three-peat. The Lakers shouldn't lose, right? They're the 100% risk team in basketball. Everyone, if asked to bet on who will win the championship, would bet on the Lakers (or the Yankees if you like baseball.) But, they don't always win. As good as they are, they lose and lose a lot. They lose to teams that absolutely suck at times. The Lakers are like any major stock, your Walmarts and Microsofts. Even though on paper they are the best thing there is, they are still a risk. Strike three. Remember, every game the Lakers play, even if they beat the Pacers 60 out of the last 60 times, the Lakers are STILL a 50-50 chance to win that day. Every single stock is a 50-50 chance to go up or down on a single day. The worst company in the world could go up today. What we're looking for is not fundamentals. Those change and are usually filled with untruths and stretches and accounting tricks. What we want is name monopolies that have very low risk of going out of business. Lucent could go out of business and no one would blink an eye. If Coca Cola or Harley Davidson went out of business, hospitals would be filled with people in shock or having heart attacks. These are the companies we want. Long-term, even if Coca-cola stock goes down to $1, the chance of it going to $0 is just about none and so we'll always be 'in the game' if we invest in that stock. Buy a stock when it's below the moving averages! With all that said, Target (TGT) is looking like a possible buy today. It's a good company, it's at the averages and it's up on a down day. Check it out. :) Mail Me

Lesson 17: ETFs and Dollar Cost Saving

LESSON 17: ETFS and DOLLAR COST SAVING - THE LESSON FOR INVESTORS! For those of you that aren't into trading or watching the market, here is an exact lesson for you on exactly what I would do to invest if I wanted to. First of all, you need to pay yourself every paycheck (see previous lesson). I'd invest as much as I could afford per check. Just send it off to your stock brokerage place and pretend it didn't exist. I would take the money and purchase the stock SPY (or MDY). It's not really a stock, it's an ETF, or Exchange Traded Fund. Let me explain ETF's real quick. An ETF is like a mutual fund. It is a holding pot for a group of stocks. SPY is the entire S&P 500 all rolled up into one stock for you. It's traded exactly like a stock. You can trade it anytime, day or night, with no worries. You do not pay taxes on the stocks traded within the fund either. On top of all this, the fee is 0.11%. That's 1/11th of 1 percent. It's not even worth thinking about. The benefit of these ETFs is that you're diversified by owning just one stock. Only one thing to watch. There are tons of ETFs, you can look up info on them at www.amex.com. What I would do is pay in every month and then only buy SPY when the current price is below the 50 and 200 day moving average on the chart. Here's a link to the current chart: http://ichart.yahoo.com/z?s=SPY&t=1y&q=&l=&z=&p=m50,m200&a=v Click on that link and look at it real quick. The blue line is the actual price of the stock. The red line is the average price for the 50 days prior and the green line is the average price for the 200 days prior. As you can see right now, the stock is way above it's averages. This is the WORST time to buy this stock because the momentum will take it towards the averages. You want to buy when the blue line is below the red and green line! So that's what I'd do. I'd pay into my account every paycheck and wait patiently for that blue line to fall below the averages, then I'd take all the money I had saved and buy shares. Rinse and repeat. The average gain for the S&P 500 over history is 11%, so over the long haul you could probably make a killing doing this and if you only buy when the stock is below the averages, you will slaughter anyone who dollar cost averages! Dollar Cost Saving is the way to go kids! Live it, learn it, embrace it, love it. BTW - One more thing, don't feel you need to look at the stock on a daily basis. Look at it every pay day then ignore it. It shouldn't take more than 10 minutes of your time on that day and 20 minutes if you're going to buy. It's not this huge time waster people think it is. Trading stocks and watching them is easy if you have a strategy!

Lesson 16: To pay off your house or not....

LESSON 16: I'M ON A ROLL: DO NOT PAY OFF YOUR HOUSE! THAT'S DUMB! I read all these people write, "Pay off your house, blah blah blah." If they had a calculator they'd know that this could be a dumb idea. First of all, if you haven't refinanced already, get off your ass and do it! Your interest rate should be below 5.5% on your house right now. If it's not, you need to open the front door, go outside, kick yourself in the face and then go refinance first thing Monday. Secondly, you get a tax write off for all of the interest you pay on your mortgage every year. This lowers your interest rate even more because you're saving money on taxes by paying for your house monthly. So that 5.5% rate is now like 5%. (In retrospect, this isn't a huge savings at all and is really a bad arguement as to why to have a mortgage.) Third, lets say you have $50,000 you owe on your house and you win $50,000 in the lottery. You could pay off the house and lose your tax write off, or you could invest it. At the average S&P gain of 11% per year in 5 years you'd have $84,252. Your house would have only cost you around $60,832 if you include your tax break, so you would have profited $24,000 roughly by NOT paying off your house! If you could have had an unbelievable year like I had making 40%, in one year that $50,000 would have been $70,000, or more than you will pay on your house for the next FIVE YEARS and you'd still have $10,000 in the bank! So, don't pay off your house, pay DOWN your house. In other words, pick an amount that you could easily afford if you had to work at McDonalds forever. Say, $400. Get a home loan that makes you pay $400 a month and pay that off over the longest term possible (30 years for me.) 15 year Mortgages suck. Avoid these. Get a 30 year mortgage so that your monthly cost is lower and pay it down as quickly as possible. You want your mortgage no higher than about $60,000. Using that extra money to invest COULD be great if you are getting a 10% or greater return a year. And, don't forget, if something horrible happens and you can't work, YOU STILL HAVE THE MONEY TO PAY OFF THE HOUSE! It's invested. :) (In retrospect, reading this in 2006 as opposed to 2004 when I wrote this, I still believe it's good advice, however, I think for a 'normal person' you're better off paying off your house and then investing the monthly payment over your lifetime. Simply because less bills is such a relief to stress and the greater income you are retaining on a monthly basis gives you more options.)

Lesson 15a: Dollar Cost Saving

LESSON 15a: DOLLAR COST SAVING IS IMPORTANT! I made up the term Dollar Cost Saving right now just to make it relate to the stupidity of dollar cost averaging and hopefully move your thought process over to my dark side theory! Muahahah! What you NEED to do is depost money into your investment account on a weekly/bi-weekly/monthly basis. I would do it on the day you get your paycheck. Each time you want to immediately depost X amount of dollars into your investment account before you go blow it on crack or something stupid. If it's $10, $20, $50, whatever. Make it a bill you must pay to yourself every single paycheck and you pay that FIRST. If you paid yourself $50 every paycheck and you were paid weekly, you'd have $2,600 a year. BAM. Even $20 a week is $1,040! That adds up quick doesn't it? DO IT!

Lesson 15: Dollar Cost Averaging is stupid

LESSON 15: DOLLAR COST AVERAGING IS STUPID: DOLLAR COST SAVING ISN'T I read in a book today how Dollar Cost Averaging is the best way to invest. I've read this many times and all I have to say about that is what a stupid pile of horse shit advice that is. That is the dumbest strategy, short of buy and hope, that there is. Let me explain how dollar cost averaging works to screw yourself and then I'll give you a GOOD strategy that makes a billion times more sense. Dollar cost averaging is when you put in X amount of dollars into a stock every month/week/year no matter what price the stock is at and then you average out what you paid for it...so for example lets say you own Disney. That's your stock of choice. The first month you take your $100 and buy Disney at $15. I'll make a little graph: Stock is at $15 you get 6 shares and have 6 shares total Stock is at $16 you get 6 shares and have 12 shares total Stock is at $18 you get 5 shares and have 17 shares total Stock is at $14 you get 7 shares and you have 24 shares total Stock is at $20 you get 5 shares and you have 29 shares total etc...Can anyone tell me why this is stupid? It's stupid because the person keeps paying more and getting less for their money. That's a bad strategy any way you slice it. Here's a better strategy: Stock is at $15 you get 6 shares and have 6 shares total Stock is at $16 you put $100 in a money market and have 6 shares total Stock is at $18 you have $200 in a money market and have 6 shares total Stock is at $14 you take your $300 dollars and buy 21 shares of stock and have 27 shares total Stock is at $20 you take your $100 and put it in the bank and have 27 shares of stock. Sounds like you have less, but you really have more. You now have 2 less shares of stock, but you have $100 cash left. In theory you could buy 5 more shares, putting you 3 shares ahead of the dollar cost averager, or $60 ahead even though you invested the exact same amount of money over the exact same amount of time. I don't know how many times I need to repeat it, but this is very important, YOU FUCK YOURSELF WHEN YOU BUY A STOCK ABOVE THE MOVING AVERAGES! Never do that! Be patient! Throw all the money you want monthly into your trading account, but don't throw it blindly into a stock! By waiting until the stock is at a lower price and keeping in a cash position you can purchase WAY more shares of a stock than by dollar cost averaging. And, if you look back at a previous lesson you would know that the NUMBER OF SHARES YOU HAVE DICTATES HOW MUCH YOU MAKE AND HOW MUCH THE STOCK NEEDS TO MOVE UP FOR YOU TO MAKE GOOD MONEY! That is HUGELY important. 1000 shares of a $10 stock is way better than 500 shares of a $20 stock. They are of equal value, right? But the amount the stock needs to move for you to make the percentage you want is SMALLER. To make 2% that $10 stock only needs to go up 20 cents! For the $20 stock you have to go up 40 cents! Twice as much! Not because of the value of the stock, but due to the number of shares you have. The leverage! And that, my friends, is why dollar cost averaging SUCKS. You will end up with way less shares which equals way less leveraged, which equals the stock needing to go up WAY more to make the same amount of gains and that is dumb.

Lesson 14: Lowering Risk

LESSON 14: THE SMART WAY TO LOWER RISK! There's actually 2 smart ways to lower your risk: 1) Stay out of the market. :) We actually do this quite a bit. We take our profits and leave for awhile until we get a new opportunity we like. This is a huge advantage over the Buy and Hopers. We are only at risk a fraction of the time they are. 2) Stop Losses! This is most important. You can buy $1,000,000 worth of a stock and not have $1,000,000 at risk by using a stop loss. A stop loss is essentially a pre-emptive sell. If you buy a stock at say $20 and you only want to risk 5% of your money, that would be $1 per share if you do the math: $20 times .05, you would put a stop loss at $19. What this does is, if the stock goes below $19, it automatically sells and you've limited your loss to roughly 5%. So, even though you bought $1,000,000 worth of a $20 stock, you'd only have 5% of that at risk, or $50,000. You should really have a stop loss on every stock you own. Most people set this on the first of the month and set it as a 'Good til Cancelled' trade. That means it stays active until you turn it off. I warn you, many online sites automatically turn those trades off after 30 days, so be sure to keep checking them. With the stop loss, you could lock in your profits while letting your stock run. Lets say you wanted to make 2% this month on a stock, we figure out that on a $20 stock for us to make 2% it needs to go to $20.40. The stock goes way up to $21.00 the next day. You COULD put a stop loss at $20.40 and pretty much guarentee you're going to walk away with a roughly 2% gain without selling. If the next day the stock jumps to $22.00 a share, you simply move your stop loss up with it to $21.50 or something. That way, when the stock starts to fall, a sale automatically goes off and you're laughing your way to the bank instead of to the poor house like those 'Investor' people.... And don't forget, since we sold and took a profit, when the stock goes back down to $20 we have more money to buy even more shares to ride the upswing, putting us even further ahead of the 'Investor.' Something to think about....

Lesson 13: Diversification is dumb

LESSON 13: DIVERSIFICATION FOR THE SAKE OF DIVERSIFICATION IS DUMB! We've all heard it, "Diversify! You have to diversify!." That is the most boneheaded idea of the 20th century. Here's a little quote from a guy named Warren Buffett who knows a little about stocks: "Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing." What this means is that if you buy good stocks, it doesn't matter if you're diversified. Now, this doesn't mean to buy one stock or throw all your money into one investment either. What it does mean is that you shouldn't be betting against yourself IE: Buy bonds just incase stocks go down and vice versa. All this accomplishes is a guarenteed loss when you have a gain! That's dumb any way you slice it. Diversification is a poor mans way of avoiding risk and probably the worst way. Look at how well mutual funds have done lately. You know why they suck? Because they're diversified! The losers pull down the winners and it makes the overall outcome mediocre. Diversify by buying lots of good investments no matter what they are. Don't diversify by buying opposites!