Posts
I am proud to say that my investments are not diversified.
A client said to me, the other day, after looking at my portfolio, "that's not diversified!" An indignant finger pointing at my computer screen. As if he had caught me with my hand in the cookie jar.
To which I replied, "So?" After a moments consideration I saw the lights go on in his head. Seeing that there was a mind in there willing to hear a new point of view, I continued with another question, "Should I have some of my money in Financials?, how about real estate? Home builders?"
"Well, I suppose not, at least not right now" Came his reply.
"Good thinkin'" I said.
Being diversified means several things to me that some financial advisers may not agree with.
A portfolio that is too broadly diversified lacks commitment and shows a deficit in research and maintenance. A portfolio is a living breathing thing and it requires care and feeding and constant attention.
I know of several cases where, during this credit meltdown, many money managers have let their clients ride the elevator right down into the basement. And they did it under the mantel of diversification. Why? because that is what they where told to do in "Investing 101"
Well that's not what we do here. We are engaged, tuned in and turned on. This is fun, it's not about following a formula. We look for whatever is working and employ tools to take the greatest advantage of opportunity.
To me being diversified is an inferior method of insurance and it practically guarantees a mediocre return on investment. You want insurnce? Buy some options, Put on a spread trade, use an inverse ETF, employ some leverage. There are so many great products and tools out there, that hiding behind portfolio diversification just means that you don't know about them or how to use them.
Time to enroll in "investing 102"
Get educated. I do this myself constantly. As a matter of fact, Just this week, I picked up an Options strategy book that I haven't looked at in years. It's old enough that it refers to options pricing in fractions, but it contains some really good techniques that I had forgotten about.
Market conditions are constantly changing and so should your portfolio and your strategies. Stay tuned in, turned on and energetic. If not, just put it all in a mutual fund and forget it. If you are lucky you might just manage to keep pace with inflation.
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
Sunday, August 24, 2008
Sunday, July 27, 2008
How bad will it get?
How bad will it get?
I don't know.
Any one that tells you that they do know, is delusional.
So what is an investor to do in this, shall we say, "challenging environment"? First and foremost, remember that there is always money to be made in any environment.
You can;
1). Buy the dips and sell the rips:
In a consolidating or falling market, recognize that no financial instrument, goes straight up or straight down. Watch and wait for a pause in the down side, buy small amounts and wait for a mini rally. Sell on any positive movement and TAKE PROFITS! This is my least favorite strategy. It is very risky, requires great discipline, constant attention and yields minimal results. Some would argue this last point with me and my answer to them is, "I guess you're just better than me, oh well".
2). Use Put options and short selling to bet on obviously weak sectors.
This is probably the most profitable on a day to day basis but requires great discipline, constant attention, and plenty of research. For me short selling is very risky and should be approached with caution. I don't put on short positions through the borrowing of shares, I buy Put options. Contrary to popular myth, options are not risky investments. (More to come on options in another blog)
3). Identify the next trend, buy into an investment when it is on sale, build a large core position, then wait patiently.
This is obviously easier said than done and also requires great discipline and massive research, but is much less risky.
4). Identify other financial vehicles that are working and work with them.
This requires the most amount of research and tends to be a bit more boring and less profitable and will probably require more self education. It is however a must for any investor to know where to put their money when nothing else seems to be working. This could include money market accounts, bonds, REITs, etc.
5). Do nothing.
While this is rarely necessary in large measure, it is useful in small measure at most times. I know that sounds confusing but remember that "sometimes the best trade is no trade". I am not sure who to credit the latter phrase to, but it is true.
Which approach do I recommend?
All of them.
I even advocate the use of shorting through borrowing, IF and only if, you educate yourself, protect yourself and can demonstrate flawless discipline. I fall short on the discipline side. Which is why I don't short through borrowing. And as Clint says, " a man's gotta know his limitations".
Each of these approaches have their time and place. Most of them apply in all markets, up, down or sideways. This is because within each market there are sectors which move in opposite, complimentary and confusing directions. The common threads between all these points are discipline, research and paying attention. Remember investing is a job, a profitable, fun and intellectually rewarding job, but a job none the less. If you approach it with professionalism and passion, you will be compensated accordingly.
JT
I don't know.
Any one that tells you that they do know, is delusional.
So what is an investor to do in this, shall we say, "challenging environment"? First and foremost, remember that there is always money to be made in any environment.
You can;
1). Buy the dips and sell the rips:
In a consolidating or falling market, recognize that no financial instrument, goes straight up or straight down. Watch and wait for a pause in the down side, buy small amounts and wait for a mini rally. Sell on any positive movement and TAKE PROFITS! This is my least favorite strategy. It is very risky, requires great discipline, constant attention and yields minimal results. Some would argue this last point with me and my answer to them is, "I guess you're just better than me, oh well".
2). Use Put options and short selling to bet on obviously weak sectors.
This is probably the most profitable on a day to day basis but requires great discipline, constant attention, and plenty of research. For me short selling is very risky and should be approached with caution. I don't put on short positions through the borrowing of shares, I buy Put options. Contrary to popular myth, options are not risky investments. (More to come on options in another blog)
3). Identify the next trend, buy into an investment when it is on sale, build a large core position, then wait patiently.
This is obviously easier said than done and also requires great discipline and massive research, but is much less risky.
4). Identify other financial vehicles that are working and work with them.
This requires the most amount of research and tends to be a bit more boring and less profitable and will probably require more self education. It is however a must for any investor to know where to put their money when nothing else seems to be working. This could include money market accounts, bonds, REITs, etc.
5). Do nothing.
While this is rarely necessary in large measure, it is useful in small measure at most times. I know that sounds confusing but remember that "sometimes the best trade is no trade". I am not sure who to credit the latter phrase to, but it is true.
Which approach do I recommend?
All of them.
I even advocate the use of shorting through borrowing, IF and only if, you educate yourself, protect yourself and can demonstrate flawless discipline. I fall short on the discipline side. Which is why I don't short through borrowing. And as Clint says, " a man's gotta know his limitations".
Each of these approaches have their time and place. Most of them apply in all markets, up, down or sideways. This is because within each market there are sectors which move in opposite, complimentary and confusing directions. The common threads between all these points are discipline, research and paying attention. Remember investing is a job, a profitable, fun and intellectually rewarding job, but a job none the less. If you approach it with professionalism and passion, you will be compensated accordingly.
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
Sunday, June 29, 2008
Why Do I Always Miss The Bubble?
Why Do I Always Miss The Bubble?
Have you asked yourself this? Did you buy Tech stocks right before the crash? Buy a house at the top of the market? Well you are in good company. Lots of intelligent people did this. But as Lt. General Russel Honore famously said "don't get stuck on stupid".
You can turn this around to your advantage.
You can educate yourself to the point where you can catch the next bubble at the right time.
You can use your past experience to guide you on what NOT to do.
There are definable stages of a bubble and once you know about it you will never do it again.
The first stage is the stealth stage, this is where the insiders, analysts and big money move in. There is generally a lot of easy money to be made in this phase.
Once it is played out, usually a very brief amount of time, the wall of worry stage begins. This is the long drawn out phase where the majority of the professional investors move in and start "playing chess". Accumulating shares for their their position by buying the dips. The smart advisers, analysts and brokers lead their clients carefully into positions. And always in this phase, there is the endless debate as to whether or not a bubble is about to burst. This phase could also be called the "correction, consolidation, and rally phase", and can last for years. Building up energy.
The next stage is the mania stage, and it is the "Holy Grail" for the professional investors. This is the moment that investors spend years setting up for. There is a tipping point that occurs seemingly overnight where everybody starts buying anything and everything even remotely connected to the investment in question. Driving the price skyward. They will employee any investment tool they can, especially buying on margin(borrowing). Some mortgage their homes, others take from their retirement or children's college funds. It truly is a mania that grips people and they will do whatever it takes to jump on board the profit train.
How does it end? Some have used the shoeshine boy analogy as the harbinger of the coming crash. Once it has become so widespread that even the shoeshine boy starts advising people to invest, it's time to sell because the mania has come full circle.
In reality there are two crashes or bubble bursts in the correction phase. There is an initial "pop", Which is a sharp drop in price on extremely heavy volume, but inevitably, the dumb money tries to re inflate the bubble, stopping the first crash and driving the price back up slightly, but never to the previous high. Finally the "shorts" (Investors betting the market will crash) move in in a massive way and start to devour the dumb money. This is the second and final drop and is also referred to as the denial stage, and it is the most devastating point for the inexperienced investors. It is where, tragically, these people watch their life savings go down in flames. Instead of bailing out and cutting their losses, they feel that they can't afford to sell and believe the price will turn around, but it never does, in fact it overshoots to the downside and often stays there for years.
Sadly these events scar people forever and they may never recover financially or emotionally, and they will surely never invest in anything ever again.
This scenario has played itself out over and over again for hundreds if not thousands of years. And it will likely continue to play itself out in the coming years. In fact I believe we are still in stage two of one of the largest bubbles the world has ever seen. We have been in the correction, consolidation, rally mode in precious metals for two to three years now and it could be getting dangerously close to the mania stage. If you are not in position to take advantage of this, you may be missing the grand daddy of all bubbles. We are currently in a "dip" in metals pricing and it appears that, this is about to turn to the upside maybe as early as Monday the 30th of June.
More specifically I like silver, but gold will likely share in the mania stage and if you like gold better, fine, you will still be taking advantage of the best investment opportunities of our lifetime.
The important thing to realize here is not to try and time the mania stage, no one knows for sure when it will begin. It could begin tomorrow it could take another three years to build the necessary energy. Begin building your position right now! Even if it is just a few coins from your local coin shop.
I will continue to write about the merits of precious metals in further essays but for now start accumulating.
Have you ever wished someone had let you in on the Microsoft story before it's price went ballistic? Well I just did.
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
Have you asked yourself this? Did you buy Tech stocks right before the crash? Buy a house at the top of the market? Well you are in good company. Lots of intelligent people did this. But as Lt. General Russel Honore famously said "don't get stuck on stupid".
You can turn this around to your advantage.
You can educate yourself to the point where you can catch the next bubble at the right time.
You can use your past experience to guide you on what NOT to do.
There are definable stages of a bubble and once you know about it you will never do it again.
The first stage is the stealth stage, this is where the insiders, analysts and big money move in. There is generally a lot of easy money to be made in this phase.
Once it is played out, usually a very brief amount of time, the wall of worry stage begins. This is the long drawn out phase where the majority of the professional investors move in and start "playing chess". Accumulating shares for their their position by buying the dips. The smart advisers, analysts and brokers lead their clients carefully into positions. And always in this phase, there is the endless debate as to whether or not a bubble is about to burst. This phase could also be called the "correction, consolidation, and rally phase", and can last for years. Building up energy.
The next stage is the mania stage, and it is the "Holy Grail" for the professional investors. This is the moment that investors spend years setting up for. There is a tipping point that occurs seemingly overnight where everybody starts buying anything and everything even remotely connected to the investment in question. Driving the price skyward. They will employee any investment tool they can, especially buying on margin(borrowing). Some mortgage their homes, others take from their retirement or children's college funds. It truly is a mania that grips people and they will do whatever it takes to jump on board the profit train.
How does it end? Some have used the shoeshine boy analogy as the harbinger of the coming crash. Once it has become so widespread that even the shoeshine boy starts advising people to invest, it's time to sell because the mania has come full circle.
In reality there are two crashes or bubble bursts in the correction phase. There is an initial "pop", Which is a sharp drop in price on extremely heavy volume, but inevitably, the dumb money tries to re inflate the bubble, stopping the first crash and driving the price back up slightly, but never to the previous high. Finally the "shorts" (Investors betting the market will crash) move in in a massive way and start to devour the dumb money. This is the second and final drop and is also referred to as the denial stage, and it is the most devastating point for the inexperienced investors. It is where, tragically, these people watch their life savings go down in flames. Instead of bailing out and cutting their losses, they feel that they can't afford to sell and believe the price will turn around, but it never does, in fact it overshoots to the downside and often stays there for years.
Sadly these events scar people forever and they may never recover financially or emotionally, and they will surely never invest in anything ever again.
This scenario has played itself out over and over again for hundreds if not thousands of years. And it will likely continue to play itself out in the coming years. In fact I believe we are still in stage two of one of the largest bubbles the world has ever seen. We have been in the correction, consolidation, rally mode in precious metals for two to three years now and it could be getting dangerously close to the mania stage. If you are not in position to take advantage of this, you may be missing the grand daddy of all bubbles. We are currently in a "dip" in metals pricing and it appears that, this is about to turn to the upside maybe as early as Monday the 30th of June.
More specifically I like silver, but gold will likely share in the mania stage and if you like gold better, fine, you will still be taking advantage of the best investment opportunities of our lifetime.
The important thing to realize here is not to try and time the mania stage, no one knows for sure when it will begin. It could begin tomorrow it could take another three years to build the necessary energy. Begin building your position right now! Even if it is just a few coins from your local coin shop.
I will continue to write about the merits of precious metals in further essays but for now start accumulating.
Have you ever wished someone had let you in on the Microsoft story before it's price went ballistic? Well I just did.
JT
Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
Monday, June 9, 2008
Why "RICH" ain't a four letter word.
Think about the last couple of movies or TV programs that you've watched. I'm willing to bet that the bad guy was some corporate Fat Cat. What about the latest political rants? Have you heard about the evil, rich "speculators driving up the price of oil"? How about "the rich getting rich off the backs of the poor"? What about taxes? That the rich should be made to pay their fair share? "The rich get richer and the poor get poorer"?
I'll guess that you are familiar with these statements or maybe you've even repeated these things to other people. It's okay, this sentiment is everywhere, unfortunately they are not based in fact. Just a couple of facts that argue with these statements; on taxes, The top 5% of wage earners in this country pay 75% of all tax revenue that the government receives. The top 10% pay over 90%. At the other end of the spectrum the poorest aren't paying any taxes apart from sales and local taxes. In fact they are receiving money through "Earned income tax credits" which is a phrase designed to hide the fact that wealth is being taken from the rich and given to the poor. I'm not making a value judgement on welfare. My only point here is to dispel the myth that the rich aren't paying their fair share, or that they are getting rich off the backs of the poor.
So what is my agenda here? Why am I defending the rich? Well it sure as hell ain't because I'm one of them. I aspire to be. I think that this country should continue to be structured to allow as many people to become rich as possible. I think that demonizing the rich insures that a person will never become wealthy. Why would anyone want to become a greedy, money grubbing miser?
Here is why; when has a poor person ever built a hospital, created a scholarship fund, supported a church, saved the animals, protected the environment? Whatever your favorite cause it takes a wealthy society to do these things. That's why we have such a great country.
I'll say it again, I'm not making a value judgement against the poor. I'm just trying to point out that instead of believing that "it takes money to make money" (which is another way of saying that only the rich can make any money), the saying should read "it takes money to give money". When you are worried about putting food into your children's mouth, you're more than likely thinking, "screw the spotted owls, I gotta get a better job".
I'm sure I've just offended a lot of people who are not rich and yet have donated to different causes. For those of you who are offended, we are making this distinction between rich and poor, not between rich and middle class. And yes I understand that poor people tithe to their churches too. Okay I get it. The thing that I want people to get, is that part of the greatness of this country lies in the fact that anyone can get rich here. But only if you do certain things. And one of those things is to stop hating the rich. Change your perception.
As motivational speaker Jim Rhone is fond of pointing out, "Find out what the poor people do and DON'T DO IT! Find out what they read and DON'T READ IT! Find out how they speak and DON'T TALK THAT WAY!
The opposite if this is equally important. If you constantly blame your place in life on the greedy rich people, and despise them, how can you emulate them and copy their success? You can't. Find out the good positive things they do and make it part of your life, it worked for them.
Hiding behind old stereo-types about the rich only insures that you will never join their ranks.
And don't forget that when you are successful, you'll be able to be as generous as you want to be.
JT
I'll guess that you are familiar with these statements or maybe you've even repeated these things to other people. It's okay, this sentiment is everywhere, unfortunately they are not based in fact. Just a couple of facts that argue with these statements; on taxes, The top 5% of wage earners in this country pay 75% of all tax revenue that the government receives. The top 10% pay over 90%. At the other end of the spectrum the poorest aren't paying any taxes apart from sales and local taxes. In fact they are receiving money through "Earned income tax credits" which is a phrase designed to hide the fact that wealth is being taken from the rich and given to the poor. I'm not making a value judgement on welfare. My only point here is to dispel the myth that the rich aren't paying their fair share, or that they are getting rich off the backs of the poor.
So what is my agenda here? Why am I defending the rich? Well it sure as hell ain't because I'm one of them. I aspire to be. I think that this country should continue to be structured to allow as many people to become rich as possible. I think that demonizing the rich insures that a person will never become wealthy. Why would anyone want to become a greedy, money grubbing miser?
Here is why; when has a poor person ever built a hospital, created a scholarship fund, supported a church, saved the animals, protected the environment? Whatever your favorite cause it takes a wealthy society to do these things. That's why we have such a great country.
I'll say it again, I'm not making a value judgement against the poor. I'm just trying to point out that instead of believing that "it takes money to make money" (which is another way of saying that only the rich can make any money), the saying should read "it takes money to give money". When you are worried about putting food into your children's mouth, you're more than likely thinking, "screw the spotted owls, I gotta get a better job".
I'm sure I've just offended a lot of people who are not rich and yet have donated to different causes. For those of you who are offended, we are making this distinction between rich and poor, not between rich and middle class. And yes I understand that poor people tithe to their churches too. Okay I get it. The thing that I want people to get, is that part of the greatness of this country lies in the fact that anyone can get rich here. But only if you do certain things. And one of those things is to stop hating the rich. Change your perception.
As motivational speaker Jim Rhone is fond of pointing out, "Find out what the poor people do and DON'T DO IT! Find out what they read and DON'T READ IT! Find out how they speak and DON'T TALK THAT WAY!
The opposite if this is equally important. If you constantly blame your place in life on the greedy rich people, and despise them, how can you emulate them and copy their success? You can't. Find out the good positive things they do and make it part of your life, it worked for them.
Hiding behind old stereo-types about the rich only insures that you will never join their ranks.
And don't forget that when you are successful, you'll be able to be as generous as you want to be.
JT
Friday, May 30, 2008
Technical vs. fundamental analysis
What's the big deal? On one side you've got the Tech guys claiming that fundamental guys are stodgy, outdated, boring and unreliable. On the other side the "fundies" are calling technical analysis, voodoo, myopic, self-fulllingly prophetic and, you guessed it, unreliable.
The only universal truth on either side, and I'm sure you guessed it again, is that any analysis is unreliable.
As soon as an investor becomes convinced that they have discovered an infallible method of stock picking, get as far away from them as possible because they are about to self destruct.
First of all what are technical and fundamental analysis?
The fundamentals of a company are simply the documented business statistics, structure, market and plan. It's a numbers game of value. Is the company worth what it's stock price says it's worth?
Technical analysis is centered on price action. The graphical evaluation of market psychology based on historical patterns. These patterns are revealed by the extensive use of charts. Indeed many technical analysts don't particularly care what a company does for a living, apart from what market sector they are in and how that sector is performing.
These definitions are an over simplification of what each camp actually does, with a combination of elements shared by both sides more often the case. As in other areas of life, most people usually reside somewhere in the middle.
I think the techies, share more methods with the fundamentalists than the other way around. but there are always extremists on both sides.
As you broaden your financial literacy, you would be well advised to become proficient in all areas of analysis. Indeed many an excellent company has wallowed in poor price performance for years. While other companies that have no revenues are selling at outrageous prices. Dismiss the reality that both techniques have their strengths and weaknesses and you are setting yourself up for financial pain. Embrace them both and you'll see the financial gain.
The use of fundamentals will make you money and the use of charts will maximise that money.
Furthermore the use of fundamentals will protect your money. Add in chart analysis and you've built a fortress around your portfolio.
JT
The only universal truth on either side, and I'm sure you guessed it again, is that any analysis is unreliable.
As soon as an investor becomes convinced that they have discovered an infallible method of stock picking, get as far away from them as possible because they are about to self destruct.
First of all what are technical and fundamental analysis?
The fundamentals of a company are simply the documented business statistics, structure, market and plan. It's a numbers game of value. Is the company worth what it's stock price says it's worth?
Technical analysis is centered on price action. The graphical evaluation of market psychology based on historical patterns. These patterns are revealed by the extensive use of charts. Indeed many technical analysts don't particularly care what a company does for a living, apart from what market sector they are in and how that sector is performing.
These definitions are an over simplification of what each camp actually does, with a combination of elements shared by both sides more often the case. As in other areas of life, most people usually reside somewhere in the middle.
I think the techies, share more methods with the fundamentalists than the other way around. but there are always extremists on both sides.
As you broaden your financial literacy, you would be well advised to become proficient in all areas of analysis. Indeed many an excellent company has wallowed in poor price performance for years. While other companies that have no revenues are selling at outrageous prices. Dismiss the reality that both techniques have their strengths and weaknesses and you are setting yourself up for financial pain. Embrace them both and you'll see the financial gain.
The use of fundamentals will make you money and the use of charts will maximise that money.
Furthermore the use of fundamentals will protect your money. Add in chart analysis and you've built a fortress around your portfolio.
JT
Monday, May 26, 2008
Investor psychology
Just a quick thought or two on investor psychology.
This is the area that will make the difference in the success or failure of your portfolio.
Go to Las Vegas, Atlantic City or any one of the many Indian gaming casinos. As you walk in the door look around and do a quick evaluation of the investment that has gone into building and operating that casino. Think about it as a business and ask yourself what is it that they know about their customers. The answers are directly relevant to your own psychology and what you should NOT do as an investor.
The reason that Casinos work, is that humans, on the whole, are pretty predictable. We are all born with that same gambling bug in our heads. It is this bug that causes investors to buy into an investment at the top and sell at the bottom. It's what is behind the tendency of some to ride an investment down into the cellar, when the should have cut their losses and sold after the investment broke down and reversed it's trend. And this bug, is precisely, what causes people to invest in ridiculously risky stocks in the quest for that big pay off.
These are the reasons that most people new to trading fail. It is a built in liability that all successful investors have learned how to deal with. They each may have a different story on how they manage these damaging tendencies. I say manage, because you can never completely divorce yourself from this bug. Nor should you want to. It is also this bug that forces you to accept some risk. And as the Man says " Rate of return is directly proportional to the level of risk". It is in controlling risk, where you must concern yourself.
I recently went to Laughlin Nevada on a gambling excursion with some friends. And I set aside some money to lose and went in to enjoy myself. In retrospect I didn't really enjoy myself because the whole concept of it ran counter to the psychology I have trained myself to vanquish.
But I dutifully went on and plugged my money into the machines just to continually have them light up, sing me a tune and flash a sign to anyone watching that I am a loser. It wasn't until later that day, when checking in on some trades that I was working, that it hit me. I had a trade that was paying off nicely as I had know it would. The amount of money in the trade, was 10 times that which I had set aside to loose gambling and the amount it returned would have made all my friends jealous if I had won it gambling. This was definitely more fun and much more rewarding than the casinos.
I had been watching my cash slowly disappear down the casino hole and it bugged me the whole time. In contrast I had scarcely even considered the trades I had working in the markets. It was because I had controlled my exposure to the markets. I had an exit strategy, a defined price target and an acceptable risk/reward scenario. My exposure to the casino, on the other hand was out of my control, the risk/reward scenario was all in their favor and my only exit strategy was to not loose any more money than what I had set aside for gambling.
I just kept hoping, as I looked around, that all these people were enjoying this casino that I was financing.
JT
This is the area that will make the difference in the success or failure of your portfolio.
Go to Las Vegas, Atlantic City or any one of the many Indian gaming casinos. As you walk in the door look around and do a quick evaluation of the investment that has gone into building and operating that casino. Think about it as a business and ask yourself what is it that they know about their customers. The answers are directly relevant to your own psychology and what you should NOT do as an investor.
The reason that Casinos work, is that humans, on the whole, are pretty predictable. We are all born with that same gambling bug in our heads. It is this bug that causes investors to buy into an investment at the top and sell at the bottom. It's what is behind the tendency of some to ride an investment down into the cellar, when the should have cut their losses and sold after the investment broke down and reversed it's trend. And this bug, is precisely, what causes people to invest in ridiculously risky stocks in the quest for that big pay off.
These are the reasons that most people new to trading fail. It is a built in liability that all successful investors have learned how to deal with. They each may have a different story on how they manage these damaging tendencies. I say manage, because you can never completely divorce yourself from this bug. Nor should you want to. It is also this bug that forces you to accept some risk. And as the Man says " Rate of return is directly proportional to the level of risk". It is in controlling risk, where you must concern yourself.
I recently went to Laughlin Nevada on a gambling excursion with some friends. And I set aside some money to lose and went in to enjoy myself. In retrospect I didn't really enjoy myself because the whole concept of it ran counter to the psychology I have trained myself to vanquish.
But I dutifully went on and plugged my money into the machines just to continually have them light up, sing me a tune and flash a sign to anyone watching that I am a loser. It wasn't until later that day, when checking in on some trades that I was working, that it hit me. I had a trade that was paying off nicely as I had know it would. The amount of money in the trade, was 10 times that which I had set aside to loose gambling and the amount it returned would have made all my friends jealous if I had won it gambling. This was definitely more fun and much more rewarding than the casinos.
I had been watching my cash slowly disappear down the casino hole and it bugged me the whole time. In contrast I had scarcely even considered the trades I had working in the markets. It was because I had controlled my exposure to the markets. I had an exit strategy, a defined price target and an acceptable risk/reward scenario. My exposure to the casino, on the other hand was out of my control, the risk/reward scenario was all in their favor and my only exit strategy was to not loose any more money than what I had set aside for gambling.
I just kept hoping, as I looked around, that all these people were enjoying this casino that I was financing.
JT
Sunday, May 25, 2008
Silver. The single, most important investment decision
What did I do that changed my mentality about money forever?
I purchased Silver.
Apart from educating myself about the need for financial literacy, the purchase of silver did more to motivate me to build my portfolio, my discipline, my passion and ultimately, develop my business, than any other thing I could have done.
Once I spent my money on a hard asset, something that I held in my hands, it made irrelevant everything I had previously wasted my money on.
Robert Kiyosaki gave me the first key in Rich Dad Poor Dad. He talked about the differences between buying assets versus liabilities. If you are just getting started in the quest for financial freedom, this book is as good a place to start as any.
But why silver?
Many people have talked about the fact that there is always a bull market in something. That is to say, that in the financial arena there are ups and downs in all investments. The key, as Dan Denning points out, is to be a bull hunter. Look for the investments that are increasing in value. Sometimes this is easier said than done.
For me, silver was a no-brainer and it still is.
Silver currently trades at about 1/50th the price of gold and by all accounts it is more rare than gold. Conservative estimates put the, above-ground silver at 1/5th that of gold. This is a historical record, and by saying historical, we are looking at thousands of years. In addition, the historical price ratio to gold has averaged around 16 to 1. That is, 16 ounces of silver would buy 1 ounce of gold, versus the 50 to 1 mentioned above. Silver also has a huge function to play in industrial use and an ever growing presence in medical application due to it's anti-bacterial characteristics. Some critics point out a declining demand in it's applications in photography, due to the rise in digital photography, but the industrial/medical demand increases seem to be replacing this decline.
These things alone are enough to justify an investment in the white metal.
Add in the reality of inflation and this investment is a slam dunk for me. The real inflation rate is much higher than the Governments' reported 2-3% . Remember this reported rate excludes food and energy. I don't know about you, but food and energy, (Gasoline, electricity, heating oil, natural gas, etc.) are a huge portion of my paycheck. Some estimates put real inflation around 20%.
Silver and gold tend to counter the rise in inflation by rising as our dollars lose value.
At the minimum I look at silver as an economic insurance policy. If silver and gold fall, that means that my dollar investments are most likely increasing in value.
These are just a few of the reasons that I believe silver is in a long term bull market.
I would encourage any reader to investigate for yourself.
But a word of caution; Keep an open mind. Silver is a volatile market. It is a market that is still a little out of the mainstream, but the insiders are extremely polarized. They are either wildly pro-silver or emphatically anti-silver and as such there are many conspiracy theories on one side while the other side shows impenetrable ignorance about the real advantages to silver.
There are so many other fundamental reasons to buy silver that it would take me many pages to reveal, but instead I'll let you discover them for yourself. There are libraries of information on silver out there, check it out
One of the most important rules in investments, is "Don't be dogmatic" This just means that you should never fall in love with an investment nor should you hate any investment. Don't believe the hype on either side. Learn for yourself and develop sound reasons to support an investment or reject it. Sometimes the best trade is, "Not To Trade". And beware of following the herd, they are usually wrong.
In closing I would answer a question many have asked me, "why don't you like gold?"
I do like gold as an investment. I also like it as an insurance policy. I do own some gold. And if there was no such thing as silver I would own a lot of gold. I just believe silver is better.
JT
Legal disclaimer
This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be.
John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
I purchased Silver.
Apart from educating myself about the need for financial literacy, the purchase of silver did more to motivate me to build my portfolio, my discipline, my passion and ultimately, develop my business, than any other thing I could have done.
Once I spent my money on a hard asset, something that I held in my hands, it made irrelevant everything I had previously wasted my money on.
Robert Kiyosaki gave me the first key in Rich Dad Poor Dad. He talked about the differences between buying assets versus liabilities. If you are just getting started in the quest for financial freedom, this book is as good a place to start as any.
But why silver?
Many people have talked about the fact that there is always a bull market in something. That is to say, that in the financial arena there are ups and downs in all investments. The key, as Dan Denning points out, is to be a bull hunter. Look for the investments that are increasing in value. Sometimes this is easier said than done.
For me, silver was a no-brainer and it still is.
Silver currently trades at about 1/50th the price of gold and by all accounts it is more rare than gold. Conservative estimates put the, above-ground silver at 1/5th that of gold. This is a historical record, and by saying historical, we are looking at thousands of years. In addition, the historical price ratio to gold has averaged around 16 to 1. That is, 16 ounces of silver would buy 1 ounce of gold, versus the 50 to 1 mentioned above. Silver also has a huge function to play in industrial use and an ever growing presence in medical application due to it's anti-bacterial characteristics. Some critics point out a declining demand in it's applications in photography, due to the rise in digital photography, but the industrial/medical demand increases seem to be replacing this decline.
These things alone are enough to justify an investment in the white metal.
Add in the reality of inflation and this investment is a slam dunk for me. The real inflation rate is much higher than the Governments' reported 2-3% . Remember this reported rate excludes food and energy. I don't know about you, but food and energy, (Gasoline, electricity, heating oil, natural gas, etc.) are a huge portion of my paycheck. Some estimates put real inflation around 20%.
Silver and gold tend to counter the rise in inflation by rising as our dollars lose value.
At the minimum I look at silver as an economic insurance policy. If silver and gold fall, that means that my dollar investments are most likely increasing in value.
These are just a few of the reasons that I believe silver is in a long term bull market.
I would encourage any reader to investigate for yourself.
But a word of caution; Keep an open mind. Silver is a volatile market. It is a market that is still a little out of the mainstream, but the insiders are extremely polarized. They are either wildly pro-silver or emphatically anti-silver and as such there are many conspiracy theories on one side while the other side shows impenetrable ignorance about the real advantages to silver.
There are so many other fundamental reasons to buy silver that it would take me many pages to reveal, but instead I'll let you discover them for yourself. There are libraries of information on silver out there, check it out
One of the most important rules in investments, is "Don't be dogmatic" This just means that you should never fall in love with an investment nor should you hate any investment. Don't believe the hype on either side. Learn for yourself and develop sound reasons to support an investment or reject it. Sometimes the best trade is, "Not To Trade". And beware of following the herd, they are usually wrong.
In closing I would answer a question many have asked me, "why don't you like gold?"
I do like gold as an investment. I also like it as an insurance policy. I do own some gold. And if there was no such thing as silver I would own a lot of gold. I just believe silver is better.
JT
Legal disclaimer
This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be.
John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
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