Wall Street Craps – 2012 Global Ebook Finance Award-Winner

Cultivate A Winner’s Mindset: Make it your highest priority to acquire and maintain the right mental attitude. Like in any sport or game, the winner’s approach must be filled with positive expectancy. That means never staying down on yourself or blaming your misfortunes on bad luck. Regardless of any outcome that you may experience on your investing journey, remain humble, open, and grateful (for the life lessons) in your approach to investing. Understand that the stock market environment is always in the process of evolving and in order to succeed you will have to do the same as well.

Along the way, boost your chances for success by gleaning the wisdom of proven investment experts such as Warren Buffet, Peter Lynch, Sir John Templeton, and even today’s popular media star, Jim Cramer. Go beyond the temptation to seek simple stock tips, and instead develop a deeper understanding of prudent money management and intelligent investment strategy.

As a final reminder, make the critical decision to take full responsibility for your own investing future. Yes, you can seek information and evaluate the merits of expert advice. But in the end, the decisions of what to do with your money must be your total responsibility. Otherwise, your negligence or unwise delegation will set yourself up to becoming a victim of poor results, debilitating uncertainty, and/or other peoples’ hidden agendas.

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“Buffett, like most successful investors … begins by purging himself of emotion and substituting intellect.”

John Train ~ Author of The Midas Touch (1988)

Develop A Deeper Love For The Game: In order to be truly successful at any endeavor in life, you must acquire and maintain a deep appreciation for it. It’s your love for playing the stock market that energizes your investing goals and gives momentum to achieving them.

Remember that an enthusiastic attitude with optimistic expectations is essential to success in any given field. If the stock market game is something that you don’t actually enjoy in any way or appreciate on any level, then you’re much better off not playing this particular game at all. Instead, continue your search for another kind of investment game that you can put your heart and mind behind when playing.

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Comment: The key to your success in life is to uncover the desire that is deep within your heart. Much like a seed is to a plant, your desire is what eventually will blossom in your life. When it comes to investing, you may discover a deep desire for knowledge and growth. Or in my case, the stock market in particular appealed to my lifelong love for playing and winning games. So please take the time to find and develop the aspect of the investing game which makes to naturally want to be greater involved.

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“Do what you love. Know your own bone; gnaw at it, bury it, unearth it, and gnaw it still.”

Henry David Thoreau ~ American philosopher (1817-1862)

Refine & Update Your System Continuously: Today’s stock market is a challenging game to play. You must remember to learn from your inevitable mistakes and adjust the way you play the game in order to fit your individual nature and financial situation. Remember that the road to success in any endeavor is always paved with the commitment to constant and never-ending improvement.

Like the game of baseball, it’s impossible to get a “hit” in the stock market every time. As a smart player, your goal is to improve your batting average or percentage of success over time. So while you always seek perfection in each of your trading decisions, you must also acknowledge that your results in the stock market will never be “perfect” by the very nature of the game. Your main objective from a player’s perspective is to refine the process by which you trade the stock market. Recognize that only a fundamentally sound process of decision-making will lead to consistent positive results in investing. This is something that each investor must fine-tune over time.

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The successful trader is obliged to serve an apprenticeship as a trader. This usually requires 6-12 months of close application. It is almost a tradition that novices who plunge successfully in the first year are very often failures in the second or third year. Early success is misleading and deceptive.”

 Samuel A. Nelson ~ Author of The ABC of Stock Speculation (1903)

Take Charge Of Your Own Money: The mindset of the investor is the ultimate divider between winners and losers. Your path to investment success begins when you take full responsibility for your financial future. Otherwise, you’re better off not playing any games involving the risk of losing with serious amounts of money.

That means you must take 100% responsibility for all of your thoughts, all of your emotions, all of your actions, and all of your results when it comes to your personal investments. Therefore, you will no longer blame anyone or anything else for your failures and disappointments in regards to your investment decisions. Savvy investors fully understand that there can be no excuses when it comes to investing their hard-earned money. This simple, yet profound principle of taking full responsibility is more important in determining your chances for long term investing success than any specific information that you’ll ever receive.

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“The men on the trading floor may not have been to school, but they have Ph.D.s in man’s ignorance.

In any market, as in any poker game, there is a fool.”

Michael Lewis ~ Author of Liar’s Poker (1990)

Be Aware Of The Power Of Unconscious Influence: Understand that there is always an element of uncertainty when it comes to investing in financial markets. The fact remains that a market can do almost anything and no one really knows for sure what will happen in the future. This becomes a problem for investors because of their instinctive human need for certainty and security.

So when an investor begins to feel uncertain, he or she will naturally look outside of themselves in order. to gain a greater sense of inner certainty. When this happens an investor becomes vulnerable to the unconscious influence of other people in the following undesirable ways:

(1) Uncertain investors look to see what other people are doing regarding their investments. If lots of other people are buying or selling a particular investment, it is only natural for an uncertain investor to feel safer doing the same.

(2) An uncertain investor will look to see what the experts are saying and doing. The problem here is that there is an expert opinion to fill almost every possibility in a financial market. So following the advice of any given expert does not guarantee your success.

(3) An investor who is experiencing uncertainty will naturally be influenced to a degree by people who have developed strong rapport with them. Hence, an investor may make an unwise investment decision based on the subtle influence of a friendly broker, the golfing buddy who works in the financial services industry, or the friend of a friend who once made a small fortune in the market.

In all of the preceding situations, the decision to participate in any given opportunity is based primarily on the unconscious influence of other people and not on sound investment principles. If you want to succeed over the long haul, you must believe in your own ability to make intelligent investment decisions regardless of what other people think, say, or do.

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“To obtain better than average investment results over a long pull requires a policy of selection or operation possessing a twofold merit: (1) It must meet objective or rational tests of underlying soundness; and (2) it must be different from the policy followed by most investors or speculators.”

Benjamin Graham

Recognize The Reality Of Risk: There are no freebies when it comes to investing in efficient markets, like the stock market. The reward is always in direct proportion to the risk involved. When it comes to trading the stock market, a savvy investor waits for emotional extremes in the market that cause temporary inefficiencies and opportunities with reduced risk.

Even with intelligent risk management, a savvy investor fully understands that losing money on any one trade is always a real possibility. An investor’s primary objective regarding risk is two-fold: (1) make sure that any risks are properly rewarded and (2) only proceed if the risk of loss is tolerable to that investor’s individual temperament and financial situation.

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Comment: Professionals understand risk to the extent that they respect it when they are faced with it and they understate it when they are trying to selling something that incorporates it. In college, we learned a concept called the “capital market line.” And with this simple concept, we were taught that risk is always greater or equal to the reward. Rarely, if ever, is the risk less than the reward when it comes to investing and especially in efficient markets like the most of American capital markets.

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“Every conscious act requires risk. Every conscious act requires decision. Put these two facts together and you realize that the secret of life is not to avoid gambling, but to gamble well.”

Mike Caro ~ Author of Mike Caro on Gambling (1984)

Know The Hidden Costs: When people are sold investment products, the costs to participate are often cleverly but legally hidden or understated. At the same time, skilled marketing techniques often allow the returns for these same investment products to be subtly overstated.

Remember that one of the true secrets of success in the investment world is not only knowing what types of investments to own, but also which ones to avoid. Make a thorough investigation of the real costs of playing any financial game so that you can assess whether you have a fair chance to win. As a result, you may discover that many fancy investment choices — such as real estate limited partnerships, hard money assets, collectible items, and managed commodity accounts — are essentially just commission-generating sales vehicles or investment-fee asset drainers that primarily benefit those who offer them. (Note: Beware of slick promotions for products that fall under the category of “alternative investments.”)

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“Finance, n.  The art or science of managing revenues and resources for the best advantage of the manager.”

Ambrose Bierce ~ Author of The Devil’s Dictionary (1911)

In today’s challenging economic climate, many individuals are feeling pressure to take on additional risk in order to receive higher rates of return on their invested funds. That’s because these people realize that they’re simply too far behind in terms of both money and time to use traditional conservative methods.

The days of easy money are largely over for the average investor. In order to succeed, today’s investor must continue to protect their capital from unwise financial decisions and unscrupulous investment advisors. In addition, they need to also put their money in the right places, in the proper amounts, and at the most opportune times. This means that the average investor is essentially forced to learn how to play the investment game at a smarter level.

For those who are managing to survive in this challenging economic climate, I offer a simple three-part solution for playing the investment game in a smarter way. These three parts are: (1) raise cash by earning more, spending less, and selling off under-utilized personal assets, (2) invest and manage your money more intelligently, and (3) adjust your lifestyle so you receive greater value and more fulfillment from everything you buy and do.

This blog will primarily address the second component of this three-part strategy, which is to invest and manage your money more intelligently. But let’s not get too far ahead of ourselves. Before we can get into the nitty-gritty of how to invest wisely in the high-risk/high-return stock market, you’ll need a better sense of the big picture of what it takes to be an investment winner today.

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“One of the troubles with Wall Street is that people either feel it’s ‘impossible’ or they figure it’s ‘easy.’”

John Magee ~ Author of Wall Street – Main Street – And You (1972)

In the time from 2008 to the present, the slow and shallow economic recovery has shaken the very foundation of many people’s financial base — job security. With high unemployment, many people have lost their primary source of income and, as a result, have depleted their savings and retirement accounts in order to make ends meet. In addition, many people have lost substantial amounts of equity in their homes, due to lower home prices or defaults on mortgage payments.

With major financial setbacks caused by decreased income, a lot of people find themselves without enough time to put away money in order to rebuild their wealth for retirement.
In addition, there are those who have lost additional capital through poor real estate deals, unwise stock market decisions, excessive personal consumption, and disastrous business ventures.

In order to take the safe and sure road to wealth through compound interest, a person needs a steady flow of income over a long period of time. So for those people who have to start over at age 40, 45, 55, or 60, there just isn’t enough time to build their wealth gradually by traditional methods.

To make matters worse, consistent high rates of return at low risk are no longer available. Some of the challenges in the current economic environment include: (1) loans for real estate and small businesses are hard to qualify for, (2) a vast majority of stocks have gained little over the last decade, (3) bonds have very little room to move to the upside, and (4) most bank savings accounts and money market funds are paying close to 1%.

So investors are facing the triple whammy of an unstable income, a shortage of time, and low rates of return. This makes it nearly impossible for many people today to come out ahead in personal finance without taking on increasing amounts of risk.

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“Money is power, freedom, a cushion, the root of all evil, the sum of blessings.”

Carl Sandburg

Up until the last decade, the traditional investment game had been an easy one to win for many people. The simple formula for achieving financial success was to spend less than you make and invest the rest. And if you started early enough, any investor could use the “magic of compound interest” to build wealth safely and consistently over time.

In a nutshell, the “magic of compound interest” is simply the process of putting away small amounts of money over a long period of time at conservative interest rates, and then the money automatically grows into a sizable fortune. The “magic” is in how a small amount of money can be mixed with persistence, discipline, and the awareness of simple mathematics to create something much larger than most people realize.

At the foundation of this traditional strategy for wealth was a secure job. A person’s job would allow that person to pay bills, buy a home, receive employer-sponsored health insurance coverage, and save extra money for retirement or investment purposes. In the past, an investor could also find respectable low-risk returns in real estate, stocks, bonds, and saving accounts. Then at age 65, people would begin receiving Social Security/Medicare benefits and cash payouts from their company-sponsored pension and retirement plans. By this time in a person’s life, many people would have also built sizable equity in their homes and assembled a large investment nest-egg with interest and principle to spend throughout their Golden Years.

Once people reached their retirement years, all they had to do was continue living within their means. This was a sound strategy for coming out ahead in terms of personal finances for the rest of one’s life, barring any major unforeseen financial, medical, or legal setbacks.

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“To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.”

Benjamin Graham