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Styles of Investing

Know who you're betting against. Be aware of how other people are trading.

 Macro-investing: Top-down approach Form views and predictions on large scale and global events in political and economic landscape

Strategy involves both long and short positions in various instruments.

Need to understand that Macro investors have a shit load of capital, hence they can swing the market based on their views so its important to understand their positions and views

 Activist Investing (trending areas) Buy large stakes in underperforming companies and try to get seats on the board with the goal of affecting major changes.

Profit comes from implementing changes that make the company more valuable. Changes can range from the dividend payout policy, cost cutting, divestment from particular projects, or even firing the CEO. Based on forcing the CEO into doing what they want to do. Make their positions clear. (buying over 5% of a company makes your trade public to everyone)

Cost cutting popular.

"Poison pill" a defense from Activist investors. Basically booby trapping an Activist investor. For example a clause that if you fire the CEO he gets a $75mil payout - very expensive. Basically disincentives to change the way the company is operating.

Price moves due to them buying capital but also the market reaction. What stops them from just buying in and out is their reputation. If they continue to pull shit people will catch on. SCC etc.

Creates volatility which is good.

Small Activist hedgefund in NZ? Market isn't really big enough but could work on a smaller scale.

  Pure Arbitrage:

Takes advantage if pricing inefficiences across securities, currencies and its derivatives to make a guaranteed, risk free profit.

Funds use computers to rapidly identify and execute trades because arbitrage opportunities only last for fractions of a second. (ETF?)

 Example:

Stock XYZ listed on NYSE at     US$100 and on the TSX at CA$130

Exchange rate is $US! -     CA$1.31

XYZ should theoretically be     $CA131

Therefore make instant $1     profit by buying XYZ from TSX for CA$130, selling on NYSE for US$100, then     converting the US$100 into CA$131

People who win have the fastest computers and best algorithms. Don't need to worry about it as an equity investors.

 Statistical Arbitrage:

Makes an expected profit Risk arbitrage carries some degree of risk and profits are made when the price converges to the theoretical price.

Far more opportunities to find.

 Fundamental Long Only: (Buffet) Buy when underpriced and sells when they are overpriced. Doesn't use short selling Makes decisions by placing bets on market expectations, also use leverage, derivatives and alternative assets. (2:1, 3:1 leverage)

 Fundamental Long/Short Equity: Similar to fundamental long but also allows for the use of short selling

Many of these funds focus on equities.

Allows for hedging, can have an overall bear view or bull view.

Most have a net exposure of 30%. 200-300% leverage.

 High Frequency Trading: Automated trading using powerful computers that use quantitative models to identify opportunities and transact a large number of trades at extremely high speeds.

Positions are held for very short periods on time.

Relies on receiving and processing information faster than anyone else.

Profits come from:

Pure Arbitrage and     statistical arbitrage

News-based trading

Latency arbitrage.

 Special Situations (Event-driven trading)

Announcement of news with an uncertain probability of a particular result, differences can appear between the market's expectations and reality.

You want to adjust your positions as the market starts adjusting to your bet.

 Merger Arbitrage: Type of special situation where the fund manager believes the probability of an M&A deal going through, or the probability of a higher counteroffer price announcement by the acquirer, is different to what the market expects.

 Fund of Funds: Invest in other funds and ETF's. Investing in managers. Not that great unless you have a large sum of capital Highly diversified but suffer from two layers of management and performance fees.

Active Strategy fund of funds:

Makes macroeconomic bets by     shifting funds into geography or industry specific funds. Actively shifts     funds around between different hedgefunds etc.

Passive strategy

Creates an efficient     portfolio across asset classes to maximize return for a given level of     risk, rebalancing the portfolio routinely

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Relevant Economic Concepts

Market Power

 Perfect Competition ->  Monopolistic Competition ->  Oligopoly -> Monopoly.  (Market Concentration Scale)

 Testing for market power: Hirschman-Herfindahl Index (HHI) based. On the total number and size distribution.

 Alpha and Beta. Beta is useful

Risk and return Stocks with a higher beta have a higher market risk, investors need higher returns to compensate for the risk.

 In a diversified portfolio in an efficient market, the idiosyncratic risk of individual securities cancel out, so only beta matters.

 Every stock can be broken into the alpha and beta risks.

 Comparable Analysis: Valtuation ratios are only useful when viewed in context of the industry. Steps

Select suitable ratios for a     basis of valuation

Select comparable companies     to use in determining the market multiple. Companies must be as similar as     possible in terms of product lines, geographies, growth potential,     profitability etc..

Select a suitable market     multiple from the comparable companies

Apply the market multiple to     a suitable performance metric for the target company to come up with     valuation.

 Limitations: The whole industry might be undervalued, so then will be your valuation.

Selecting goof comaprabels can be difficult when companies are different in many ways

Selecting appropriate ratios and weighing up ……

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Kinematics

Define displacement, speed, velocity and acceleration

 Displacement:      vector quantity, object’s overall change in position, a straight line      between starting and ending points. Distance from a fixed point in a      specified direction.

   Speed:      scalar quantity, rate of change of distance with respect to time.      (distance is a scalar, is sum of lengths moved, the actual path      travelled)

   Velocity:      vector quantity, rate of change of displacement with respect to time

   Acceleration:      vector quantity, rate of change of velocity with respect to time

 Use graphical methods to represent displacement, speed, velocity and acceleration Three types used in AS Physics:

 Displacement – time graphs

 Speed – time graphs

 Velocity – time graphs

 Find displacement from the area under a velocity-time graph

Use the slope of a displacement-time graph to find velocity

Use the slope of a velocity-time graph to find acceleration

 Derive, from the definitions of velocity and acceleration, equations that represent uniformly accelerated motion in a straight line

   V = u + at  derived from a=(v-u)/t

 V2 = u2 + 2as  derived from  t = (v-u)/a  and s = ut + ½at^2

 S = ½ (u + v)t – distance = average      velocity x time

 S = ut + ½ at2  derived from (avg.velocity) = (u+v  /      2 ) =  (2u+at  /      2) = (u + ½at), sub into

 distance = avg.velocity *      time

 Solve problems using equations that represent uniformly accelerated motion in a straight line, including the motion of bodies falling in a uniform gravitational field without air resistance

 Recall that the weight of a body is equal to the product of its mass and the acceleration of free fall

 W = mg

 Describe an experiment to determine the acceleration of free fall using a falling body

 Using equation s = ut + ½ at2 , u = 0 so s = ½ a t2

 Rearranging gives a = 2s / t2

 Set up electromagnet with      steel ball a measured distance above a receptor plate.

 Set up timer so that it      starts when electromagnet releases ball and stops when contact with plate      is made

 Carry it out, sub s and t      values into equation.

 Describe qualitatively the motion of bodies falling in a uniform gravitational field with air resistance

 Acceleration is not constant

 Resultant force = weight – frictional force

 Frictional force from air      resistance increases with object’s velocity

 As object speeds up air      resistance acting in opposite direction to gravity increases, resultant      force on object decreases and acceleration decreases

 When force of air resistance      equals the opposite force of its weight, resultant force = 0 so      acceleration = 0 , object falling at terminal velocity.

 When velocity = 0      acceleration = g as gravity is only force acting on object, no air      resistance.

 Describe and explain motion due to a uniform velocity in one direction and a uniform acceleration in a perpendicular direction.

 Break motion up into      components of the direction of force and the direction of uniform      acceleration (usually horizontally and vertically)

 Apply suvat equations

 Range of projectile = (u2 sin 2 theta) /

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Current

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Measurement Techs

Use techniques for the measurement of length, volume, angle, mass, time, temperature and electrical quantities appropriate to the ranges of magnitude implied by the relevant parts of the syllabus.

In particular, candidates should be able to:

• measure lengths using a ruler, vernier scale and micrometer

• measure weight and hence mass using spring and lever balances

• measure an angle using a protractor

• measure time intervals using clocks, stopwatches and the calibrated time-base of a cathode-ray oscilloscope (c.r.o.)

• measure temperature using a thermometer as a sensor

• use ammeters and voltmeters with appropriate scales

• use a galvanometer in null methods  (shows if current is flowing through)

• use a cathode-ray oscilloscope (c.r.o.)

use both analogue scales and digital displays

use calibration curves

Show an understanding of the distinction between systematic errors (including zero errors) and random errors

 Systematic      errors:      cause all readings to be higher or lower than the true value due to      constant error in measuring equipment (systematic error). Cannot be      eliminated by averaging. On a graph, the line does not pass through      origin

 Random      errors:      cause readings to scatter about the true value. Error due to observer.      Can be eliminated by averaging. On a graph, there is scatter about the      line

 Show an understanding of the distinction between precision and accuracy

 Precision      refers to scatter/spread of the results, how close they agree with each      other regardless of whether or not they are correct

 Accuracy      refers to the degree of agreement between the results and the true value

 Assess the uncertainty in a derived quantity by simple addition of actual, fractional or percentage uncertainties (a rigorous statistical treatment is not required).

   When adding/subtracting, we      add absolute uncertainties of the values

   When multiplying/dividing,      we add fractional uncertainties of the values

   Surds and exponents – we multiply      fractional uncertainty by the power

   Number of d.p of calculated      value has to equal number of d.p of absolute uncertainty

   Final expression of absolute      uncertainty should be to one significant figure

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Flatness

Measurement In the Macro-economy:

 Aggregate Supply curve:

 AS is always curved because of capacity in the economy

 The Flat Bit - Excess capacity, So producers are willing and able to produce more without increasing prices as marginal cost is low.

 The Steep Bit

Economy moves closer to full     employment firm are competing for resources therefore increased COP which     drives prices up. Prices rise dramatically.

 Vertical Bit - All resources are fully utilized. Therefore impossible to increase supply.

 Anything that effects COP will shift AS.

When talking about shifts in AD you must pick apart the components that are affected. (Equilibrium is called National equilibrium for  AD/AS)

 Impactful Inflation almost occurs when economy is at full capacity.

 FULL EMPLOYMENT = LONG RUN AGGREGATE SUPPLY.

 Full employment = all those willing and able to work have a job In the short run firms can operate beyond full employment as workers can work overtime (outside PPC) In the long run, LRAS = Full employment, represents the state of economy where all resources are fully utilised

 Gap between Yf and Ye is termed an inflationary gap (When Yf is before Ye) Termed inflationary gap because of competition for resources. When an economy is operating beyond full employment, competition for workers will push wages up, AS curve will shift to the left. Deflationary gap is the exact opposite.  

(APPLY THIS TO WHETHER INFLATION IS FAVOURABLE DUE TO THE ECONOMIES POSITION ON THE AS CURVE)

e.g - if economy is near full capacity Cost push will have a bigger impact as competition for resources is already tight etc…..

 Cost Push inflation

Rising COP causes short run AS to shift left Inflation up as less supply matched by same demand.

 Demand Pull inflation Heightening demand in the economy than the amount of product supplied at existing prices

Talk about Mention 2-3 components but explain ONE really well.

Usually due to economic growth so not necessarily bad depending on where the ecnomy I operating.

 Inflation Spiral

 1)Strong demand for goods (AD to right)

2)Firms pay overtime to meet demand (AS Shifts left as COP increases as overtime wages have a higher rate)

3)Higher wages leads to more disposable income (AD to right) 4)Firms raise prices (AS to left)

5)Price level increases

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Mind Your Business

McDonald's is a Hamburger Franchise, but is really in the real estate business.

Don’t mistake your profession for your business. Ray Kroc (founder of McDonald's) knew this. His profession was always the same: a salesman. He sold mixers for milkshakes and soon after hamburger franchises. But while his profession was selling hamburger franchises, his business was the accumulation of income producing real estate.

 Don’t become what you study. You'll forget to mind your own business and instead look after someone else's.

 One of the main reasons net worth is not accurate is simply because the moment you begin selling your assets, you are taxed for any gains. Your Net worth is worth less than you think.

 Kinds of assets to aquire:

  Businesses that do not     require my presence. I own them, but they are managed and run by other     people. If I have to work there, it's not a business. It becomes my job.

Stocks.

Bonds.

Mutual Funds.

Income-generating Real -     Estate.

Notes (IOUs)

Royalties from intellectual     property such as music, scripts and patents.

Anything else that has value,     produces income or appreciates and has a ready market.

 Rich people buy luxuries last, while the poor and middle-class buy them first.

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Financial Literacy

Great talent is not enough. Financial literacy is the missing skill that most people lack to boost their incomes.

In school or in the workplace, the popular opinion is the idea of 'specialization'. That is, in order to make more money or get promoted, you need to 'specialize'.

Rich Dad encouraged me to do the exact opposite. "you want to know a little about a lot" was his suggestion.

 Leadership is what you need to learn next he said. If you're not a good leader, you'll get shot in the back,  just like they do in business.

 There is an old cliché that goes, "Job is an acronym for 'Just Over Broke.'" There is another horrible management theory that goes, "Workers work hard enough not to be fired, and owners pay just enough that workers don't quit." The net result is that most workers never get ahead.

 I recommend to young people to seek work for what they will learn, more than what they will earn. Look down the road at what skills they want to acquire before choosing a specific profession and before getting trapped in the rat race.

 When I speak to adults that want to earn more money, I always recommend the same thing. I suggest taking a ling view of their life. Instead of simply working for money and security, which I admit are important, I suggest they take a second job that will teach them a skill.

 To be successful in business you have to overcome your fear of being rejected.

 The main management skills needed for success are:

  The     management of cash flow.

The management of systems     (including yourself and time with family)

The management of people

 The most important specialized skills are sales and understanding marketing. It is the ability to sell- therefore, to communicate to another human being, be it a customer, employee, boss, spouse or child- that is the base skill of personal success. It is communication skills such as writing, speaking and negotiating that are crucial to a life of success. It is a skill I work on constantly, attending courses or buying more educational tapes to expand my knowledge.

 The better you are at communicating, negotiating and handling your fear of rejection, the easier life is.

 My Rich Dad gave lots of money away. He gave to his church, to charities, to his foundation. He knew that to receive money, you had to give money. Giving money is the secret to most great wealthy families.

 You can be a hardcore capitalist with a love of socialism.

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Assembling The Pieces

Preparation:

 "The most important aspect of our system was training. Whatever happened on a Saturday afternoon has already occurred on the training ground."

 "We were careful to emphasize the need for proper recovery- not just after games but also after big competitions."

 "When a game goes in the wrong direction, it is easy for players - especially youngsters - to be controlled by their heart rather than their head. That's the last thing you want. But don’t forget that football is an emotional game  and there can be bad tackes or bad refereeing decisions that can affect people. Desire and a ferocious need to win are wonderful attributes, but they have to tempered by a cool head." "Games - like life - are all about waiting for chances and then pouncing on them"  

"Part of the pursuit of excellence involves eliminating as many surprises as possible because life is full of the unexpected. That's what our scouts, out youth system and the innumerable training sessions were all about. But there were also occasions where we did extra homework but because we felt unprepared." "I always liked to dwell on an opponent's weakness rather than their strengths. While it was good to look at a video of some of their lethal players we would find ourselves up against, ultimately no battles are won by mounting a sterling defence.  The way to win battles, wars and games is by attacking and overrunning the opposing side. So I would always dwell on our opponents weaknesses - partly to exploit them and partly to impart in my players a sense of what was possible. If you over emphasize opponents strengths, you just plant a seed of doubt in your players." "On our own team the best players used to be sticklers for preparation. That's part of the reason why David Beckham, Ryan Giggs, Cristiano Ronaldo and Wayne Rooney would all stay after training to perfect their freekicks. They would not dissapear for a long bath or a massage, or be straight out the door because they had to run down to car dealership. They would be religious about spending an extra 30 minutes trying to bend balls around a row a mannequins and past the goalkeeper. This is why they are masters."

 "There were a couple of times when we suffered setbacks that were so severe, I was forced to re-examine our entire approach." "It was a real lesson to me about the risk of clinging on to past practices and not moving on with the times."

 "In football, just like in other activities, the best-laid out plans sometimes don't work and improvisation is required. It actually happens on a fairly regular basis. I would often twiddle things during a game or at half time.

  Pipeline:

 "When you run any organization you have to look as far down the road as you can. But if your organization is anything like Manchester United, then your perspective is constantly changing. Sometimes it was possible to look several years ahead, and sometimes it was impossible to see beyond the next challenge; or, in our case, the next game. But prioritizing a long-term strategy for the club was crucial."

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Ferguson - Leading

Discipline:

 Be early ; everywhere.

 " When I go to Aberdeen which is more  a sedate place than Glasgow, I realised that I would need to inject a bit of Glaswegian ferocity and discipline into the team. I didn't spare the horses. I was aggressive and demanding and I expect not everyone enjoyed it, but it made the players into men and increased their profiles."

 Ferguson was a strict disciplinarian. "Players give the manager  plenty of opportunities to crack the whip, so its best to pick and choose the moments." " When tattooing was prevalent amongst the team….. I was always struck by the fact that Cristiano Ronaldo never chose to deface his body. It said a lot about his self-discipline"

 " I put discipline above all else and It might have cost us several titles. If I had to repeat things, I'd dp precisely the same, because once you bid farewell to discipline you say goodbye to success and set the stage for anarchy." "I always felt that out triumphs were an expression of the consistent applictaion of discipline." Work Rate:

 "There is a lot of satisfaction that comes from knowing you're doing your best, and there's even more that comes when it begins to pay off."  

"All the top managers, Carlo Ancellotti, Jose Mourinho and Arsene Wenger have formidable work ethic." "Tony Adams - "What he lacked for in talent and pace, he more than compensated for in attitude. He was an average player who transformed himself into an outstanding leader through sheer hard work and application. He always had a winning attitude, and handsomely repaid both George Graham's and Arsene Wenger's faith in him." "When winning becomes a way of life, true winners are relentless. Corny though it sounds, the very best fpotballers were competing against themselves to become as good as they could be. It was no accident that players like Ronaldo, Beckham, the Neville brothers, Cantona, Scholes, Giggs and Rooney would all have to be dragged off the training ground. They all had a built in desire to excel and improve. Gary Neville for example, pushed himself harder because he knew he did not posses the natural talent of some of his teamates . I never used to worry about what he was up to on a Friday night because, certainly in his younger years, he would always be in bed by 9:30pm." ""David Beckham was also extraordinary. When he came to us he lived in digs and would not just train in the mornings and the afternoons, but would then show up in the evening to train with the schoolboys. Beckham was always off the scales on the beep test. The same goes for Ronaldo. He had this desire to become the greatest player in the worldand was determined to do so. He also paid a tremendous attention to nutrition, which predated his move to England. These days he is religious about taking ice baths after every game so that he can continue to play at the level he demands of himself. He does not touch alcohol, and keeps himself at about three kilograms below his natural weight because, now in his thirties he has found this helps him maintain his pace." "In a perect world I would have filled every team-sheet with 11 men who had as much determination as talent. But life is not like that, and if I had to choose between someone eho had great talent but was short on grit and desire, and another player who was good but had great determination and drive, I would always prefer the latter. The former might work well for a brief period, but they never have the staying power that gives a great club stability and consistency."

 "The world's best footballers are just as disciplined, even though the occassional photograph of them sunning themselves in Dubai or at a night club with a young lady might suggest otherwise. They need to work relentlessly,l not just because that's what is required to get to the top but because there is always someone eager to take their place in the squad. It also explains why most footballers have working class roots." "I always used to tell the players, ' The minute that we don't wprk harder than the other team , we'll not be Mancvhester United." Drive:

 "For me drive means a combination of a willingness to work hard, emotional fortitude, enormous powers of concentration and a refusal tp admit defeat." "A leaders drive is infectious" Conviction: ""Most people don't have inner conviction. Their confidence is easily shaken, they blow with the wid and can be plagued with doubts. I can not imagine how anyone, without firm convictions and eep inner beliefs, can be an effective leader. As a player my condience was shaken when Rangers dropped me and wanted me to agree to a transfer as part of an exchange for another player. But I was determined that I wouldn't let them beat me, and before training I used to go and play nine holes of golf to clear my head and get ready to attack the day. I just resolved not to give in and, when they sold me to Falkirk in 1969, it was on my own terms."

 "When I did waver, or at least was not being true to myself, it sometimes took another person to shake me out of my stupor…. Jock was suffering from parkinsons but still was as shrewd as ever, and after the game we went out for dinner and he said, "That's not an Alex Ferguson team. Once you get an Alex Ferguson team, you'll be allright" It was a wonderful piece  of advice because I hadn't been entirely true to my own beliefs… Jock was telling me to be true to my own beliefs and convictions." "It's pne thing to have confidence in your own abilities. It's a completely different challenge to instil confidence in others." "Every player can have his confidence rattled during a game. They maybe having an off day, they don’t want the ball to come in their direction and, believe it or not, they may even secretly want to get substituted.  

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Leading

Listening :

 "If you are leading people it helps to have a sense of who they are - the circumstances in which they are raised, the actions that will draw out the best in them, and the remarks that will cause them to be spooked. The only way to figure this out is by two underrated activities: Listening and Watching."

 "David would look you in the eyes, lock out the rest of the world and demonstrate great interest." - Be a good listener

 "It just shows that advice comes when you least expect it, and listening, which costs nothing, is one of the most valuable things you can do."

  Watching:

 "For me there are two forms of observation: the first is on detail and the second is on the big picture"

 "You can see a lot more when you're not in the thick of things….. When you are a step removed from the fray - you see things that come as surprises - and it is important to allow yourself to be surprised." "It sounds simple to believe what your eyes tell you, but it is very hard to do. It is astonishing how many biases and preconceived notions we carry around, and these influence what we see, or more precisely, what we think we see." "I was certainly interested in what other people had to say, but I always wanted to watch with my own eyes without having my judgment swayed by the filters of others." "Observation -  sizing up others and measuring situations - is an essential part of preparation, and, at United, we had it a habit to carefully watch our opponents before going up against them in big games."

  Reading

 "We didn't lose the game, we just ran out of time." "One lesson i took from the SAS was the effectiveness of battle formation, where troops attacking on the flanks create softness in the central defences. I took that lesson right to the training pitch where we worked on it a week before a Liverpool game. I had players attacking the back post and the front post and then Gary Pallister came from right outside the center of the box the score. Infact Pallister scored twice using precisely the same ploy. It could have been a re-enactment of a battle plan."

// Never stops learning and is always open-minded to new strategies and methods. Is thoroughly eclectic and is not set in his ways like many aged people…. Is this a major part to his success? //

 "I certainly found more virtue in patiently working towards the right decision as I got older. In my eraly days as a manager I could be impetuous - always in a hurry to get things done and stamp my authority on a situation. "It takes courage to say "Let me think about it"."

"I think it's usually enthusiasm that causes this (impetus). As you get older you temper your enthusiasm with experience."

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Your Next Step

Many people may not be satisfied with my ten steps. They see them more as philosophies than actions. I think understanding philosophy is just as important as the action. There are many people who want to do, not think, and then there are people who think but do not do. Be both. So here are some abbreviated to do's

  Stop doing what you are     doing. In other words take a break and asses what is working and what is     not working. The definition of insanity is doing something over and over     again and expecting a different result. Stop doing what is not working and     look for something new to do.

Look for new ideas. For     investing ideas I go to book stores and look for different books on     different and unique subjects. I call them formulas. I buy How-to books on     a formula I know nothing about.

 TAKE ACTION! Most people do not take action or they let someone talk them out of the formula they are studying.

  Find someone who has done     what you wanted to do. Take them to lunch. Ask them for tips, for little     tricks of the trade.

Take classes, listen to     podcasts. I search the newspapers for interesting classes. I also attend a     pay for expensive seminars on what I want to learn. I am wealthy and free     from needing a job simply because of the courses I took.

Make lots of offers. You     never know what the right price is until you have a second party who wants     to deal. Most sellers ask too much. It is rare that a seller will actually     ask a price that is less than something is worth. Moral of the story: Make     people offers. People who are investors have no idea what it is like     trying to sell something. I have had a piece of real estate for months. I     would have welcomed anything. The game of buying and selling is fun. Keep     that in mind. Make offers. Someone might say "yes."

Always make offers with     escape clauses. In real estate I make an offer with the words     "subject to approval of business partner" Most people don’t know     who my business partner is. Most people don’t know its my cat.     So many people make things     to difficult and take things too seriously.      

Finding a good deal, the right people, the right business, the right investors or whatever is just like dating. You must go to the market and talk to a lot of people, make a lot of offers, counteroffers, negotiate, accept, reject. Don’t sit at home and wait for the phone to ring. Go to the market. Search, offer, reject and accept are all parts of the process in almost everything in life.

  As for stocks read Peter     Lynch's book "Beating the street" for his formula on selecting     stocks that grow in value.

Consumers will always be     poor. When the supermarket has a sale on the consumer runs in and stocks     up. When the stock market has a sale, most often called a crash or     correction, the consumer runs away from it. When the supermarket raises     its prices, the consumer shops elsewhere. When the stock markets raises     its prices , the consumer starts buying. Not financially intelligent.

Look in the right places. The     profit is made when you buy, not when you sell.

Look for people who want to     buy first, then look for someone who wants to sell. Moral of the story:     Buy the pie and cut it into pieces. Most people look for what they can     afford so they look too small. They only buy a piece of the pie, so they     end up paying more for less. Small thinkers don't get the big breaks. If     you want to get richer think bigger first.

Small people remain small     because they think small; act alone, or don't act at all.

 Learn from history, All the big companies on the stock exchange started out as small companies. Action will always beat inaction.

 These are just a few of the things I have done and continue to do to recognize opportunities. The important words being 'done' and 'do'. As repeated many times throughout the book, you must take action before you can receive the financial rewards. Act Now!  

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Getting Started

It is really easy to fins great deals. It's just like riding a bike. After a little bit of wobbling it's a piece of cake. But when It comes to money, it’s the determination to get through the wobbling that’s a personal thing

We each have a financial genius inside of us. The problem is our financial genius lies asleep, waiting to be called upon.

I offer you these ten steps to awaken your financial genius. I simply offer you the steps I have followed. If you want to follow some of them, great. If you don't, make up your own. Your financial genius is smart enough to make up it's own list.

   Have a reason greater than      reality      The power of spirit.      When asked what compelled an aspiring U.S Olympic team swimmer      with such super-human ambition and sacrifice she simply said "I do      it for myself and the people I love. It's that love that gets me over the      hurdles and sacrifices."      A reason is a combination of 'wants' and 'don't wants' I want to be rich      as I don’t want to work all my life, I don’t like being an employee. I      hated that my dad missed all my football games because he was so busy      working on his career and when he died he couldn't pass on all what he      worked for as he always worked for someone else.  I want to be free, travel the world and      live the lifestyle I love. I want control over my life and time. I want      money to work for me.      Those are his deep seated emotional reasons. So Ben what are      yours?      If they are not strong enough than the reality of the road ahead maybe      greater than your reasons. I have lost money and had many setbacks but it      was the deep emotional reasons that kept me standing up and going      forward.      Without a strong reason or purpose, anything in life is hard.

 I choose daily      The power of choice.      Our spending habits reflect who we are. Poor people simply have poor      spending habits.      Most people choose not to be rich. For 90% of the population being rich      is "Too much hassle" So they invent sayings going "I'm not      interested in money" "I'll never be rich" "I don’t      have to worry, I'm still young" "When I make some money then      I'll think about my future".      These statements rob the person to think such thoughts      if two things: One is time which is your most precious asset and the      other is learning. Just because you have no money, it should not be an      excuse not to learn. But that is a choice we all make on the daily, the      choice of what we want to do with our time, our money and what we want      our heads. That is the power of choice. All of us have choice. I just      choose to be rich and I make that decision everyday      Invest first in education: In reality the only real asset you have is      your mind, the most powerful tool we have dominion over. Each of us have      a choice of what we put into our brain once we are old enough. Do things      that will make you learn. It's your choice.      Most people simply buy investments rather than first invest in learning      about investing. I like to go to seminars. I was watching T.V and this      guy came on advertising a three-day seminar on how to buy real-estate for      nothing down. I spent $385 for that course and it has made me at least      $2million, if not more. It bought me life. I don't have to work for the      rest of my life because of that one course. I go to two such courses a      year.      Keep your mind open, don’t become arrogant and critical when you hear      something you don’t agree with. You can gain tremendous insight into the      vast resources of peoples education and experience. You still have the      old way you think, and now a different way of looking at the same problem      or situation. You have two thoughts instead of one.      There are so many 'intelligent' people who argue or      defend when a new idea clashes with the way they think. In this case,      their so called 'intelligence' combined with 'arrogance' =      'ignorance'      A truly intelligent person welcomes new ideas, for      new ideas can add to the synergy of accumulated ideas. Listening is more      important than talking.      I take a long view on my wealth. I may go in and out of stocks, but I am      long on education.

 Choose friends carefully      The power of association.      Learn from all your friends and consciously make the effort to learn from      them. Be around people that are smarter than you, better than you.      I have admittedly sought out people because they had money. But I was      not after their money; I was seeking their knowledge.      Don't always listen to poor or frightened people about money as they can      be the "Chicken Littles" of life. They'll always tell you why      something won't work.      I would say one of the hardest things      about wealth building is to be true to yourself and be willing to not go      along with the crowd.      If a great deal is on the front page it is often too late, it is usually      the crowd that shows up too late to the market that gets slaughtered.      Look for a new deal, as surfers say "There will always be another      wave"      Smart investors don't time markets. If they miss a wave, they search for      the next one and get themselves in position. Wise investors buy an investment      when it is not popular. They know profits are made when they buy, not      sell. They wait patiently.  Wise      investors take their profits and move on.

 Master a formula then learn a new one      The power of learning      quickly.      Forget "you are what you eat" rather "You become what you      study" Choose what you study carefully. When it comes to money the      masses generally have one formula they learned in school: Work hard, earn      money, pay bills, balance checkbooks, buy mutual funds and go back to      work. If you're tired of doing what you are doing, or not making enough,      it’s simply a case of changing the formula via which you make      money.      The trick is to have the discipline to put the formula      into action. This is where most people stop.      For many of the classes I went to, I did not us the information I      learned directly, but I always learnt something new.      So i always search for a faster formula.      That's why, on a fairly regular basis, I make more in one day than many      people will make in their lifetime.      In today's fast changing world, it's not so much what you know anymore      that counts, because often what you know is old. It is how fast you      learn. That skill is priceless. It's priceless in finding faster formulas      - recipes, if you will, for making dough. Working hard for money is a      formula born in the day of cave men.

 Pay yourself first      The      power of self-discipline.      If you cannot get control of yourself, do not try to get rich.      Of all the steps this is probably the hardest to master if it is not      already a part of your make up.      The world pushes people around      not because other people are bullies but because the person lacks      self-control or discipline. People who lack internal fortitude often      become victims of those who have self-discipline.      In Entrepreneur classes i teach, I constantly remind people      to not focus on their product, servive or widget but to focus on      developing management skills,=. The three most important management      skills necessary to start your own business are:      1) Management of cash flow      2) Management of people      3) Management of personal time      The skills to manage these three apply to anything. Each of these skills      is enhanced by the skills of self-discipline.      Do not take the saying of "Pay yourself first" lightly.      An individual who chooses to pay themselves first will each month,      allocate money to their asset column before they pay their monthly      expenses. My wife and I have had many bookkeepers and accountants and      bankers who have had a major problem with this way of looking at      "pay yourself first". The reason is that these financial      professionals actually do what the masses do, which is pay themselves      last. They pay everyone else first.      Have the guts to go against the tide and get rich. You      may not be weak but when it comes to money, many people get wimpy. I am      not saying be irresponsible. So although I pay my bills last, I am      financially astute enough not to get into a tough financial situation.      Let your creditors who yell at your serve as motivation to go and find      other sources of income.      So the answer is:      - Don’t get into large debt positions that you have to pay for. Keep      your expenses low. Build up                    assets first. Being      stuck in the rat race is not intelligent      -  When you come up short, let the      pressure build and don't dip into your savings or investments. Use the      pressure to inspire your financial intelligence to come up with new ways      to make more money and pay your bills.      So many times i have gotten into financial hot water and use my brain to      create income while staunchly defending my asset column.      Poor people have poor habits. A common      one is called "dipping into your savings" your savings are for      creating more money, not for paying bills. I know that sounds tough, but      as I said, if you're not tough inside, the world will always push you      around anyway.      If you do not like financial pressure then find      a formula that works for you. The rule doesn't encourage self-sacrifice      or financial abstinence . It doesn't mean pay  yourself first and then starve. Life is      meant to be enjoyed. If you can call on your financial genius you can      enjoy life.

 Pay your brokers well      The power      of good advice      My rich dad believed in paying professionals well. Today I have      expensive attorneys, accountants, real estate brokers, and stockbrokers.      Why? Because if, and I do mean if, the people are professionals, their      services should make you money. And the more money they make, the more      money I make.      We live in the information age. Information is priceless. A good broker      should provide you with information as well as time to educate you. A      broker is your eyes and ears to the market. They are there every day so      you don't have to be.      When i interview any paid professional, I first find  out how much property or stocks they      personally own and what percentage they pay in taxes. They must mind      their own business. I have an accountant that minds her own business. Her      profession is accounting but her business is real estate. Find a broker      with your best interests at heart.      Many people only manage people they feel      smarter than and they have power over. Many middle managers remain middle      managers, failing to get promoted because they know how to work with      people below them but not above them.. The real skill is to manage and      pay well the people who are smarter than you in some technical area. That      is why companies have a board of directorsand why you should too.

 Be an "Indian      Giver"      The power of getting something for      nothing.      When settlers first came to America, the Native Indians gave them      blankets when they were cold. Mistaking it as a gift, the settler was      often offended when the Indian asked for it back.      In the world      of the asset column being an Indian giver is vital to wealth.      The sophisticated investors first question is "How fast do I get my      money back?" They also want to know what they get for free, also      called a piece of the action. That’s why the return on and of investment,      ROI is so important.      My money goes into an asset and then out as soon as its paid itself off.      Therefore it makes income and I own an asset that is now technically      free.      True, i have lost money on many occasions. But I only      play with money I can afford to lose.      On every one of my investments there must be an upside, something for      free. A condo, a mini-storage, a piece of free land,  a house, stock shares, office building.      And there must be limited risk, or a low-risk idea.      So wise investors must look at more than the ROI; it's the assets you      get for free once you get your money back.

 Assets buy luxuries      The power      of focus      As i said in the "pay yourself first" section. If a person      cannot master the power of self-discipline, it is best to no to try and      get rich. For while the process of developing cash flow from an asset      column is easy, it is the mental fortitude of directing money that is      hard. Due to external temptations, it is much easier in today's consumer      world to simply blow it out the expense column. Because of weak mental      fortitude, that money flows into the paths of least resistance. That is      the cause of poverty and financial struggle.      Too often today we focus in borrowing money to get the things we want      instead of focusing on creating money. Focus on your asset column, don't      add to your liability column by getting a loan.      It is a bad habit us individuals get into. Remember the easy road often      becomes hard, and the hard road often becomes easy.      Money is a powerful force. Unfortunately, people use the power of money      against them. To be the master of money, you need to be smarter than it.      Then money will obey you. Instead of being a slave to it, you will be the      master of it. This is important as "You cannot serve both God and      Money" Matthew 6:24

 The need for heroes      The power      of myth.      Every time as a kid, when I stepped up to bat or played first base or      catcher, I wasn't me. I was Yogi Berra or Hank Aaron. It's one of the      most powerful ways we learn that we often lose as adults. We lose our      heroes. We lose our naiveté.      Copying or emulating our heroes is true power learning.      I follow what Warren Buffet invests in, and read anything I can about      his pot of view in the market. I read Peter Lynch's book to try and      understand how he chooses stocks. And I read about Donald Trump, trying      to find out how he negotiates and puts deals together.      By having heroes we tap into a tremendous source of raw genius.      But heroes do something more than inspire us. Heroes make things      look easy. It's the making it look easy that convinces us to want to be      just like them. "If they can do it so can I"

 Teach and you shall receive      The power      of giving.      Both of my dads were teachers. My rich dad gave money as well as      education. "If you want something, you first need to give," he      would always say. When he was short of money he simply gave to his church      or to his favorite charity.      If i could leave on single idea with you, it Is that idea. Whenever you      feel 'short' or 'in need' of something, give what you want first and it      will come back. That is true for money, love, a smile, friendship. I know      it is often the last thing a person may want to do, but t has always      worked for me. I just trust that the principle of reciprocity is true,      and I give what I want.      Whenever i have felt needy or short of money or short of help, I simply      went out or found in my heart what I wanted, and decided to give it      first. And when I gave, it always came back. It reminds me of the story      of the guy sitting with firewood in his arms on a cold freezing night,      and he is yelling at the stove "When you give me heat, then I'll out      some wood in."      Often just the process of thinking what I want, and how could I give      what I want to someone else, breaks free a torrent of bounty.      So that's why i say "Teach and you shall receive" I have      found the more sincerely I teach those who want to learn, the more I      learn. If you want to learn about money, teach it to someone else. A      torrent of new ideas and distinctions will come in.      There are times when I have given and nothing has come      back or what I have received is not what I have wanted. But upon closer      inspection and soul searching, I was often giving to receive in those      instances, instead of giving to give.      My dad taught teachers and became a master teacher. My rich      dad always taught young people his way of doing business. In retrospect,      it was their generosity with what they knew that made them smarter. There      are powers in this world that are much smarter than we are. All you need      to be is generous with what you have, and he'll be generous with you.

[holyindianman-blog]

Obstacles

There are five main reasons why financially literate people may still not develop abundant asset columns.

They are:

Fear

Cynicism

Laziness

Bad Habits

Arrogance

 Fear:

Overcoming the fear of losing money. Its not the fear of losing money that's the problem. It's how you handle fear. It's how you handle losing. The primary difference between a rich person and a poor person is how they handle that fear.

"If you hate risk and worry…. Start early" People are so afraid of losing that they lose.

MONEY COMES AND GO, YOU MUST LOSE MONEY TO EVENTUALLY EARN IT. LET MONEY GO. LET IT REGENERATE FROM THE LESSON TAUGHT WHEN THAT MONEY WAS LOST.

 Remember the Alamo, The Alamo story.

Rich Dad knew that failure would only make him stronger and smarter. It's not that he wanted to lose; he just knew who he was and how he would take a loss. He would take a loss and make it a win. That’s what made him a winner and others losers. It gave him the courage to cross the line where others backed out.

"Texans don't bury their failures, they get inspired by them. They take their failures and turn them into rallying cries. Failure inspires Texans to become winners. But that formula is not just the formula for Texans. It is the formula for all winners."

 People like Frank Tarkenton are no afraid of lsing because they know who they are. They hate losing, so they know that losing will only inspire them to become better. There is a big difference between hating losing and being afraid to lose.

Play to win. Don’t play not to lose.

 If you have little money and you want to be rich, you must first be 'focused' not 'balanced'. If you look at anyone successful, at the start they were not balanced.  To make progress, you must first go unbalanced. Thomas Edison was not balanced. He was focused. Bill Gates was not balanced. He was focused. Donald Trump is focused. If you have any desire to be rich, you must focus. Put a lot of your eggs in few baskets. Rather than the poor and middle class that put few eggs in many baskets.

 Just remember the Alamo

 Cynicism:

 We each have a chicken little inside of us. The cynic is really a little chicken. We all get a little chicken when fear and doubt cloud our thought. All of us have doubt. It is often our doubt that paralyses us.

 WE play the "What if game?" "what if the economy crashes after I invest" Or "what if I lose control and can't get the money back?" Or we have friends or loved ones who will remind us of our shortcomings whether we ask. Things like "If it's such a god idea why hasn't anyone else done it?" Or "That will never work. You don’t know what you're talking about." These words of doubt often get so loud that we fail to act. A horrible feeling builds in our stomach. Sometimes we can't sleep. We fail to move forward. So we stay with what is safe and opportunities pass us by. We watch life passing as we sit immobilized with a cold knot I our body. We have all felt this one time in our lives, some more than others.

 Most people are poor because when it comes to investing, the world is filled with Chicken Littles running around yelling "The sky is falling. The sky is falling" And Chicken Littles are effective because everyone of us is a little chicken. It often takes great courage to not let rumors and talk doom and gloom affect your doubts and fears.

 "Cynics never win" said Rich dad. "Unchecked doubt and fear creates a cynic. Cynics criticize, and winner analyse" was another of his favorite sayings. Rich Dad explained that criticism blinded while analysis opened eyes. Analysis allowed winners to see that critics were blind, and to see opportunities that everyone else missed. And finding what people miss is key to any success.

 When you're in doubt and feeling a little afraid, just do what Colonel Sanders did to his little chicken. He fried it.

 Laziness:

 Busy people are often the most lazy. I often meet people that are too busy to take care of their wealth. People to bus to take care of their health.

There is a common cause of laziness. People are busy and stay busy as a way of avoiding something they don't want to face. Nobody has to tell you. Deep down you know.

That's the most common form of laziness. Laziness by being busy.

 The answer is a little bit of greed.

Get out of the mentality of "I can't afford it" and change it too "How can I afford it?" The words "I can't" automatically shut down your brain and stop you thinking. Always make yourself think as it will force your brain to look for answers.

The human spirit has power beyond measure, it knows it can do anything. The words "I can't afford it" makes you angry as your lazy mind must defend its lie.

The spirit is screaming "Come on, let's got to the gym" And the lazy mind says " But I'm tired, I worked really hard today."

Or the spirit says "I'm sick and tired of being poor, lets go out there and get rich" And the lazy mind says "Rich people are greedy, besides its too much bother. It's not safe. I might lose money. I'm working hard enough as it is. I've got too much work to do anyway. Look what I have to do tonight."

"I can't afford it" also brings up sadness, depression and despondency. "How can I afford it" creates a stronger mind and dynamic spirit.

 Without that little bit of greed, the desire to have something better, progress is not made. Our world progresses because we all desire a better life. New inventions are made because we desire something better. We go to school and study because we desire something better. So whenever you find yourself avoiding something you should be doing, then the only thing you should ask yourself is " What's in it for  God?" Being a little greedy is the best cure for laziness.

Too much greed however can destroy a person.

Guilt is worse than greed for guilt robs the body of its soul.

 Eleanor Roosevelt said it best:

"Do what you feel in your heart to be right - for you'll be criticized anyway. You'll be damned if you do, and damned if you don't."

 Habits:

 Our lives are a reflection of our habits more than our education. People struggle because they have bad habits.

Poor dad paid his bills on the first of every month. He paid everyone else first, only paying himself last, if he had anything left over.

Rich dad firmly believed in paying the bills on time. Though he paid himself first before he paid the government. He still paid himself first even if he was short of money. His asset your asset column is more important than the government.

He does this for Motivation " Who do you think will scream louder if I don’t pay them - me or my creditors?"

"So you see, after paying myself, the pressure to pay my taxes and other creditors is so great that it forces me to find other sources of income. The pressure to pay becomes my motivation. That pressure made me work harder, forced me to think and all in all made me smarter and more active when it comes to money. If I had paid myself last, there would be no pressure, but I'd be broke."

Use the fear of them yelling at you to make yourself stronger.

 Arrogance

 Arrogance is ego plus income

"what I know makes me money. What I don't know loses me money. Every time I have been arrogant I have lost money. Because when I am arrogant, I truly believe that what I don't know is not important."

People use arrogance to hide their own ignorance.

There are many people in the world of money, finances and investments who have absolutely no idea what they are talking about.

When you know you are ignorant in a subject, start educating yourself by finding an expert in the field or find a book on the subject.

[holyindianman-blog]

Money Time

Fear and self-doubt are the biggest detractors of personal genius. Often in the real world it is not the smart that get ahead but the bold.

Your financial knowledge requires both technical knowledge as well as courage. If fear is too strong, the genius is suppressed. I strongly urge you to learn to take risks, to be bold, to let your genius convert that fear into power and brilliance.

 The point that I would like to make is that investments come and go, the market goes up and down, economies improve and crash. The world is always handing you opportunities of a life time, every day of your life, but all too often we fail to see them. But they are there. And the more the world changes and the more technology changes, the more opportunities there will be to allow you and your family to be financially secure for generations to come

 Take any lemon; turn into millions.

Life provides many lemons, learn to recognise them.

 If the opportunity is too complex and I don't understand the investment, I don’t do it. Simple math and common sense is all that is needed to do well financially.

 It is a matter of understanding financial statements, investment strategies, a sense of the market and the laws. If people are not versed in these subjects, then obviously they must follow the standard dogma, which is to play it safe, diversify and only invest in secure investments. The problem with 'secure' investments is that they are often sanitised. That is, made so safe the gains are less.

 Investment is not gambling if you know what you are doing. It is gambling if you're just throwing money inot a deal and praying. The ideain anything is to use your technical knowledge, wisdom and love of the game to cut the odds down, to lower the risk.

 Always remember to have fun. Investing is only a game. Sometimes you win and sometimes you learn. But have fun. Most people never win because they are most afraid of losing.

Winners are not afraid of losing. But losers are. Failure is part of the process of success. People who avoid failure also avoid success.

 There are two kinds of investors:

People who buy a packaged     investment. They call a retail outlet such as a real estate company, or a     stockbroker or a financial planner, and they buy something. A good clean     and simple way of investing. Like going to a store and buying a computer     right off the shelf.

Investors who create     investments. The investor usually assembles a deal much like people who     buy components of computers and then put them together. Its like     customizing; like putting pieces of opportunity together. Probably the     professional investor.

 To be the second type of investor you need to develop another three skills on top of being financially literate:

  How to find an opportunity     that everyone else has missed     See with your mind what other people miss with their eyes.

How to raise money     The average person only goes to the bank. You must know how to raise     capital without requiring a bank. A majority of people let their lack of     money stop them from making a deal. If you can avoid that obstacle, you     will be millions ahead of those who don’t learn those skills.     There have been many times I have bought a house, a stock or an apartment     building without a penny in the bank. I once bought an apartment house for     1.2million. I did what is called "typing up" with a written     contract between buyer and seller. I then raised the $100,000 deposit,     which bought me 90 days to raise the rest of the money. Why did I do it?     Simply because I knew it was worth $2million. I never raised the money.     Instead, the person who put up the $100,000 gave me $50,000 for finding     the deal, he took over my position and I walked away. Total working time:     3 days. Again, it's more what you know more than what you buy. Investing     is not buying. Its more a case of knowing.

How to organise smart     people     Intelligent people are those who work with or hire a person who is more     intelligent than they are.

 There is always risk, so learn to manage risk instead of avoid it.

[holyindianman-blog]

Corporation

Be smart about tax. You never have to pay as much as the government sets it out to be. Be informed about legislation. Find and use loopholes.

Corperations are just a file of papers that sit in some attorneys office. It is you without your soul. Coperations can pay expenses with pre-tax deducted dollars. Be smart. Find a way to minimise the effects.

 The tax man will always take more money if you let him.

IF you work for money you give the power to your employer. If money works for you, you keep and control the power.

 You need to know the law and how the system works. If you're ignorant, it is easy to be bullied. If you know what you're talking about you have a fighting chance. That is why he paid so much for smart tax accountants and attorneys. It was less expensive to pay them than the government.

 Financial IQ is made up of knowledge form Four Broad Areas:

  Accounting     What i call financial literacy. The more money you are responsible for,     the more accuracy is required, or the house comes tumbling down. Financial     literacy is the ability to read and understand financial statements.     Allowing you identify the strengths and weakness of any business.

Investing     The science of making money. Involves strategies and formulas.

Understanding Markets     Science of Supply and Demand. There is a need to know the technical     aspects of the market which is emotional driven. The other market factor     is the fundamental sense of an investment: Does it make sense or not with     the current market conditions. When to restrict supply etc….

The Law     An individual with the knowledge of the tax advantages and protection     provided by a corporation can get rich so much faster than someone who is     an employee or small - business sole proprietor. It's like the difference     between walking and flying.

 Advantages of corporations:

Tax advantages     An corporation pay expense before they pay their taxes. Employees earn     and get taxed and try to live on what is left. A corporation earns, spends     everything it can, and is taxed on anything that is left. They're easy to     set up and are not expensive if you own investments that are earning good     cash flow.

Protection from     lawsuits     The rich hide most of their wealth using vehicles such as corporations     and trusts to protect their assets from creditors. The rich control     everything but own nothing. The poor and middle class try to own     everything and lose it to the government or fellow citizens.

 To really explore the power of corporations read "Inc. and Grow Rich"

[holyindianman-blog]