Don't Invest - Speculate. Learn the speculation rules governing your time and money. When it is your money - speculation rules!
Monday, January 30, 2006
Buy - Don't Be Sold
Research of speculation options has never been easier.
Learn for yourself the best ways to research and purchase your speculations.
Hang up if someone telephones you with a stock, option, or commodity tip. They are after a commission, they want your money - they are not interested in making you money.
Delete e-mails with promises of great returns, and "proof" of success. Figures don't lie - but liars sure can figure.
If someone contacts you to sell you something - don't even listen.
Think about what you hear on the news. Read good books on investment and speculation. Research with free on-line services that provide data.
Do it yourself - for yourself.
Once you know the asset class in which you want to speculate - research the brokers and advisors in that arena. If they call you first - hang up.
You want to be in charge.
Pick your broker on price and service, pick your speculation on the elements we discuss here or that you learn from good books.
Ask your broker for help if you need it, you are paying him for service, but don't let him talk you into anything; not anything at all.
Nobody cares more about your money than you do - unless the plan to steal it.
In the first part we discovered how wealth can be built over time with compound interest. Here we will look at becoming rich by speculation - which should be combined with part I.
Being young you have time to study markets and learn to ride asset class waves. The freedom of only investing when there is a positive climate can yield large rewards.
You have a huge advantage over professional investors.
Professionals get their MBA and dive right into a specialized financial niche. As a private investor you will not be better at analyzing bonds than a bonds pro, or better at trading wheat than a wheat specialist.
You can be good at guessing what's next, and learning how to profit in the almost now best sector to invest.
If you think metals will take off as China's growth accelerates, you can research iron, gold, and uranium. The bond and wheat trader will still be great at their niche, but that's it.
When in a decade or two you decide everyone hates stocks and bonds, you can switch back and buy some financial or paper assets..
If the professional bond trader is still in business, he'll still be great at bonds.
You can be a generalist, you can switch asset classes at will, you can succeed. You can also have compound interest working on your behalf.
There are two factors that provide an avenue to wealth for the young - compound interest and the freedom to speculate in a wide range of investments.
If you are young you have time working for you. Rothschild talked about compound interest being the eighth wonder of the world.
Learn the rule of 72.
divide the interest you receive into 72, that is how many years it will take for your money to double. At 1% it will take 72 years, at 25% it will take less than 3 years to double.
Real big gains don't work out, but "72" is a nice rule of thumb.
It also works the other way. Your uncle brags he bought a car in 1980 for $5,000 and sold it in 2000 for $20, 000. Sounds good.
5k doubled is 10k, doubled again is 20k - that is two doubles in twenty years. Take the ten years to double - divide it into 72 - he earned about 7.2% on his money. Good - but not great.
If you can get 15% on your money, a very tough thing to do, it will double about every 5 years.
If you are 15 years old and save $1000 - at 15% it will be $2000 at your twentieth birthday. That is enough to buy a used motorcycle and start over. If you leave it alone it will be $4000 when you are twenty five, $8000 when you are thirty, $16000 when 35 - 3200 @ 40 - 64k at 45 - 128k @ 50, --- and over a quarter million dollars by the time you retire early at 55 years old.
What happens if you drop in another $1000 next year and let it compound. Maybe you can drop in $3ooo when you are 18 and get a good job.
You may not have to wait till you are 55 after all.
You don't even become rich overnight - wealthy requires a plan and time.
Get rich quick schemes have one advantage - they can change you from poor to broke. Sometimes as Ben Franklin said - get rich schemes will just get you in jail.
Poor is an attitude and a life style - you will need to want to change if you are to become broke.
Broke is a temporary condition before you ascend to comfortable.
You will not become wealthy with a job - however much we earn - we can find a way to spend it.
The first step out of broke is to acquire assets. Once you own something that is exclusively yours, you are no longer poor. A savings account works, but is easy to spend, has its interest taxed yearly, and even with auto withdrawal from paychecks is a bit too ready of cash.
Buying a house works, sometimes. This is probably not one of those times. Even if property prices continue to rise, an unlikely possibility, the dollar they are priced in will probably fall. In this environment you won't build lasting wealth by making payments.
Unless you pay yourself.
For those of you that understand speculation, you can come back for Friday's post because we are now going to talk about (gasp) long term investment.
You can afford this, even if you are poor. Minimum account size is $20.00, take it out of your lottery contributions. Choose automatic dividend reinvestment. Set it up to take a few dollars or more from your paycheck or bank account regularly.
Ten percent of your pay would be great, you will be paying yourself before you spend it on others.
Once you own 100 share of a solid company, you will no longer think poor. Depending on the company, you may be broke, but you will be on your way up. Your attitude toward life will probably change.
Yes we are probably entering a depression. In ten to fifteen years we should exit it. If the country you live in still exists, you will have quite the basis to grow in the next period of good times.
I could be wrong, we may never see depression again - very good. I am betting however on the history of the human race - three steps forward, two back.
Here also is a new write up by Doug Casey, note it is labeled an advertorial. Doug is an honest kind of guy - most of those that create wealth are. Doug sees a similar bleak future as myself - and he is a proactive speculator.
So if the future is bleak, why start investing now?
I, and other contrarians, could be wrong
A good habit, once formed, can grow and develop other good habits
Dollar cost averaging
Dollar cost averaging is a financial trick you play on yourself.
If you spend ten dollars a week to buy a solid company with stock priced at $20.00 a share, you are buying a part of that company - at half a share a week. If the price per share goes up - you make money.
What if the price goes down? The comic's response is don't buy it in the first place.
In reality you keep up your ten dollars a week through the whole depression. When the stock is at $10.00 per share, you are buying a share a week, if it drops to $5.00 a share you are buying two shares a week. When the depression ends you will own a larger part of the company, more shares, than if the price had stayed at $20.00 per share.
Your average price per share is now well below $20.00, as the price goes up in good times, you hit break even and beyond sooner - and start gaining wealth.
After you have 100 shares of the first stock, switch to a second stock. You will know more by then, and can select one in tune with the times. Every time you get to a hundred shares switch your investment choice. At some point you may decide to re-read this blog and start speculating.
Jim Rogers knows how to speculate and profit before the investment crowd arrives.
Gold is a very hot market right now, and is likely to stay hot. Rogers believes there are better commodity markets to explore.
I would listen to Jim Rogers.
Read this article, one of many reflecting Rogers outlook and success. Commodities are at the start of a solid bull run. The waiting for the initial move is over.
This is a good time for us gold bugs to take a little profit and diversify. Gold will continue it's bull market, but there will be some hard and fast declines that may scare you out of your positions. Get a bit smaller in gold, seek some non-correlated speculations elsewhere.
I will be wrong at times, Rogers will be wrong less often. If all your eggs have been in one basket, it may be time to move some eggs to the refrigerator.
Wealth is made through concentration, wealth is preserved through diversification.
Rogers has made his wealth, that may put him at another stage of speculation than you. With wealth you can be a year or two early with speculations, and wait for markets to catch you.
If you are creating wealth - the sweet spot of the trend for commodities seems to be upon us.
Don't try to capture the first ten percent in gold and commodities. You would have had to sit patiently and wait for that. Don't try to capture the last ten percent in the stock market. When stocks drop it could be very quick.
Asset classes move in long cycles. Financial assets, paper claims like stocks and bonds, are likely and the end of their trail. Real physical assets, commodities, gold, and such are probably at the start of their climb.
Folks will tell you the masses are always wrong. That is not true. The masses can be right for a long time in the middle of a move. It is within that trend where you will make the bulk of your profits, by sitting.
Keep your losses small - let your profits run.
It is at the end of a move where the crowd goes mad. When you, and almost everyone you know is excited or depressed about something - it may be time to move away from the herd.
Take a look at the Jim Rogers article.
Read Jim Rogers' books.
Prepare yourself for change.
We have started a new cycle, there will be ups and downs, the commodities trend now seems to be mostly up.
Rational & Efficient Markets - Tain't No Such Thing
You may have learned about rational markets & efficient markets in college.
You poor thing.
They probably taught you all sorts of fancy economic models to describe markets and market participants. If you took graduate economics courses you learned how to destroy existing models and build others.
They told you markets are efficient because investors will rationally weigh the knowledge available and that knowledge will be reflected in investment prices. Basically they said a price in an open and free market is always the right price.
In reality an open market price is an agreement between two people that both think or feel they got the better of the other. If they did not perceive an advantage for themselves they would not trade. That perception does not have to be rational.
Markets are made of people. There were once bull markets for elmo, cabbage patch dolls, beanie babies, and pogs. We are just off new highs in a bull poker market.
In that great financial training filmMen In Black two of the characters have some Dialog that goes something like this:
Will Smith as MIB: "Why don't we tell the people? People are smart, they can handle it."
Tommy Lee Jones as MIB II: "You know better than that. Individually people can be smart, as a group they are irrational, screaming, idiots."
( Governments actually do follow this thought process regarding citizens. As a group bureaucrats, voters, movie stars, elected officials, media - they are also irrational, screaming, idiots)
We are people, you and I, and we know that individually we can be irrational and / or make serious errors in judgment. Markets are made of people like us. Together as "the market" we can be irrational, screaming idiots.
Is your house really worth twice what it cost three years ago? Are increased uses for silver and a decreasing supply of silver a rational reason for years of prices drifting lower?
Keynes, the father of modern silly economics did get this one right. He said something to the effect: "The markets can stay irrational longer than you can stay solvent."
This means rational investments recommended by wise and studious analysts can go very wrong for a very long time. They will have a great excuse, and eventually they may make some money. In the meantime you could go broke.
You can be right on your speculation - but wrong on your timing - and still lose money.
The key to speculation is to cut loses short, and let profits run.
Here is another Speculation Rule:
Never, ever - even consider adding money to a losing position - never, ever!
If it is losing, you were wrong. If not in fact - than in timing. Get out of the speculation and look for an entry point where you have a chance to be right.
Markets are irrational, there is no reason for us to be irrational also.
Dr. Skousen is easy to understand, and has a great track record in investments.
I may not always agree with him, particularly on timing, by I always pay attention to his views.
His free twice weekly newsletter is received by over a quarter million people. He frequently offers advice contrary to that of other advisors.
You know I don't listen to modern economists - I do however listen to Mark Skousen.
We have our own Bastiat Free University if you want to study deeper. But it might be worth while to first study the simple truths available free at Investment U.
Investment U - No Books, No Schools, No Brokers.
"Investment U's mission is to help you master the investment principles that can dramatically boost your portfolio returns, and to show you how you can consistently succeed in all kinds of markets. And we do it in plain English, using real-life examples, not in textbook mumbo jumbo."
Gold Chuckles is the article Bonner has gifted us with.
Bill is a cogent observer of fundamental financial factors. Bill has watched and written as the world has changed over the last couple of decades. This summation of the current status of gold is an enjoyable read, and quite elucidating.
"That gold has a sense of humor is beyond question. We hear it laughing every time Alan Greenspan opens his mouth. You'll recall that Mr. Greenspan was once a close friend of gold. The two were practically bosom buddies. Greenspan wrote that gold was indispensable to an honest money system. Of course, that was before he came to head up the largest and most cocksure central bank in history. Since then, he's hardly had time for his old pal. He has new friends in very high places."
If you are considering a speculation in gold, this article may change your mind.
My personal take is that gold has started a long term bull move; that makes any counter trend bets risky. I also expect gold retracements to be sharp and brief, it will be hard to make money on the short side. Of course I could be wrong, that is why I will be careful - exercise care yourself - don't count on my current thoughts.
Do read Bill Bonner's article even if you do not plan to invest in gold, it has useful information for any speculation.
Adam Hamilton has a nice bit of information about "real gold."
I like his observation that inflation is government creating too much money, and higher prices follow. To read the papers, or listen to the talking heads, inflation is caused by business and labor.
In reality capitalists and workers are just trying to keep up with the inflation monster created by government printing presses. Of course government wrings its collective hands, saying it has to take more control of the economy to squash the monster.
My one reservation is that in using government inflation figures, Hamilton is basing his conclusions on a lie. Money growth is the true measure of inflation. The damage he sites has actually been much worse.
This report is well worth the read, not for an insight on gold; but like a bucket of the cold water in the face - it does have the ability to wake us up.
Any energy speculation you make should take into account not just player's size, but player's tactics.
That of course is the problem. The relationships are too complex and fluid, and too open to non-linear shocks, to predict. An investor that relies on expert analysis will be surprised, as will their adviser.
Speculate instead. Take a solid educated guess with a small part of your funds - then limit losses - and let profits run.
Your first goal is to survive, then to profit.
You can't win if you don't play. You can't play if you go broke.
There is a balance, your portfolio size and risk profile will help you determine your commitment level. Risk as small an amount in correlated investments as will yield a meaningful result.
The headline game theory vs chess, was a bit of a red herring. That is the point, in life you never know what is coming next.
The key is that whatever tools you use to pick your investment, they will fail.
How you handle failures of analysis determine if you will be around for success.
Maybe it is easier to say "... people's beliefs and convictions are in almost every case gotten at second-hand, and without examination." - Mark Twain
Perhaps Socrates was a bit harsh when he said : "An unexamined life is not worth living." We however can defiantly say - an examined life has more value.
To the person themselves, and to all of society.
If we are to have an examined life, speculation is a part of the process.
In fact speculation is derived from roots that denote looking closely, from several angles. Financial speculation also connotes making a decision without seeing complete information.
In the markets by the time there is full knowledge, it is usually too late to act.
"May your trails be crooked, winding, lonesome, dangerous, leading to the most amazing view. May your mountains rise into and above the clouds." - Edward Abbey
That defines life.
You can hide - or you attack life and get the most out of it.
You don't have enough advantages in your life to attack?
Look up the life of the gal that wrote this next comment. If you have less than she did, maybe you too can do something worth a quote.
"Life is either a daring adventure or nothing. Security does not exist in nature, nor do the children of men as a whole experience it. Avoiding danger is no safer in the long run than exposure". - Helen Keller
If you want that most amazing view - squeeze everything you can from life.
Doug Casey is a legend in the contrarian, international real estate, and speculation ranks.
Doug Casey wrote an excellent article The Speculator as Hero.
He frequently seems to be too early, and often is very right.
Wealth is made through concentration, preserved through diversification. Doug Casey can help us with both.
Five or ten years ago I picked up some uranium speculations based on Doug's research and recommendation.
I doubled my money and moved on.
I would have done far better if I had held those positions longer. - Doug Casey is that good. My patience is that poor.
I have benefited from several other speculations he has suggested.
Doug is also willing to admit when he is wrong, a very valuable personality trait.
He has helped construct a course at Bastiat Free University based on influences that have shaped his life. - It is far better to get advice from a successful thinker & doer like Doug Casey than from a professor with book knowledge only.
(if you need a PDF reader try the free foxit reader on our download page, very cool) If you want regular updates of what Doug Casey is doing, subscribe to his excellent news letter The International Speculator. In his newsletter we do not just get some speculation ideas to research, we find a wonderful knowledge base for profiting in our crazy world.
I get nothing for this recommendation, I have not even told Doug I am writing it. I do feel everyone that invests should read some Doug Casey first. His best sellers are out of print now, look in the used book stores.
Always read the books about a speculation before you buy the speculation.
You can start exploring Doug's insights by reading his essay.
Elliott Wave is a very successful form of financial technical analysis.
There have been some spectacular successes, and some dismal misses using Elliott Wave.
Elliott Wave is well suited to speculation. When Speculating the key is to let your profits run and cut your losses short. Make big money on large, long market moves, lose a small amount many times on misses. - The end result can be spectacular returns.
With Elliott Wave you can pick a price point before you enter the trade that will indicate you are wrong. This allows you to exit quickly, preserving capital for when you are right.
Go to this site to get a free tutorial in Elliott Wave from some of the top practitioners of the art. You will have to join their free club, do it.
There are more benefits to the free club than just the tutorial, and the free Elliott Wave tutorial is valuable.
Elliott Wave is an art, not a science; but it is an art based on real numbers. These books are practical, but they will also let you appreciate the art.
For those half price Elliott Wave books there are a pair of them at the BFuniv.org bookstore.
The Elliott Wave Principle lists for US$55.00, I've seen it on sale around $35.00; at the BFuniv.org bookstore it sells for $24.99.
Conquer The Crash lists for $19.95, I've seen it on sale around $15.00; at the BFuniv.org bookstore it sells for $9.99.
To insure that half off, if you just buy Conquer The Crash it will be $9.50 with a mention of Speculation Rules.
Mention on your check, or dollar denominated draft, that you were sent by Speculation Rules and you can get both books for $30.00.
send us an e-mail at sale- at- BFuniv.org to expedite service. We really have not had time to finish construction of the store, watch your step. Once BFU itself is done the store will follow.
This is just while supplies last.
Two Great Books - one low price for both. Go for it!
Economists - Intelligent Design and Evolution In The Markets
Economists - Intelligent Design and Evolution vis-a-vis Free Markets and Market Interventionalism.
I don't agree with either EvolutionorIntelligent Design; put me with the late R. Buckminster Fuller as a Devolutionist, for now.
But we are talking markets and economists here.
This is none the less an informative article on the corollary debate between free markets vs. interventionalism and the debate of Evolution and intelligent Design.
The fact I disagree with the precept of some arguments does not mean I can not learn from reading them. I am willing to change my own precepts if they prove wrong.
Those of you that have read my writings know I think left and right are real fuzzy terms. I prefer totalitarian and liberty as the extremes on the continuum. That likely puts both sides of this debate on the totalitarian side of the ledger; one just a bit further left than the other.
develop your own opinion on that. To me the fact that both sides seem to support public education is a direction sign.
The fact that I have little respect for most modern economists, is just the viewpoint I enter with. I try to keep an open mind and weigh information impartially. - I have been wrong enough I do want to be open to truth.
We can accept that any and every action has an attendant risk, or we can run and hide.
What is important is understanding the degree of risk and the appropriate actions required.
Risk is part and parcel of life. If you are not worried, you are not risking enough. - Or you are dead.
The key is not to avoid risk but to manage risk. - "Ya gotta pay attention."
Limit the dangers of risk by creating and following speculation rules.
Embrace risk, the worry that comes with risk, and the rewards for properly managing risk.
Speculate within your knowledge, skill, and talents.
If you are just starting, very small bets are meaningful. - You can expect to lose.
You are buying experience, get it on sale.
If you are lucky and start as a winner, be extra careful, it is easy to overextend and then get trapped.
Buy and read good books; knowledge multiplies experience, greatly increasing the value of your small bets.
It takes years to become proficient at any skill. If those years are all in the same type of markets, it may take even more time.
Remember, you don't have to play.
Professionals play constantly, that's their job. You can choose to play only when the odds are heavily in your favor, and pass when they aren't.
When your rules and observations show it to be a propitious time, commit enough to make a difference. Leave the game when your rules and observations indicate increasing risk without attendant rewards.
Being in cash is also an investment decision. It is always easier to make intelligent decisions about a market when you are not currently invested.
The US has been in financial trouble for a very long time.
There is no way the markets should not have crashed, and the economy imploded by now.
It didn't happen.
It may happen tomorrow, it should have happened a decade ago, it may not happen for years.
As a speculator you sometimes get wrapped up in the spectacle and slip into anticipation.
That is the time to take a step back and listen to folks you respect that have a different outlook.
Here is an update from PIMCO, a most successful investor in debt. I look at what is going on in the world and expect doom; PIMCO looks and sees profits. I respect their analysis, and will use it to balance my outlook.
Here is a nice speculation rule:
You can be absolutely right on the speculation but a bit wrong on the timing; and lose.
I will play the speculation, but rules and experience - and smart people on the other side of the trade, will help me keep small.
{{I made a mistake and posted the Beautiful Pictures review to the A Sovereign Speculator site. It is not my first mistake of the day, nor will it be my last.
I have copied the review to here, and as I rather like the review and the book, I'll leave the post at both places.
Had there been a real emergency you would have been directed to my Virtual Chapel site.
We now return you to your normal book review already in progress.}}
First it is a beautiful book that will look terrific sitting on your coffee table - if you are a trader that is quite the bonus.
Second this book is full of well presented and valuable information.
Prechter's years of experience have given him the humility of knowledge. You can tell he knows and loves what he is presenting; but he also knows he has just scratched the surface of what he hopes will become the new millennium's newest science.
Here is a quote from the introduction: "We discover that the 'roughness' in the stock market -- its supposed 'irregularity' -- may be an artifact of insufficient observation."
The difficult math has been done by Prechter, leaving all your brain cells to deal with the concepts presented.
I think we can divide the second purpose of Beautiful Pictures into two parts, Robert Prechter as tutor and Robert Prechter as resource.
I have not yet finished the book, but I have already learned a great deal, and renewed a great deal of knowledge I had forgotten. I use many forms of analysis, Elliot Wave theory has been in my tool chest for years. Many times an Elliott Wave pattern will jump out at you, screaming for a trade, that I do try to notice.
There are many intricacies of Elliot Wave that I do not use, but with the elegance that is a mathematical structure this book presents them in attractive form.
That is the resource value of the book. Once finished it will reside on a shelf by my computers, along with a select few books. Beautiful Pictures will be used. As I see patterns developing in markets, I reach for these books to sharpen my eye as to what the tape is saying.
That is a good summation of the book. Beautiful Pictures is pleasing to the eye of the novice - and it is training for the eye of the experienced.
Quote from A World of Randomness by Nassim Nicholas Taleb.
"Let us assume that the reader shared my opinion, that the market over the next week had a 70% probability of going up and 30% probability of going down.
However, let us say that it would go up by 1% on average, while it could go down by an average of 10%. What would the reader do? Is the reader bullish or bearish?
The best description of my lifelong business in the market is "skewed bets," that is, I try to benefit from rare events, events that do not tend to repeat themselves frequently, but, accordingly, present a large payoff when they occur.
I try to make money infrequently, as infrequently as possible, simply because I believe that rare events are not fairly valued, and that the rarer the event, the more undervalued it will be in price.
In addition to my own empiricism, I think that the counterintuitive aspect of the trade (and the fact that our emotional wiring does not accommodate it) gives me some form of advantage.
One such rare event is the stock market crash of 1987, which made me as a trader and allowed me the luxury of becoming involved in all manner of scholarship.
Many traders aim to get out of harm's way by avoiding exposure to rare events - a mostly defensive approach.
I am far more aggressive than those traders and go one step further; I have organized my career and business in such a way as to be able to benefit from them.
In other words, I aim at profiting from the rare event, with my asymmetric bets."
Nassim Taleb is the author of the interesting book Fooled By Randomness that we have reviewed before.
Taleb can help you see the markets in a way that will both protect your wealth, and increase your returns.
Always read the books before you make a speculation.
