Friday, December 30, 2005

"Investment" is a Risky and Dangerous Word

Investment sounds so solid and respectable, speculation seems risky.

The truth is both are risky.

That is why investment is so dangerous.

I read someone that said
investment is a seeking of return while speculation is a gamble.

Most folks invest, that is why more money is lost through investments. A government bond that returns four or five percent is an investment to these advisors. The fact that money growth is far greater than that, meaning inflation is greater than your yield, is not mentioned. That safe bond under those conditions loses value
every year.

The investment safety of a guaranteed loss.

Most investments are like that, they seem safe, but the undisclosed and hidden risks are stealing your money. Not to mention the fees or commissions your advisor takes for leading you to the

No one cares more about your money than you do - unless they plan to steal it.

Learn to speculate, not invest.

Speculation requires that
you do some research and take some risks.

Life is risk!

Don't let someone talk you into something "guaranteed" so as to avoid risk. The risk will still be there, only well hidden. It is better to enter a speculation where the risks are mostly well known and then manage your risk and money well.

Since life is risk, don't hide from risk, manage risk.

Here is a write up by Richard Appel on the 321Gold web site. While I'm not endorsing his current views, Richard does make solid general points along the lines we are discussing. (I do have some gold speculations, but I will make my own entry and exit decisions, do the same for yourself.)

The key is that
all investment is speculation. Salesmen and professors at college are playing word games that effect your money to say otherwise.

Inflation, caused by an overabundance of money created by the government, is just one of many risks your wealth faces.

Learn to guard your money.


Thursday, December 29, 2005

Book Review - Fooled By Randomness, by Nassim Nicholas Taleb

Fooled by Randomness is an eye opener.

Don't let my stilted prose keep you from this book.
Fooled By Randomness is a very pleasurable read.

From the Book:
"Nero Tulip became obsessed with trading after witnessing a strange scene one spring day as he was visiting the Chicago Mercantile Exchange"...

As a disclaimer Nassim Nicholas Taleb has helped create a graduate course at Bastiat Free University that focuses on what has influenced his own success.

A version of the old saw,
it is not what we don't know that hurts us, it is what we know and we are wrong that is dangerous.

Life is not linear and life is not simple.

We are used to making decisions based on obvious choices. Nassim Taleb shows that the complex decisions required in investment do not respond to an intuitive guess or obvious shortcuts.

Those that would take our money are very willing to use short-cut reasoning, and they
may not even know why it is flawed.

Taleb makes a point of showing errors in the thought process or errors of logic that lead us to improper decisions.

Each of Nassim Taleb's points can save or make you money.

Fooled By Randomness Taleb disagrees with much of what goes for wisdom in financial markets. He proves points with a minimum of math, all easily understandable.

I have read the book several times, I will read it again.

For one thing, I enjoy reading Fooled By Randomness.

For another thing I like to win in my speculations.


Wednesday, December 28, 2005

Speculation Success Is Dangerous

It Is easy to believe you are a genius after a string of successful speculations.

In a long bull market, everyone thinks they are above average.

When the market changes perception is slow to follow. It is easy to keep doing what you were doing, and quickly go broke.

If a speculation is easy to do, or easy to find, it will end suddenly.

There are a million ways to make a million dollars in the market, all of them are hard to find.

Decide what your target is before you shoot. After you hit the target, get smaller or even get out. It is always easier to make smart choices when you are not committed.

The key is to avoid greed. In fast moving markets like gold shares it is common practice to half your commitment if the share price has doubled. That leaves the initial investment available for another speculation and still gives you plenty to play with.

Remember to let profits run and cut losses short.

Let's say your selection and timing are bad enough only 20% of your speculations work. If you have five stocks, each with $1000 invested you have $5000 at risk. Four of the stocks drop and you sell taking a 10% loss on each. You now have $3600 cash after the $400 loss on those four stocks. The other stock doubles to $2000 and you sell half. You have one good stock now worth $1000 and cash of $4600 for a portfolio worth $5600.

Hopefully you can do better than 20% right. You can probably do better than a 10% stop loss if you are careful.

Back to the main point, this is a style of speculation that may protect you somewhat when the market turns. There are many tools to keep yourself from danger, study as many as you can find.

Knowledge is the key.

Always buy the book before you buy the speculation.

Add knowledge and thoughtful experience together and you have the ingredients, if mixed properly, for wisdom.

Wisdom will not save you from occasional losses, but it may keep you from going broke.

Tomorrow's market will be different than today's. You will have to learn and use different styles of speculating to maximize your expectation.

Just don't let success destroy your gains.


Tuesday, December 27, 2005

Free Elliott Wave Theory Tutorial

Learn one branch of market timing at no-charge with this free Elliott Wave course.

The bunch of Elliott Wave enthusiasts gathered around Robert Prechter have put together a no charge basics course that we can all review and understand.

They also have a free club that prints up occasional articles and analysis of Elliot Wave for members. You will be asked to join the club, for free, to access the tutorial. I've been a club member for many years, still free, still valuable.

This is what they say about their free course:

Elliott Wave International's tutorial is the most comprehensive introduction to the Elliott Wave Principle available in cyberspace. All ten lessons have been adapted from Prechter and Frost'’s Wall Street bestseller, Elliott Wave Principle - Key to Market Behavior.

To start your Elliott wave education now, click here.

If you just want to buy and read a book try The Elliott Wave Writings of A. J. Frost and Richard Russel.

A book that I enjoy is Socionomics by Robert Prechter. This book has a very wide view of Elliott Wave, applying it to everything from music to fashion to violence in movies and society. Of course it relates Elliott Wave to the markets also. This is a two book set, and a good read.

There are also a couple of books in the Bastiat Free University store at a great price if you want to look there. The BFU virtual store is under construction, watch your step.

If you want to view a fairly complex but quite useful no charge analysis of current Elliott Wave patterns check here. This analysis is of the Dow and S&P500 by someone not associated with the Elliott Wave theorists group; view this PDF by Zorian Gayer as provided by the Safe Haven feed.

There is a lot of good, free information on Elliott Wave out there.

If you want to really dig in and understand Elliott Wave, there is a book store run by Prechtor's group.

If you are new to technical analysis, this is just one style. It has had some spectacular long term hits and a few dismal errors over the years. It is very valuable at times to find entry and exit points in markets short term. I have just ordered the Beautiful Pictures book from the Elliot Wave book store, I'll probably review it here.

is a fun and useful field to explore.

Hari Seldon, of the Foundation series of books by futurist Isaac Asimov, would understand.


Friday, December 23, 2005

There Is No Speculation Santa Clause

Just a Market Grinch that wants to steal your milk and cookies.

Hope is a dangerous emotion when speculating.

Hope can keep you in losing positions far too long.

Constantly check the reasons for entering the trade in the first place. If the trade does not act as anticipated, within the time frame expected, get out.

It is far easier to think rationally when your money is on the sidelines.

Hope that is not backed by solid reasoning will steal you blind - because hope alone can make you blind.

If your trade starts to turn bad remember this point:

  • When you are in a hole, stop digging.

It will be much easier to plan when all speculations are available to you. The other option is trying to rationalize just the one in which you are behind.

There will be other, better plays - let the loosing one go.


Thursday, December 22, 2005

How To Make A Million Dollars Investing

Start with two million dollars.

An old story talks about a broker in New York talking to a client about the yachts anchored in the harbor. "That huge one belongs to our owner, that one there belongs to our top broker, that blue one is our economist's yacht." The client then asked; "where are the customer's yachts?"

As a guess most brokerage customer's yachts are anchored in their bath tub.

Joking aside, the time you spend learning about managing your own money is very valuable time. A money manager will be concerned with how he gets paid, and then may be concerned with what investments he recommends.

No one cares more about your money than you do; unless they plan on taking it from you.

If you are to succeed, realize it is you that needs to be in charge of your future.

Learn how to speculate.


Buy The Book Before The Speculation

Your best wealth protection is knowledge.

It is amazing the number of people that will put their future on the line based on the recommendation of a salesman.

Your broker is there to make commissions, not to study the market. If you walk into his office you will find him on the phone trying to get more customers so he can replace you when you go broke. If he knew how to speculate profitably he would. What he knows is how to sell.

Before you invest a dime, study the market you are going to enter. Then find the cheapest broker that knows how to put in an order properly; check his firm to be sure they are sound.

For the cost of a commission or two you can buy several books. For the money you could lose by not being aware, you could buy a library.

Ten years from now your returns will be far better for spending some time learning to speculate now. A short delay to read before you start speculating can only make a positive difference.

The trade of the century comes several times a year.

Study so as to be ready for it.


Life Is Not linear

Attempts to predict the future based on linear extrapolations of the recent past will fail.

This is a great time to look at a bunch of economic projections for the next year. All the big name economists feel compelled to predict the future.

Now is also a good time to look at last years predictions, if you can find them. Only those that came close will mention the prior end of year prediction. This is called survival bias; those that die are buried, it makes it look like there was a high percentage of successful tea leaf readers.

If the economists were far off, they guessed again right after the error became apparent, then guessed again when that failed, etc.. These are the economists that say " my mid year forecast was extremely accurate." An economist's slogan is, "If you can't guess right, guess often." They can then talk about any guess that went well, eventually.

If you look at the forecasts of many economists several things will stand out.
  • The forecast will look like the prior periods actual result.
  • Each forecast will be very similar to all the other forecasts.
  • If the forecaster is a contrarian, their prognostication will closely resemble other contrarian's forecasts.
  • Somewhere they will all say, "baring unforeseen circumstances."
Guess what, all of the future is made up of unforeseen circumstances. If they future were foreseen people would not pay economists to make guesses.

Life is not linear.

Save these forecasts and view them next year.

One thing will stand out.

All the forecasts will be closer to each other, than they will be to reality.

Distrust anyone, including me, that tells you they can guess the future.

For a more in depth view of life is not linear, read the rant at the bottom of another page; click=> Here.


Wednesday, December 21, 2005

Five Questions About Speculation Rules

Five questions and a bonus.

All investment is speculation and contains risk. If you have losses, or your gains are not what you want, these five questions may help you find the problem.

I gave a similar quiz a while back at Bastiat Free University.

The premise for the test:

Even burying your money in the ground risks net losses after inflation.

Entrusting your money to another is an even greater risk, you always care more about your money then a money manager.

Since life is risk, don't avoid risk, learn how to use and enjoy risk.


1) Do you lie to yourself successfully?
  • Do you set your watch 10 minutes ahead so you think you are running late?

2) Do you have blind spots you refuse to acknowledge?
  • Do you fully agree with anyone or any human institution?

3) Do you rely on third or fourth hand information?
  • My teacher said a book said that ------- believed....

4) Do you believe statistics and published reports on performance and trends?
  • Figures don't lie - but liars sure can figure.

5) Do you refuse to ask directions, are you slow to admit when you are wrong?
  • Do you have a hard time laughing at your errors, and moving on?

These five questions point out
personal areas that need attention to succeed at speculation.

The truth is there are millions of ways to make money in the markets. None of the ways are easy to find, and to profit you have to know yourself. This last question is for you if you were able to say 'no' to a few of the above questions.

6) Have you had speculation success before?
  • At what level did it stop? Did you lose everything once the losses started?

Everyone gets what they really want out of investments.

If you are sabotaging yourself, do some research on yourself before your market research. Develop a flexible long term view of yourself, and of the world.

Control yourself.

Control your risk.

Live long and prosper.


Sunday, December 18, 2005

The Value Of Money

There was a time you knew the value of your money.

That time may come again.

Commodities and currencies now bob and weave in a mixture of prize fighting and dance.

Currencies no longer have any backing, except by a politicians promise.

Perception now determines an individual currency's value as it floats or sinks against other measures of value.

If you have been watching this dance for a while, you have realized there is no continuing, rational valuation. What everyone talks about this week may be totally different than what they talked about last week. In truth this weeks data may be opposite of last weeks, and still effect the markets the same direction; different excuses are used to explain different market action.

The Kitchen is 70 degrees Fahrenheit, the stove above 200 degrees, the pot of water boiling furiously between those temperatures. If the stove is turned off, all will eventually reach thermal equilibrium.

There is no equilibrium in markets. If it was just normal rise and fall of economic activity there would be shallow booms and busts, but the trend would continue on a steady upward march.

Reality is governments try to control those small booms and busts, making them larger and highly unpredictable. Dozens of governments, each with their own agenda, play with relationships of commodities and currencies. It is like turning the stove to HIGH; the water will boil furiously, and much will vanish as steam.

The prices of cash and things will move quickly; it becomes difficult to determine their real relationships.

Right now governments around the world are creating inflation, they are printing money. More money means it has less value, prices of things therefore increase. Along with overworked printing presses lending constraints have loosened, putting even more money into the system.

There is a finite amount of water in the pot. At some point the water will have evaporated, the pot will melt or start a fire. To those of us in the real world of money - we will have deflation or hyperinflation.

Perception will be key to future value.

If you want to find a way to judge future perceptions, technical financial analysis claims to have the insight needed. The claim is that past action reflects past psychology and perceptions, and hence is a clue to the future. In practice it is easier to look at the past and explain it than to look at the future and decipher it.

If you are interested in technical analysis, check out Robert Prechter's books, especially Socionomics. If nothing else you will learn a new way of considering both past and future - and you will have enjoyed the read.

In the meantime do not pay to much attention to trader talk or news reports. These tend to view events, and then make up a cause to go with these events.

A fair picture of currency and commodity markets is a lot of folks at a social dance with a free buffet and open bar, waiting for the last minute to rush the exits. - Did I mention the building is on fire?

Our Speculation Rule:

Fill your own pockets and leave early.

It's ok to watch from a safe distance.


Speculation Involves An Educated Guess

You can be right on the event, and wrong on the time, and still lose money.

You just shorted that stock. Your research showed what you believe are flaws in their business plan, reality will catch up with them - but
inevitable does not necessarily imply immediate.

The stock does not know you bought it. Their business plan may have been flawed for a long time; the stock may continue to go up.

It seems inevitable that the stock will tank, sometime. It seems inevitable that those who play the stock's fall properly will make money. What is not inevitable is that it will happen now, inevitable is not necessarily immediate. Just because you are ready does not change reality.

This is the basis for money management. In investments you can use stop losses and small commitments to correlated investments. "Get smaller" if your bank roll is shrinking, if you want to survive.

The temptation is to play too big. Play too big and you may end up just watching the action. You can do very well waiting until you know there is a profit to be made, this may involve missing the early moves.

You can also do well bring too early, as long as you do not use leverage.

You can also do well combining the techniques, a no leverage small early investment, a bit of leverage once the trend is established. That bit of no leverage speculation helps you to track the market. Once the trend has run; - de-leverage and start to get small again.

You can't win if you don't play.
You can't play if you run out of money.

inevitable does not imply immediate.


Saturday, December 17, 2005

Speculation Rules and Following Intuition

How can you tell when that gut feeling is worth following?

I stated earlier that investing and poker have a great deal in common, this poker illustration will help show the parallels.

You just sat down at a limit table, put out a bet and you are immediately raised. You intuition says the raiser may be bluffing, but what action do you take?

The primary rule of intuition: To follow a gut feeling you must know it's source.

If you have never played with the raiser before, are new to this poker game, and don't know any other players, that gut feeling is probably your lunch talking.

If you know this poker game is full of aggressive players, you know a couple of the players at the table, and you've played many hands with the raiser before, maybe you should honor the gut feeling and re-raise.

Track your gut feelings, your responses, and the results in your journal. You may find you win a big pot a third of the time you follow that hunch, and lose a few bets the other two thirds. Your hunches may be overall winners; against people you know, in surroundings that are familiar.

There are hundreds of things surrounding you right now, but you only notice a few of them at a time. Your sub-conscious notes everything, but only calls attention to those things that you have acted on in the past as important. Intuition can be a summation of many sub-conscious data points that trigger an alarm loud enough for your conscious mind to pick up the sound.

Realizing that you can decipher the source of your intuition may make it worth acting on.

Track it and check your results.

This is true at the poker table, and also is one of many informal speculation rules.

To follow your intuition you have to know the source of that gut feeling


Speculation Rules and Reality

Use a broad view of reality to gain speculative advantage.

Here is a quote from the opinion page at Junior Partner;

"All people very strongly interpret evidence as supportive of what they believe, or want to believe. Just look at politics. All people also strongly downplay or ignore evidence contrary to their beliefs. An open mind is an elusive delight."

Psychological tests have been made, I forget the exact statistics, but around 85% of a persons response to an article can be projected just by knowing their political affiliation. When shown a made up article and facts about the Middle East the researchers knew in advance, with high probability, if a person would believe it or condemn it by knowing if the person were Democrat or Republican.

Finance and speculation rules?

In Finance there are massive belief systems that permeate the overall investor's decision process. Now oil is important, the trade deficit is not. The twenty year run of the stock market to 2000 makes people even now believe stocks always go up.

If you pick up a "how to make a million" book from the past, you will find them watching the front page of the news for information we ignore today. Reality is not the fad that media is quoting, it is the overall psychological action and inter-relationships that form a backdrop to news.

That makes me a fundamental investor long term. Short term the little squiggles caused by the psychology of myopic investors determine entry and exit points.

To find an indicator of what is important to investors today.

Listen to what people complain about regarding their investments.

The best opportunities are probably somewhere else.


Friday, December 16, 2005

Book Review - Hot Commodities by Jim Rogers


Hot Commodities - How Anyone Can Invest Profitably In The World's Best Market.

As a disclaimer Jim Rogers has helped
Bastiat Free University set up a course based on what influenced him in his success, but I bought the book and reviewed it because of my respect for Rogers the investor.

In the early days Jim Rogers and George Soros started the Quantum Fund together - a huge hedge fund success. Rogers split off to manage his own money - and become a world wide adventurer - writing books that share his international insights.

This is not a
Jim Rogers the adventurer book.

Rogers first two books,
Investment Biker, and Adventure Capitalist were best sellers for a reason. You shared great and epic adventures with Jim Rogers and his companions, and you learned huge amounts of useful information about the world. The learning was not just painless, the books were a very pleasurable read of the can't wait to see what's next type.

This book is worth the read for the future trading and commodities market knowledge. I did not read it in one sitting, wondering what would be next. I instead read it carefully and found both basic and advanced future trading instruction throughout.

Jim Rogers is an uber-successful investor that knows what creates speculative gains. In Hot Commodities he shares some of his insights, but it is not story telling that shines this time. This book is full of what it will take to profit in the emerging commodities up cycle. Of course Rogers was positioning himself years ago, and has made profits already.

Most of us realize the financial instrument cycle (stocks, bonds, etc) is headed down. We keep bouncing around trying to find the next asset class up cycle. Jim Rogers is already there.

I usually read three or four books at a time, Hot Commodities was part of that list for over a month. I read a few chapters and set it down. I would pick it up days latter and read another chapter. Each time I learned more, each time I appreciated the depth of knowledge that Rogers was willing to share.

When I finished Hot Commodities I wished there was more; - I'll read it again to find that more.

You will find speculation rules in
Hot Commodities and you will also find good information. This information can help make you a successful speculator, and that is what is important.

In short this is a timely, important, speculation book.

We need to read it, reread it, and think about it;

if we want to invest successfully.


Become an International Speculator

An International Speculator has more investment options.

You know and are comfortable with the speculations close to home.

Your broker or advisor has a lot of information on the widely traded markets around you.

Did you know your broker or advisor may have laws that don't allow him to discuss better opportunities outside your country's borders?

As an international speculator you will not only have access to more choice, the diversification you attain will help protect your future.

Most countries have had periods of bad governance, all countries will have such bad times. A country in trouble may make it difficult or impossible to take money out of the country, just as your personal safety requires such an action.

Get some of your money outside the country you live in.

Become an international speculator today.


Thursday, December 15, 2005

Modern portfolio Theory (MPT)

Its nice to have a theory with the word modern in it.

Modern flat world theory; it just screams like it has to be true.


Modern Portfolio Theory is involved with finding the right amount of diversification, say 8 to 10 uncorrelated investments.

To contrast with this complex math driven solution we have an honest proverb: Wealth is made through concentration, preserved through diversification.

If you are already wealthy you need diversification. You need to invest in different markets, in different parts of the world. It can get complex, read a bit more about acquiring wealth and preserving it In this article about the Eight Steps To Financial Freedom.

The other end of the equation is for the normal guy that wants to make some money for himself, his kid's college, and retirement.

For this guy the key is to do a lot of research, and put all of his eggs in just one or two baskets; - then he needs to watch those baskets very closely.

It takes a lot of character to jump out of losing investments quickly, or to hold on to winning investments without cashing in. That is what it takes to develop wealth.

Modern Portfolio Theory may have been modern in the middle of the last century. Real modern financial management is to research and manage your own money.

Nobody cares more about your money than you.


Blue Chip Investments

A blue chip is still a gambling chip.

It is just not a cheap chip.

A salesman, your broker, likes blue chip investments.

They sound secure.

They give him a transaction commission.

He probably gets residual commissions.

And because "everyone" says they are good blue chip investments, it is real hard to sue him for bad advice, - when you lose most of your money.

Here is a powerful rule of wealth:

  • Wealth is made through concentration, preserved through diversification.
Salesmen do it backwards. They want to lock up those lovely dollars of the rich, so they recommend one or two "blue chip" investments; they have also locked up their residuals. For the poor they just churn them for commissions, recommending one thing, then recommending selling it and buying another; rinse and repeat, each transaction makes them richer and you poorer.

A powerful rule of speculation:

  • Never buy what someone is trying to sell you.

If someone calls you with a great investment advice, hang up. They go to the trouble of calling because there is a reward for them; your money.

Seek out and understand where you want to put your money and time. Then seek out and discover who will give you the best service at the best price. You want to be in control.

No one cares more about your money and time than you, unless they plan on stealing it.



Speculate To Win Big & Investment for Gain

Speculate on Stocks, Bonds, Options, Gold, Commodities, Real Estate, Currencies, and more.

You can call speculation investment if you want, just realize both are saturated with risk.

You can speculate in all sorts of financial markets.

The idea of speculation is that there will be many small losses, and a few huge gains.

A key is not to tie up too much of your money in one investment, but of course there are exceptions.

In fact, if you are going to speculate you will find more exceptions to the rules than there are rules.

Understanding the rules is just the first step, learning when to break them is a life long learning experience.

Click here for a preview of some important speculation rules we will discuss later.

Learning to speculate is often a first step to personal freedom.

Learning to speculate may give you a more affluent life style than you dreamed possible.

Money may not make you happy, but it can make misery far more comfortable.


All Investment is Speculation

Speculation Rules.

Anything you do with your time or money involves risk.

No one cares more about your money than you do.

Keep loses small.

Let profits run.

Buy the book before you but the investment.

When your money and time are on the line, - Speculation Rules!

On this site we will examine these and other facets of investing. Just realize all investments, and even the choice not to invest, have risk.

A lot of risk is hidden. Bonds are said to be low risk, and hence not speculations. Bonds can be terrible investments when interest rates are rising and inflation exceeds the coupon, they are a speculation.

Let's learn some Speculation Rules.

Let's learn to protect what we earn.

Let's learn to earn more.

Let's learn to take control of our own future.

We will make mistakes, but let's keep the loses small.

Let's also learn how to make the few winners big enough to dwarf those many small losses.