tag:blogger.com,1999:blog-66705673624219095112024-03-13T22:07:03.063-07:00The Village Id-Vestor"Winning" at wealth and life.Unknownnoreply@blogger.comBlogger83125tag:blogger.com,1999:blog-6670567362421909511.post-64296530398828549992016-07-25T21:00:00.000-07:002016-07-31T16:31:26.936-07:00Bet You Thought I Was Dead<span style="font-size: x-large;">Gone Without a Trace</span><br />
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This happened last year, too, about this same time of year. The markets had been pretty silent for a few months, so the blog looked pretty boring. <a href="http://thevillageid-vestor.blogspot.com/2015/07/aaaaaand-markets-are-tanking-what-can.html">Then, disaster began to strike.</a><br />
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Well, have no fear! The Village Id-Vestor is here once more!<br />
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Allow me to give a recap of what's been going on in the financial world.<br />
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UK? Voted to exit the European Union. The UK Pound dropped significantly in value, and there are lots of people predicting the end of the UK as we know it (I don't believe a word of it, personally).<br />
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US Stock market? All time highs.<br />
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Bond market? All time borings. Except junk bonds--corporate bonds with high default (bankruptcy) risk.<br />
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Gold and silver markets? The precious metals bottomed at the end of 2015 and have since been on a massive tear since January! I'll talk more about this later.<br />
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Oil market? Bottomed at decades-long low of around $26.03 in February, and has since nearly doubled, and is now around $45.<br />
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And that's the gist of things. There is uncertainty around every corner, with plenty of ways to lose money, but we're steering clear of all of them. So, what are we doing now with our money?<br />
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<span style="font-size: x-large;">2016 Gains So Far</span><br />
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Well, as I mentioned above about the stock market hitting all-time highs, it's been a terrific year so far, and it's looking to be the best I've ever had, despite many analysts in finance not seeing much room for more upward momentum in stocks. The funny thing is, my success has hardly anything to do with these all-time highs. I've avoided these areas, because there are better places to put your money.<br />
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As I've mentioned before, when I see nearly all people piling into one end of the investing spectrum, it's a sure sign to run the other way. This time's no different. It's reason enough to exercise cautious optimism about markets in the short term... but ensuring that long-term, we're staying vested and not missing out on any huge upswings.<br />
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Because as we all know (or, as John Maynard Keynes put it), “The market can stay irrational longer than you can stay solvent.” In other words, things can seem like they're crazy, and we end up wanting to avoid crazy for the most part, but crazy can go on for far longer than we often think, and in the process of avoiding crazy, we miss out on huge opportunities.<br />
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This is one of the only pieces of wisdom I ever recommend you take from Mr. Keynes. And it's HUGE.<br />
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For the past several months, I've been in and out of many industries, locking in gains and banking as much coin as possible, while keeping my downside risk (risk of loss) to a minimum.<br />
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Keeping risk low involves investing in <a href="http://thevillageid-vestor.blogspot.com/2015/07/the-do-nothing-forever-list-of-best.html">market bellweathers.</a> I've done very well this year so far by gaining in solid companies like <a href="http://thevillageid-vestor.blogspot.com/2016/01/volatility-get-it-while-its-freaking-hot.html">Cisco systems</a> (4.7% in 37 days), Intel (2.3% in 28 days), and Whole Foods (.8% in 8 days--with much more on the way).<br />
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More speculative opportunities in other industries such as fertilizer (yum!), airlines, and tech, have produced gains of 2.4% in 30 days on Potash Corp, 7% in 6 days on JO, a coffee ETF, .6% in one day on Delta Airlines, and 3% in 38 days on Corning Glass--the company which makes the supposedly unbreakable glass for your smartphone (incidentally, my wife just broke the screen on her high-end cell phone a couple weeks ago, for what it's worth).<br />
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And lastly... making up the bulk of my gains so far this year, I've been speculating heavily in gold miners.<br />
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As I mentioned above, companies mining gold for business have had a tremendous bull market this year, and the average miner is showing gains over 80% since the market took off in February. Here's a cute little graph showing the change in value of this market index:<br />
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If you want to invest in a sector like this, but don't like the idea of taking the risk of putting money into individual companies, you can stick to the Market Vectors Gold Miners Index, which has ticker symbol GDX. Its chart is above. I've had six plays since January this year, netting about 9% over 120 days in shares of this ETF and its related call and put options.<br />
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I've also taken and closed several positions in individual companies. We earned 11% in thirty days on Silver Wheaton Corp, one of the stronger players in the precious metals mining industry. This is combined equity gains in addition to some call option premia.<br />
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As for a <a href="http://thevillageid-vestor.blogspot.com/2016/03/when-everyones-market-genius-no-one-is-stock-options-bear-market.html">few miscellaneous precious metals miners,</a> we earned 4.5% on Seabridge Gold in 22 days, 3.8% on Barrick Gold in 35 days, and 10.1% on Coeur Mining in 10 days.<br />
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Of course, there have been some losers along the way which have cut into my gains. I bought two VXX call options in April and March, which both expired worthless for a 100% loss, and sold two put options at a loss in April and Pay for 9% and 67% respective losses. Overall, these at into my gains my about $340, or 15%. However, I did book a gain of 49% on a VXX put option bought in June.<br />
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So far this year, the Village's overall portfolio percentage gain is sitting at 37%. If we can continue to replicate these gains throughout the rest of the year (why couldn't we?), we'll see annual gains this year close to 75% of our investable cash.<br />
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If you can remember, <a href="http://thevillageid-vestor.blogspot.com/2016/01/how-bad-did-village-cream-market-in-2015.html">we booked annualized gains of about 16.39% last year.</a> The quadruple those gains this year by keeping a solid asset base in safe investments, while also branching out into more speculative and lucrative investments, makes perfect sense right now.<br />
<span style="font-size: x-large;"><br /></span>
<span style="font-size: x-large;">Where am I headed now to invest?</span><br />
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That's simple. I go nowhere. I stick to the same simple strategy, in the same low-risk, high-reward sectors, with some minor adjustments.<br />
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First, I'll keep sticking with large caps stocks. There are plenty out there I'd like to own, but not at prices reflective of all-time market highs. I will probably end up selling puts on the shares I would be willing to own of some world-dominating businesses.<br />
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The reason I want to stick with this strategy is simple. My investing strategy doesn't include "swinging for the fences" or betting on huge gains in a short period of time. When it happens, that's great, but I don't ever count on it happening. My target is to increase my wealth by 1.5% every month, which will allow my money to compound enough for me to 100% quit my day job by the time my 40th birthday rolls around... which is quite a bit down the road.<br />
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As you can see, my conservative strategies are allowing me so far to beat that 1.5% per month requirement hand over fist. Six months into the year, and we're already up 37%.<br />
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How do I plan to hit that 18% per year to meet my investment objectives? I have spoken about this repeatedly on this blog, but I'll say it again.<br />
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I earn this income month after month by selling put options on stocks I'd like to own, and getting the premium for the option (have to pick the right stock at the right price of course), or by buying 100 shares of a company's stock, and selling a call option on the shares to get the premium.<br />
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The put option method is useful, because I can get high return with a low amount of capital. The bad thing about selling put options is leverage. If things move against me in a big way, I'll have to deposit a ton of money in my account to cover the stocks I end up having to own. For that reason, I keep things low-key in the put option department.<br />
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Rather, I prefer the second method. When I use the call option method, I guarantee myself the income from the option premium, I get any dividend paid over the period of ownership, and if the stock ends up going up in price, I also get paid capital gains.<br />
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Three ways to win. One is guaranteed. Two are likely. Three would be icing on the cake.<br />
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So, what else? I will be buying some smaller individual gold mining companies, this time without selling call options on the stocks, and plan to hold them through the end of the year at least.<br />
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The reason I'm going to forego the call options is to avoid the uncomfortable result of forfeiting potential gains. My small Village Portfolio would be up another 37% this year if I had simply held the stocks I mentioned above, instead of trying to get the guaranteed premium. The option forced me to sell the stocks at prices much lower than I could have sold them for, were it not for the obligation of the option.<br />
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Lastly... with any money I have left over, I'll likely study the charts on my <a href="http://thevillageid-vestor.blogspot.com/2015/07/the-do-nothing-forever-list-of-best.html">Go-To list of stocks</a> to see what is in buying range, where the volatility on these stocks is, and choose the best opportunities to buy shares and collect money selling call options.<br />
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If you don't know how to sell options on stocks you own, see what I've written on <a href="http://thevillageid-vestor.blogspot.com/p/short-term-trading-and-speculation.html?m=1">Short-Term Trading and Speculation</a> elsewhere on this site.<br />
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<span style="font-size: x-large;">How's Your Money Growing?</span><br />
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How are your investments? Are you learning all you can to make your money grow for you as quickly and efficiently as possible? If not, please take a look at the articles I've put out in the Investing section of the blog here. The worst thing you can do with your money is let it sit and do nothing for a long time. Your freedom is too important!<br />
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After all, the most important thing you can do with your money is learn to make it grow while you're sleeping.<br />
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Live long and invest,<br />
<br />
Jeremiah<br />
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<br />Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-6670567362421909511.post-7392296177271494852016-04-24T21:17:00.000-07:002016-04-25T13:18:33.264-07:00A Different Kind of Golden HandcuffI wish I could sit here and tell you I have a "golden handcuff" problem with my current job.<br />
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You see, a "golden handcuff" is a situation where you have a job or a career which pays you obscene amounts of money or benefits, but at a price. That price you pay is usually your freedom--freedom to pursue other employment, freedom to spend your time as you wish, or freedom to move somewhere else to do that work.<br />
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You're chained, or "cuffed" down to the job by reason of the benefits and security it provides. Your handcuffs are very shiny, expensive, and valuable--but they're still handcuffs. They restrict your movement and limit your freedom. You can cut the handcuffs off (cut ties with your employer), but then they're worthless. The gold fades. And you can't sell broken, aluminum handcuffs at the pawn shop.<br />
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So, which is better--going without the handcuff, and having complete freedom... or living with the entanglement, and getting all the perks at the cost of that freedom?<br />
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I can't answer that for you... but I can for me.<br />
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<span style="font-size: x-large;">The Golden Handcuffs of Investing</span><br />
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I am a lover of liberty. If you ask me whether I'd take a moderately high salary and little freedom, or a normal salary and lots of autonomy, I'll take the lower salary in a second.<br />
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The only time I'd opt for the golden handcuffs is in investing.<br />
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The way I invest is much more unique than what most of you probably do. 99% of the people I interact with have their wealth invested in 401ks and other retirement accounts via mutual funds, not in individual stocks. A mutual fund is basically a huge mix of tiny fractional shares of sometimes thousands of different companies, industries, or sectors of the economy. Investing in this way, even if you buy just one mutual fund and put 100% of your money into it, supposedly diversifies risk... and I would probably agree with that.<br />
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<a href="https://1.bp.blogspot.com/-5cRjBaFM_PA/Vx545VUlz6I/AAAAAAAAEtY/DdEj1Yjl9Eo8AbtMgu4IKiz07jYr86GswCLcB/s1600/different-kind-golden-handcuff-investing-call-options-yoda.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="169" src="https://1.bp.blogspot.com/-5cRjBaFM_PA/Vx545VUlz6I/AAAAAAAAEtY/DdEj1Yjl9Eo8AbtMgu4IKiz07jYr86GswCLcB/s320/different-kind-golden-handcuff-investing-call-options-yoda.png" width="320" /></a>Except that when the entirety of the financial markets is going haywire, nothing is spared. There's this little thing called "systematic risk"... which is, risk that can't be avoided, no matter what (unless you step out of the markets entirely and put 100% of your money into so-called "risk-free" investments, like US Treasury Bonds).<br />
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Even during the financial crisis, investors who parked their wealth in mutual funds lost 40% of it, along with everyone else. If you hadn't diversified, you may have lost even more.<br />
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But what if you invested in the one thing which behaved in a manner opposite to the general market? What if there was a type of "stock market insurance", so to speak?<br />
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As it turns out, there is.<br />
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I wrote about it last month. Today I'll expand on this concept, and give you a few more notes about where the Village is parking its money for the next little while.<br />
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<span style="font-size: x-large;">Monthly Dividends, No Matter the Market Direction</span><br />
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The golden handcuff of investing is a covered call option. I write about call options all the time. If you need some references, go here, and read my last 10 or so articles.<br />
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To review, the purpose of investing is to make money. If you know the methods, you can make money when the market is going up, when it's going down, or when it's going nowhere.<br />
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Lately, that last things is what the markets have been doing--going nowhere. And that bodes well for those of us who like to make safe, predictable amounts of money in excess of general market returns, which for 2015 approached zero.<br />
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How do call options help us do this? By giving us a cash payment up front on an investment, before we've even booked a gain--almost like a dividend.<br />
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When we sell a covered call option, we already own at least 100 shares of some underlying company's stock. We agree to sell those shares at some point in the future if the price of those shares is above a certain point, which we choose, and we get paid money for that agreement.<br />
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The <b><i>buyer </i></b>of the call option (who generally takes the opposite side of the trade we are proposing) has the right, but not the obligation, to buy a certain number of shares (100 per contract) of a company up until a certain date (the expiry date), at a price he or she agrees to in advance (called the "strike" price), as long as the price of that underlying share is above their strike price. The buyer of this option thinks the price of the underlying security is going to go up in price by the time the expiry date rolls around, so they can either sell this option for more than they bought it for, or, if the price of the shares is above the strike they have chose, they will have the option "exercised" after expiry, getting shares at a lower price than what the market currently offers.<br />
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We, as the seller of a call option, don't think the price of the underlying stock is going to continue increasing. We sell the option, which obligates us to sell 100 shares per contract, for the strike price we agreed to.<br />
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In selling the option, we're speculating that we'll never have to sell our shares... but even if we do, that's fine, because we earns the premium for the option, any dividend paid while we own the shares, and earn capital gains on the shares if we ends up having to sell them.<br />
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<span style="font-size: x-large;">Why is the covered call option a Golden Handcuff?</span><br />
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Just like the golden handcuff in the regular world, the golden handcuff (call option) of investing has several benefits, and some drawbacks.<br />
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The benefits are the guaranteed dividend, the guaranteed option premium, and the potential for capital gains.<br />
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The drawback is simply LIMITATION OF UPSIDE. The covered call forces you to give up any gains which occur on the stock above the strike price of your option. Your gains are capped at a certain point.<br />
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Here's an example.<br />
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You buy 100 shares of Microsoft for $50, and sell a call option with a strike of $52, this option expiring on next May 20. You get paid $1 for every share you own to make this agreement.<br />
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In the next month, you will earn the quarterly dividend of 36 cents per share ($36), you get the $1 in options premium, and if the shares are above $52 on May 20, you sell them for $52 even, and pocket the $2 differnce, for a total of $1 + $2 + $.36 = $3.36, or 6.72% in one month. ONE MONTH.<br />
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If the stock price is actually $52.50 on expiry though, you <b>give up</b> that extra $.50. You can see that gain, but you can't get it. Much like a glass ceiling.<br />
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<a href="https://4.bp.blogspot.com/-AMkcDDwjv-M/Vx56QmqxAAI/AAAAAAAAEtw/MiO1ppEC3KcjPzT9xkqFJzf38XIl4emmQCLcB/s1600/different-kind-golden-handcuff-investing-call-options-glass-ceiling.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://4.bp.blogspot.com/-AMkcDDwjv-M/Vx56QmqxAAI/AAAAAAAAEtw/MiO1ppEC3KcjPzT9xkqFJzf38XIl4emmQCLcB/s1600/different-kind-golden-handcuff-investing-call-options-glass-ceiling.jpg" /></a>The handcuff of covered call options forces you to forego some potential gains. That's it. That's why we should only sell calls on shares we own, which we think aren't going to move a whole lot, so there's less risk of giving up a lot. Or better yet, if we think there's a good chance that shares prices could decrease over the next month, we sell the call, and collect free income at low risk.<br />
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This happened to me several months back. I owned 100 shares of Intel Corp, and the price increased (on a fluke) by over 10% in a single month. <b>I forfeited about $3.54 per share that I owned.</b><br />
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As usually happens when the market does irrational things, like sending a value stock up 10% in a matter of days, the price of that stock subsequently normalized, and is now back around the same price it was when I sold the option last year.<br />
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Why don't I care about this? Because of the fact that I'm more happy with guaranteed income, via the options premiums, than I am about "shoulda, could, woulda" gains on my investments. If I had simply owned the stock outright without the option for long-term gains, I never would have locked in a gain on that stock, even at the elevated level it was. I'd be no better off today than I was six months ago. I'm much better off selling the option.<br />
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<span style="font-size: x-large;">How I am Using the Golden Handcuff Now</span><br />
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I initiated "golden handcuff" trades this month on two of my active positions.<br />
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The first was <b>Silver Wheaton Corp (SLW).</b>This is a precious metals stock I bought just a month ago. Last month, I was able to pick up 100 shares for $17.79 apiece, and sold a $18 call option on those shares for $.65. The stock was below the strike on expiry 4/18/16, so the $65 was basically free money, which I kept, and it offset the cost basis of my shares to $17.14.<br />
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I got a $5 dividend on 4/14 (whoopee!) since I still held the shares, and just sold another call option on those shares at a strike of $18.50, collecting $.79. Now, my cost basis on the shares is actually $16.35.<br />
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Selling the $18.50 option for May expiry means that if the price of SLW is above $18.50 on May 20, I'll have to sell my shares for that price, and I'll pocket the difference between that price and $16.35. It would be a $2.15 per share gain on $16.35, or 13% in two months, or <b>78% on an annualized basis.</b><br />
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If the price isn't above $18.50, I'll just continue selling the calls until the shares are called away, then watch for another opportunity.<br />
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Secondly, I hold some shares of a company called <b>Ceour Mining (CDE)</b>. I have for a while, in fact, and I've been waiting for the price to come back to where it was feasible to collect some call option income on the position without risking having to sell my shares for less than I bought them for.<br />
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The premium I got for CDE was a bit less than SLW--just $29. But, that's on just a $715 investment. It's better than nothing, and I'm going to continue holding those shares, and selling covered calls, until those shares get called away, and I can better leverage this cash into some larger positions for better and more safe gains going forward.<br />
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The $29 gives me about a return of about 4.05% in thirty-two days. If I don't end up selling the shares, I'll make just 4%. If I do, I'll have to sell the shares for $8, a total gain of 15.6% in thirty-two days, or <b>177% annualized.</b><br />
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That sounds high, but it's not unusual for precious metals mining investors to see gains this like. Gold miners have seen a tremendous gain so far this year, up more than 30%. They were coming off a four-year low, and due for a good rise, especially considering the rout in the general market so far this year.<br />
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I sold the option because I expect a temporary rout in gold mining stocks after their meteoric rise so far in 2016.<br />
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<span style="font-size: x-large;">I'm Punny</span><br />
<br />
You can now see that the golden handcuff pun is a fitting way to frame this article. I'm talking about new gold stock positions, and also referencing the critical aspect investors of covered call options should understand. That is:<br />
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<ul>
<li>Covered calls reduce risk on stocks by helping to lower cost basis. But they limit the upside on the potential investment. They handcuff potential gains to the floor. That's why it's best to only sell them if you think the underlying investment isn't going much higher, is going nowhere, or is going lower</li>
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I hope this concept makes sense. If it doesn't I'd be happy to explain more. Send me a message, and I'll find time to respond.<br />
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Thanks<br />
<br />
Jeremiah<br />
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<br />Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-6670567362421909511.post-30767616314644794572016-03-24T22:00:00.000-07:002016-03-28T08:43:08.353-07:00When Everyone's a Market Genius, No One Is<h1>
Everyone's a Genius In a Bull Market</h1>
When the stock market's doing great, everyone's a genius. Everyone and their dog is making money with their wealth, simply because they clicked the "buy" button in the midst of a booming market.<br />
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<a href="https://4.bp.blogspot.com/-LkOaIj6J_8o/VvV2oz62B7I/AAAAAAAAEso/NPJ2hyR2Pcoo7CLsXLogoK5ePUk41cWDQ/s1600/when-everyones-market-genius-no-one-is-stock-options-bear-market.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://4.bp.blogspot.com/-LkOaIj6J_8o/VvV2oz62B7I/AAAAAAAAEso/NPJ2hyR2Pcoo7CLsXLogoK5ePUk41cWDQ/s1600/when-everyones-market-genius-no-one-is-stock-options-bear-market.jpg" /></a>In times like these, you love your wealth adviser. He's the financial "Ghandi" of financial gurus. You're a genius for choosing him, and your second cousin's a genius for recommending his services. You show your account balance to your significant other, and suddenly there are additional unforeseen benefits to having such genius. Your future looks bright, and your prosperity seems assured.<br />
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In good times, you don't mind the 1% of total assets you're paying the guru, and you don't mind paying him the additional fees for executing trades on your account. Why? Because you're making money hand over fist! It's the cost of doing business.<br />
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But what about when the market's... not doing so hot?<br />
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Suddenly, you're not such a genius, are you? Your dog's back out in the doghouse, you're cussing out your second cousin, and you're sleeping on the couch.<br />
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And yet... your financial "guru" still gets his 1% cut. <a href="http://thevillageid-vestor.blogspot.com/2014/09/be-your-own-jedi-master-money-manager.html">He still gets his fees when he has to close out investments on your account which are losing you money.</a> And at the end of the day, he's still his wife's greatest hero, and he has a fat paycheck.<br />
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What if that were you?<br />
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What if you could always be the hero, even if everyone else is a loser in the markets? What if you knew of a way to make money when the market wasn't going anywhere, or when it was in the gutter? What if you could still grow your wealth without having to pay exorbitant fees to a wealth adviser?<br />
<br />
Let's talk about this.<br />
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<h1>
Making Money in Any Market</h1>
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The average person makes money investing in these two ways:<br />
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<b><u>#1. Capital gains. </u></b>You buy an investment, and sell it when it's worth more than you bought it for. The gains are the difference between your buy and sell price, minus commissions paid to your broker. If you buy an investment and the price goes nowhere, you make no money. If you buy and the prices goes down, you lose money when you sell.<br />
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<b><u>#2. Dividends.</u></b> You buy an investment, pay a fee or commission, and that investment pays you a set amount of money (a % of your total investment) on an annual basis.<br />
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What many people don't know is, there are additional, SIMPLE ways to make money when #1 above isn't likely to play out, or when you buy an investment which doesn't pay a dividend:<br />
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<b><u>#3. Short selling.</u></b> You "borrow" an investment from your broker when it's at a set price, and "sell" it to someone else, and when the price goes lower, you then actually "buy" it, and pocket the difference. <b>Yes, this is legal, encouraged, and there's nothing immoral about it. </b>You do this when you think an investment's price is going lower.<br />
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<b><u>#4. Stock Options--Covered Calls. </u></b>You buy shares of stock in increments of 100. You agree to sell these shares at a price called the "strike" if the price is above the strike on the date you choose. You are paid an amount upfront for making this agreement, called an option premium. If you have to sell the shares on that date, you make some more money. Your gain is Option Premium + Capital Gains - Commission.</div>
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I use #1, #2, and #4 regularly. I have never explicitly used #3. </div>
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What is my preference? And what should yours be?</div>
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Ask yourself this question: For any given investment, would I like to make money in just one way, in two ways, <b>or in three ways?</b></div>
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<a href="https://1.bp.blogspot.com/-QvSQk1PloPM/VvV3NzxXsLI/AAAAAAAAEss/yBR_tmJ2VbsVAmchBMr6Q8T8UhlbmFI4A/s1600/when-everyones-market-genius-no-one-is-stock-options-bear-market-guaranteed-payout.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="96" src="https://1.bp.blogspot.com/-QvSQk1PloPM/VvV3NzxXsLI/AAAAAAAAEss/yBR_tmJ2VbsVAmchBMr6Q8T8UhlbmFI4A/s320/when-everyones-market-genius-no-one-is-stock-options-bear-market-guaranteed-payout.jpg" width="320" /></a>And, would you prefer a <b>guaranteed payout</b> on the investment, or just to <b>hope for a payout?</b><br />
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Unless you're completely not following what I'm saying, you should choose the three-way option. By the way, it includes a guaranteed payout as a bonus. Why make money in only one way when you can make it in three ways, with one or two of them <b>guaranteed?</b></div>
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My obvious preference is #4, because it combines the elements of #1 and #2, and adds in the additional gains encapsulated in concept #4, while also addressing the nuance of #3 (potentially lower stock prices).</div>
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Let me show you how I used this method earlier this week in three ways to lock in guaranteed gains of at least 4.3% over the next month.</div>
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<h1>
What Investment Goes Up When the Stock Market Goes Down?</h1>
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Understand this one thing: Not everything in the financial markets move in tandem. When one thing goes up, something else goes down, and vice-versa.</div>
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This year, the markets have been swinging wildly. At present the general market is up <b>only about half a percent year to date</b>, but it was down as much as 9% in February. That's a HUGE swing.</div>
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When the stock market's freaking out, there's one industry that generally does very well: gold mining. </div>
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<a href="https://4.bp.blogspot.com/-TBboR_qOAPs/VvV3elhX2PI/AAAAAAAAEsw/OdJS2QthxCMn5mxl6zsheYfAyaXiuZlRQ/s1600/when-everyones-market-genius-no-one-is-stock-options-bear-market-gold-miner.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="180" src="https://4.bp.blogspot.com/-TBboR_qOAPs/VvV3elhX2PI/AAAAAAAAEsw/OdJS2QthxCMn5mxl6zsheYfAyaXiuZlRQ/s320/when-everyones-market-genius-no-one-is-stock-options-bear-market-gold-miner.jpg" width="320" /></a></div>
Gold stocks have been roaring this year, basically doing the opposite of what the broader market has. If we think the stock market's not going to do well, we can invest in gold stocks to make sure that if much of our value-based and market-correlated portfolio isn't doing so well, we can at least be making some good money somewhere.</div>
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The long-term prospects for gold mining stocks are very good. The industry is coming off of a 5-year low, and has potential to run much higher, even if in the short-term (the next month or so) it might cool off, or go slightly lower.</div>
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If you're looking to hold a company's stock longer-term (a few months to a year), but short-term you think you could see a collapse (sometimes in the next month), the best thing to do is use a <b>covered-call option strategy.</b><br />
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You buy 100 shares of a company's stock, so you can collect the company's dividend, and you sell a covered call. Doing this gives you some dividend income and some premium income. Also, if the stock does happen to increase in value in the short term above a certain point instead of decline like we think, we'll also make money on capital gains. <b>We have a guaranteed win in two ways, and possibly a third.</b></div>
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Three companies I like in this industry are Barrick Gold Corp (ABX), Seabridge Gold (SA), and Silver Wheaton Corp (SLW). These are three companies in the precious-metals industry with solid financials (good fundamentals) and promising technical formations (good short-term chart setups).</div>
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This week, I bought 100 shares of each company, and sold 1 call option with and April 15 expiry for each of the sets of 100 shares. </div>
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The call options I sold obligate me to sell the shares at a price higher than I bought them for on April 15 if the market price of the shares is above the strike price I agreed to. I got paid $60, $65, and $65 respectively for each of the options on these stocks, $190, or 4.3% of the price I paid for all of these shares.</div>
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As I alluded to, if the shares I bought are above the strike price, I'll earn even more. I could earn an additional $32 in capital gains on ABX, $11 on SA, and $20 on SLW, for a potential total of $253, or 5.8% in just 26 days. That's a minimum of 61.4% annualized, 81.8% maximum. Plus, I'll get $5 in dividends on SLW. <b> </b>Thank you, stock market, for the <b>lunch money!</b></div>
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<h2>
Departing from the Norm</h2>
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The trades I made will only remain open for about 25 days. A guaranteed profit of 61.4% in such a short time is amazing. If you don't think so, just ask your bank what it will pay you in the same amount during the next 25 days.<br />
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You wealth adviser will also never give you gains like this. He probably doesn't even know how a stock option works. If you want more information on how to execute this strategy, send me an email and I'll be glad to answer any general questions you have about the process. But I can't give individualized investment advice.</div>
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<br />
In the past, I've mostly written about doing call options on value stocks like <a href="http://thevillageid-vestor.blogspot.com/2015/07/when-13-cents-means-winner-winner.html">Cisco</a> and <a href="http://thevillageid-vestor.blogspot.com/2015/10/put-smack-down-stock-market-macguyver.html">Intel. </a>However, since I already have some positions in those stocks, and like the setup for gold this year, I'm willing to put some money into these <a href="http://thevillageid-vestor.blogspot.com/2014/12/dear-santa-give-me-gold-now.html">gold stocks as a hedge</a> against the market experiencing a downturn this year, especially this spring.</div>
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What could cause that downturn? The biggest threat we have to the stock market is the burgeoning issues which commodities producers are experiencing in the face of low oil and other commodity prices. The bust in prices is going to wreak havoc in the coming months as we see smaller oil-related companies begin to declare bankruptcy as they're unable to service their debts owed to banks in the face of the devaluation of their assets and credit ratings.</div>
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In my opinion, this will lead to a "contagion" of sorts in junk bonds--which are bonds issued by companies with lower credit ratings. This contagion will lead to a semi-serious rout in other corporate bonds, and certainly the stock prices of these companies which have investment in or exposure to these industries. Great news, right?</div>
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Happy sailing in these crazy markets!</div>
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Jeremiah </div>
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Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-83045785780727635912016-02-16T20:47:00.000-07:002016-02-18T14:55:56.239-07:001 in 1000 Invest Like This<h2>
To Beat the Market, Be the Minority</h2>
It's ironic that while many of my friends call me up for advice during times of market pandemonium like we've seen so far this year, none of them ever lift a finger to do the things I claim will give them success in investing. Why is that?<br />
<br />
I know for a fact, it's their mindset. They aren't willing to wrap their minds around any new concept or strategy which changes their worldview about they way they rest of the world has told them investing should be done.<br />
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Their financial advisers (who have a principal-agent dilemma), college professors (who have experience only in theory, not real world practice), and their favorite talking heads on TV (who are paid to talk and sell commercials) have all told them the same thing about investing, which is:<br />
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"<i>That stuff is too risky. You don't know enough. You'll get burned."</i><br />
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Let me tell you, it's a lot easier than it sounds.<br />
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Let me show you what I mean.<br />
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<h2>
Lessons Learned From Wall Streeters</h2>
I worked for one of the big Wall Street banks for a little over two years before jumping ship. During that time, I got to rub shoulders with a lot of experienced people, gaining valuable insights into strategies which the big banks use to make money without taking huge risks.<br />
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My work was in foreign exchange (FX) options--a type of financial derivative. And derivatives, used incorrectly, are, in the words of Warren Buffet, "weapons of financial mass destruction."<br />
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They did, after all, cause the financial crisis. But savvy investors don't use them recklessly. They use them prudently. I'll explain.<br />
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The FX traders I worked with would make huge bets--billions per day--speculating on the future exchange rates of the major world currencies. Sometimes their positions would pay off, and they'd make money... sometimes they wouldn't, and they'd get creamed. Sometimes they'd make out with pennies (times a million), and some days they'd get lucky, making more than their annual salary (including bonuses) for the bank.<br />
<br />
During this time, as I watched the traders do their magic, I started to notice something about the highly-misunderstood products (options) they were using.<br />
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They wouldn't call up their friends at the other banks John-Wayne style, with guns blazing, trash-talking, shooting at the hip, hoping to make it big on some risky trade with the guy on the other end of the line.<br />
<br />
<a href="https://4.bp.blogspot.com/-KM8h5KwISxw/VsT3oxGjruI/AAAAAAAAEsI/JCNVciSsluM/s1600/be-minority-1-in-1000-invest-this-way-call-put-option-magic--8-ball.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://4.bp.blogspot.com/-KM8h5KwISxw/VsT3oxGjruI/AAAAAAAAEsI/JCNVciSsluM/s1600/be-minority-1-in-1000-invest-this-way-call-put-option-magic--8-ball.jpg" /></a>They were only hoping to make a little bit here, and a little bit there, taking as little risk as possible, trying to get a near-guaranteed payout.<br />
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Let me repeat that. The successful traders made money for the banks, not by making billions of dollars' worth of risky trades, but by banking small, guaranteed payouts upfront... not by worrying about having to bank a huge upside which was only slightly probable, and which more often than not required the correct reading of a Magic 8-Ball.<br />
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Banks like Goldman Sachs use these same strategies to make money <i>no matter what the market is doing: going up, going down, or going nowhere. </i>In fact, they use these strategies to maintain a near <a href="http://qz.com/58535/goldman-sachs-had-236-profitable-days-of-trading-last-year-and-just-15-days-of-losses/">94% winning streak over the course of an average year.</a><br />
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By using the same strategies, we can do the same.<br />
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<h2>
Here's How The Average Investor Can Do This</h2>
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If we want the same kind of winning streaks as Goldman Sachs, we have to adopt the same strategies. It's not only possible, but probable. And easy.</div>
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We use stock options to do this, just like the big banks.</div>
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Before you turn off and tell yourself, "that's too risky," <i>hear me out.</i></div>
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<i><br /></i></div>
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Typical investors using options John Wayne-style, <i>are </i>taking on a lot of risk. They <i>buy </i>stock options, hoping for a huge payout where the value of their options go through the roof. While that is actually possible, it's often difficult to do because so many factors are working against them.</div>
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Whey you <i><b>buy </b></i>stock options, you have to be correct on three things:</div>
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<ul>
<li>Timing of the price movement. Your hypothesis has to work out within a specific time frame</li>
<li>Magnitude of the underlying stock movement. The stock <i>has to move </i>to a certain point before you begin to make any amount of money</li>
<li>Direction of the underlying stock movement. The stock <i>has to move </i>in the direction you think it will</li>
</ul>
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If any one of these things doesn't work out how you think, you're not going to make any money. <i>In fact, you'll likely lose 100% of your total investment.</i></div>
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<i><br /></i></div>
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Wouldn't you like to be the guy on the other side of that trade? To bank 100% on your investment every time some financial John Wayne decides he's the world's next biggest, baddest, trader in the land?</div>
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Well, guess what.... we can be that other guy. We do it by being the seller of stock options, not the buyer. When selling options, you make money if the stock goes up. You make it if it stays the same, and you even make money if the stock goes down a little... to a point. As an option seller, time is working <i>for you, not against you.</i></div>
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<h2>
How I banked 15.1% In Three Short Months While the General Market Lost 9%</h2>
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I can understand the allure most investors have for investing using index funds. They're well-diversified and require little maintenance and fees, so any potential losses are supposedly mitigated.</div>
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The problem is, when the entire market is turning down, index funds do no better. A massive, rising flood-tide eventually sinks all ships, to paraphrase the popular expression. It pays, therefore, to have individual positions which offset (or "hedge") general market losses---which ensure that if one part of your portfolio is losing money hand over fist, you at least have <i>something </i>that's making money for you.</div>
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<a href="https://4.bp.blogspot.com/-gepbz31s0vg/VsT4F3HsC0I/AAAAAAAAEsQ/1WS8BNmPcpg/s1600/be-minority-1-in-1000-invest-this-way-call-put-option-gdx.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://4.bp.blogspot.com/-gepbz31s0vg/VsT4F3HsC0I/AAAAAAAAEsQ/1WS8BNmPcpg/s1600/be-minority-1-in-1000-invest-this-way-call-put-option-gdx.jpg" /></a></div>
The gold sector is good at helping to hedge general market selloffs.</div>
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Gold is a crisis hedge. It holds its intrinsic value over time much better than say, paper money. And people flee to its proxies when there are market crises. Just pull up a chart of the Market Vectors Gold Miner ETF (ticker symbol GDX), and compare it with the events of the financial crisis, and you'll understand what I mean. Alternatively, see how gold has performed since about mid-2011, as market volatility (which I liken unto the market "fear") waned, and you'll see a similar correlation.</div>
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I've been watching the gold mining sector for a while. It' s nearly 72% off it's five-year high, sliding off its highs as the gold price has gone into seemingly perpetual decline. There are tremendous deals to be had if you look in the right place.</div>
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Here's a short outline about how I've been using this sector to make money in gold while the general market's been sliding ever further into the gutter these past few months.</div>
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GDX, the market proxy for the gold mining companies, hit an all-time low of $12.47 in January. A couple of months before that, with GDX trading around $14, I decided that it was highly unlikely that gold miners could get cheaper than they were. I sold two put option contracts, agreeing to buy 200 shares of GDX if the ETF was trading below $14.50 on November 23. I was paid $96 for making this agreement. </div>
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This meant that if I ended up buying the shares at $14.50, my actual cost basis on the stock would be just$14.02, because I got $.48 for share for the option contract. </div>
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On November 23, the stock was actually trading at $13.33--well below the price $14.02. I ended up having to buy the shares, and wanted to turn that current "loser" trade into a winner. I waited about ten days until December 4 for the price of GDX to recover a bit (which I knew it would), which would inflate the call option premiums, and sold two call options contracts for $68 total, agreeing to sell the shares I bought at $14.02, for $15 if the price of GDX was above $15 on December 18, two weeks later.</div>
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The price wasn't above $15 on the 23rd, so I kept the premium of $68 free and clear, and agreed once again to sell my shares for $15 if GDX was trading above $15 one month later on January 22 (by selling another two call options). I was paid $54 for that agreement. Since I held my shares at that time, I collected $23.20 in dividends on those 200 shares a week later.</div>
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January 22 rolled around, and again, GDX was not trading above $15. So, I made another deal (using two call options) to sell those shares at $15, and was paid $52 for it.</div>
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At this point, you can see that a bit of cash has been piling up--<b><i>without me ever even selling shares of stock.</i></b> Since November, I was paid $96, $68, $54, $23.20, and $52, for a total of $293.20 in about three months so far.</div>
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How do things look right now? GDX is currently trading well above $15, so I'll likely be forced to sell these shares for $15 on February 19. </div>
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Taking all these premiums I've received into account, I've lowered my cost basis to $13.034 on the shares of stock over the past three months. If I have to sell them at $15, per the obligation of the two call options I sold, I will make a total of $393.92 in gains, on a total outlay of just $2606 (the 200 shares at cost of $13.03).</div>
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That's a 15.1% return in 117 days, or 47% in annualized gains. Imagine if I could do this with my whole investment portfolio, year after year.</div>
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<h2>
Guess what? I can!</h2>
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When we sell put options, like I did above when I first started owning shares of GDX, we only agree to do it on stocks we are happy owning at the strike price (the price at which we agree to buy the shares). We never do it on stocks which could potentially lose a lot of their value. </div>
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I regularly sell put options only on stocks which are unlikely to move very much, both up or down. This ensures that I'm not stuck owning something that has to recover 20-30% before I make a profit on it. Similarly, I only sell call options on stock that aren't likely to go up a whole lot. It also ensures that I'm not locking myself into selling something that somehow gained 30% in a month, which would force me to give up some huge upside. That leads me to this thought...</div>
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Currently, GDX is trading about $18. By having sold the call options on the shares I own, I am <b><u><i>forfeiting </i></u></b>over $600 in total gains on these shares. My returns could have been three times what they are.</div>
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That's the catch of call options. Sometimes, you end up forfeiting a good amount of potential upside when flukes happen--or if you sell options on the wrong kinds of stocks. It's definitely a fluke for GDX to rise 36% in a matter of two weeks.</div>
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This is an opportunity cost you have to accept when using options. But in the long term, I'm not going to care about giving up a few percent on the value stocks I typically use to sell options (stocks like INTC, CSCO, ORCL, and MSFT), if I generate returns in excess of 18% (or higher, as in the case of GDX) year, after year, after year. I say 18% because, typically I generate about 1.5% a month in cash flow for my portfolio by selling call or put options.</div>
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My long-term wealth gains will far outweigh the opportunity costs.</div>
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<h2>
The Greedy Dice Game</h2>
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No one invests this way, because they don't understand that smaller, repetitive wins over the long run, even if it's just once a month per position they own, add up very quickly, and far outweigh the average historical market return.<br />
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<a href="https://2.bp.blogspot.com/-yiUC6YxKjuo/VsT2s0JvOYI/AAAAAAAAEr8/QR6_AP0sZ_s/s1600/be-minority-1-in-1000-invest-this-way-call-put-option.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://2.bp.blogspot.com/-yiUC6YxKjuo/VsT2s0JvOYI/AAAAAAAAEr8/QR6_AP0sZ_s/s1600/be-minority-1-in-1000-invest-this-way-call-put-option.jpg" /></a>Play this dice game with a friend. You're the house, and you offer your friend 6 rolls of the die. He gets $3 for every time he can roll a 6. He gets 50 cents for <i><b>forfeiting a dice roll</b> (i.e., doing nothing), </i>and for every time he rolls and doesn't get a 6, he owes you $1. What does he choose?<br />
<br />
The least likely outcome is the six.... he has five ways to lose, and only one way to win if he chooses to roll. He has six ways to win--and a guaranteed payout--if he does nothing, and has the same probably outcome as if he's rolled once and gotten a six. But he doesn't realize that.<br />
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The average investor is greedy. He only sees that he can make up to $18 if he gets all sixes--he's a GREAT roller, after all. He can do it. He doesn't even consider the downside.<br />
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He will lose $6 if he gets no sixes. But he can gain $3 by playing it completely safe.<br />
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Rolling six times, the sucker playing this game is likely to come out <i>losing $2 overall, </i>according to the odds.<br />
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Don't be like these losers... always take the guaranteed payout. Call options offer you this. Don't just buy stocks and hope they go up--or put all your eggs into one basket, counting on the huge payout which won't arrive. Collect income using call options while you wait for this to happen.<br />
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<h2>
Why No One Invests Like This</h2>
<br />
Honestly, it does take a bit of study to understand the nuances and mechanics of how stock options work. But, it can be done by reading just a few short articles, which I have over <a href="http://thevillageid-vestor.blogspot.com/2015/01/screw-vegas-i-am-casino.html">here,</a> <a href="http://thevillageid-vestor.blogspot.com/2015/01/how-to-evaporate-your-investing-fears.html">here,</a> and<a href="http://thevillageid-vestor.blogspot.com/2015/07/aaaaaand-markets-are-tanking-what-can.html"> here.</a></div>
<div>
<br /></div>
<div>
If I would wager, I'd say that only 1 in 1000 use stock options in their investments because either they don't understand them, they've been told they're too risky (and they are, if used incorrectly), or because they've used them wrong in the past and been irreparably burned.</div>
<div>
<br /></div>
<div>
I would never subject you to something like that here. I only give advice that I'd want my grandma to hear.</div>
<div>
<br /></div>
<div>
Selling put options on safe value stocks actually <i>lowers </i>your risk, compared to buying a stock outright. The premium you receive for selling the put lowers your potential cost basis if you're put the stock.</div>
<div>
<br /></div>
<div>
But, a concept like that isn't something a lot of people can understand for some reason. They prefer the "buy and hope" strategy of buying stocks, and hoping the price goes up from there. There's no thought to decreasing downside risks, or using alternative methods to magnify the upside in the long term.</div>
<div>
<br /></div>
<div>
But, that's the average investor for you. Good luck to him.</div>
<div>
<br /></div>
<div>
Live long and invest,</div>
<div>
<br /></div>
<div>
Jeremiah</div>
<div>
<br /></div>
<div>
<br /></div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-51900675221961506722016-01-25T22:11:00.000-07:002016-01-26T10:19:19.940-07:00Stock Investing or Home Ownership? Which is Easier?<h2>
Investing Isn’t Complicated, No Matter What Wall Street
Tells You</h2>
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I do a lot of reading—books, articles, news stories,
financial statements, market hype, clickbait—you name it. If it’s being
published along the lines of finance and investing, I’ve probably at least
skimmed it. Most of it would bore you to death, I’m sure.<o:p></o:p></div>
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<br /></div>
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<a href="http://2.bp.blogspot.com/-vHDhuut7wNo/VqD9TjTMt9I/AAAAAAAAErA/D5d-9YDMvYs/s1600/avril-lavigne-not-complicated-investing-easy-buying-house.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://2.bp.blogspot.com/-vHDhuut7wNo/VqD9TjTMt9I/AAAAAAAAErA/D5d-9YDMvYs/s1600/avril-lavigne-not-complicated-investing-easy-buying-house.jpg" /></a>I do it because I’m always looking for something new
that will make me more successful in life. I’m like a dredger—pulling a ton of
mud out of a mucky riverbed, and filtering and sifting until I’ve come up with
tiny flecks of gold, which I can add to my bag 'o gold dust.<o:p></o:p></div>
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<br /></div>
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There’s a ton of information out there, to be sure. And when it comes to investing, it can <i>seem</i> complicated to separate the good information from the bad. Even the professionals on Wall Street and Main Street want you to think it's complicated, so you'll pay them to do all the work.<br />
<br />
But it's not.<br />
<br />
If your financial adviser isn't smart enough to <a href="http://thevillageid-vestor.blogspot.com/2014/09/be-your-own-jedi-master-money-manager.html">boil down</a> supposedly sophisticated topics into terms that a 5th grader can understand, <a href="http://thevillageid-vestor.blogspot.com/2014/11/how-know-fire-your-financial-adviser-stock-market-not-economy.html">you need to find a new adviser.</a><br />
<br />
Today, I’ll show you how this "boiling down" is done--for buying stocks. This is an all-in-one article which
elucidates the key points to look for in a solid, safe investment. They are the tenets of Value Investing, a strategy
which should make up the bulk of all investors’ portfolios.<br />
<br /></div>
<h2>
Buying Stock is Like Buying or Renting a Home</h2>
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<o:p></o:p></div>
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Even if you’ve never bought a single share of stock personally before, you’ve probably invested. You just don’t realize it. In fact, you probably own one of the most risky and hassle-prone investments available right now: a home.<br />
<br /></div>
<div class="MsoNormal">
How is buying a home and buying stocks similar? That’s easy.
The vetting process you go through is similar for both types of investments.
The only difference is, the buying process is MUCH easier for a share of stock
than for a home. This is in stark contrast to what you're told about investing by wealth advisers--but none of them have ever advised you not to buy a home because the process is too complicated... <i>have they?</i></div>
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<br />
I didn't think so.<br />
<br /></div>
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You’ve got a general idea of what you’re looking for when
you consider a place to live. Here are some basic thoughts.</div>
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</div>
<ul>
<li><span style="text-indent: -0.25in;">If you’re buying a house, you know it needs to
hold up to all kinds of weather, rain, shine, hurricane—and hopefully even
earthquakes. It needs to have solid siding, a good foundation, and a good roof.</span></li>
<li><span style="text-indent: -0.25in;">You want a home that will withstand changes in
style or fashion—no gimmicky houses that no one else wants to buy after you
decide to move. </span></li>
<li><span style="text-indent: -0.25in;">Even in recessions, people have to move and buy houses. Make sure yours is one that is appealing to a broad array of audiences</span></li>
<li><span style="text-indent: -0.25in;">You want unique features in architecture, design, or
landscaping which will make the home more valuable when compared to the
neighbors.</span></li>
<li><span style="text-indent: -0.25in;">You want a home that’s in good condition, with
low maintenance costs.</span></li>
<li><span style="text-indent: -0.25in;">You should look into the past ownership of the
home, to make sure there are no liens against the home, or ownership disputes
on the title</span></li>
<li><span style="text-indent: -0.25in;">You want a home that you don’t have to pour a
bunch of money into initially in order for it to be worth something</span></li>
<li><span style="text-indent: -0.25in;">Ideally, you want to buy the home for less than
it books for on the market, so you can have instant equity</span></li>
<li><span style="text-indent: -0.25in;">You want a home which, when/if you sell someday,
will actually have risen in value, at least along with inflation</span></li>
<li><span style="text-indent: -0.25in;">You want to make sure the previous owners have
taken care of the property, and that the home is something you’ll have the skills to take
care of yourself</span></li>
<li><span style="text-indent: -0.25in;">You’ll want to make sure your property lines are
accurate, and that the taxes aren’t too high for you to afford</span></li>
<li><span style="text-indent: -0.25in;">Perhaps you’ll retire someday, and want to own a
place where you can rent out the basement to earn passive income</span></li>
</ul>
<div class="MsoNormal">
There are a hundred other factors you could consider when buying a home, and these are just the basics. Honestly, home-buying is a pretty nerve-racking experience... especially compared to buying a share of stock.</div>
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<br /></div>
<div class="MsoNormal">
But how do these basic ideas about home-buying apply
to investing in the stock market?<o:p></o:p></div>
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<br /></div>
<h2>
Buying a Home vs Buying Shares of Stock</h2>
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<o:p></o:p></div>
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<br /></div>
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The principles of buying stocks are tantamount to buying a
home. Consider the following:</div>
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</div>
<ul>
<li><span style="text-indent: -0.25in;">The best stock investments are in solid,
well-established companies which have been around and been profitable forever</span></li>
<li><span style="text-indent: -0.25in;">Solid stock investment opportunities aren’t faddish or
hyped up. Good investments are in businesses or products that have been around
forever, and aren’t going away anytime soon</span></li>
<li><span style="text-indent: -0.25in;">The best stocks to invest in are recession-proof. People
still need and buy the company’s goods or services, even if there’s an economic
recession</span></li>
<li><span style="text-indent: -0.25in;">Companies with products you want to invest in
can raise the prices of their products along with inflation, without any risk
of turning off consumers</span></li>
<li><span style="text-indent: -0.25in;">The best investments are low-maintenance. You
buy once, and don’t have to sit around watching your computer monitor all day,
hoping the value doesn’t drop, or buying and selling back and forth every other
day</span></li>
<li><span style="text-indent: -0.25in;">The best investments are selling for at or near “book”
value—the value of the company’s assets</span></li>
<li><span style="text-indent: -0.25in;">Great investments pay you money while you sleep,
in the form of dividends, and don’t dilute your holdings by issuing new shares to
the market</span></li>
<li><span style="text-indent: -0.25in;">Stocks you buy should increase in value over
time, far above inflation</span></li>
<li><span style="text-indent: -0.25in;">Good investments should provide you with income to eventually sustain your standard of living in retirement</span></li>
</ul>
These are the basics to consider when buying shares of a company's stock. Let's go into a few reasons for why buying stocks might be an <i>even better </i>investment than your home.<br />
<h2>
</h2>
<h2>
Stocks May Even Be a <i>Better Investment</i> Than Your Home</h2>
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<o:p></o:p></div>
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<br /></div>
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Ever since the housing crisis, many experts have begun telling
people that housing is a terrible investment—for good reason. There are many
reasons to hate buying a house versus investing in stocks. Off the top of my
head:</div>
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</div>
<ul>
<li><span style="text-indent: -0.25in;">Buying stock is a lower nominal investment, with greater liquidity (liquidity is the ability to quickly get out an investment), lower overhead, and potentially quicker return on investment</span></li>
<li><span style="text-indent: -0.25in;">There is less upfront risk when buying shares of stock, and less upfront costs, overhead, and regular maintenance costs</span></li>
<li><span style="text-indent: -0.25in;">Home ownership has hidden costs—maintenance,
taxes, damages, insurance--which stock market investments don't. When buying stocks, your only costs are the upfront
commission of usually a few dollars</span></li>
<li>The average return for owning stocks has historically been above 12% over the past 80 years, whereas the average "return" on a home purchase from 1890 through 2005 was less than 1% annually</li>
</ul>
<div>
What I'm saying is this: Buying a home is easy.... but buying stocks is easier. Buying a home is not necessarily a great investment (and you should never think of it as one) ... but learning to grow your money using stocks and stock options is a GREAT, low-risk, high-liquidity investment.<br />
<br />
So, how do we take this information and put it into action? That's up next.<br />
<br /></div>
<h2>
Apply the Principles
of Value Investing</h2>
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<br /></div>
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We’ll use a specific example for how to simply approach investing in specific companies.<o:p></o:p></div>
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<br /></div>
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Let’s say you’ve never invested a dime in buying stock your
whole life. <a href="http://thevillageid-vestor.blogspot.com/p/getting-started_21.html">How do you get started?</a> The major discount brokers—TDAmeritrade,
Fidelity, Charles Schwab, E-Trade, Scottrade—all have a website, where you can
be set up to invest in mere minutes. Google any of the above companies, visit
their sites, and check it out. <o:p></o:p></div>
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<br /></div>
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After getting an account set up, you transfer money from
your bank account, and you’re good to go within 24 hours.<o:p></o:p></div>
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<br /></div>
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But what are you planning to buy or invest in? And how do
you approach making the decision?<o:p></o:p></div>
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In the past, I’ve written about a variety of great companies
to use as starting points for putting together a <a href="http://thevillageid-vestor.blogspot.com/2015/07/the-do-nothing-forever-list-of-best.html">winning long-term investment strategy.</a> I’ll
take one of them today.<o:p></o:p></div>
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<br /></div>
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One of the most solid investment opportunities in the market
today is a company I’ve mentioned numerous times in the past, a company both
loved and hated around the world— Wal-Mart Stores (ticker symbol WMT). Here is
some information about it:</div>
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<span style="text-indent: -0.25in;"><br /></span></div>
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</div>
<ul>
<li><span style="text-indent: -0.25in;">Wal-Mart has been around for decades, carving
its way into being the world’s low-cost leader in supermarkets and consumer
goods. While it has its competitors, such as Target, Amazon, Dollar General,
etc, Wal-Mart maintains its status as the world leader in retail. It has a competitive
and sustainable advantage</span></li>
<li><span style="text-indent: -0.25in;">WMT isn’t going anywhere anytime soon. Its
business model of supply chain efficiency and low prices is emulated, but not
easily replicated. Its profit margins are thin, but unbeatable</span></li>
<li><span style="text-indent: -0.25in;">Wal-Mart doesn’t have a boom-and-bust business.
It’s not heavily reliant on things like swings in commodities</span></li>
<li><span style="text-indent: -0.25in;">Everyone shops at Wal-Mart, in both good times
and bad—and especially in bad times. During economic recessions, consumers
shift their spending habits from higher-end stores, to discount retail such as
WMT</span></li>
<li><span style="text-indent: -0.25in;">Wal-Mart doesn’t have to spend billions every
year to develop new technology or products to remain profitable or relevant,
like other companies might (i.e., Apple). Its sales and revenue can grow
without expensive capital expenditures (spending)</span></li>
<li><span style="text-indent: -0.25in;">Have you ever noticed Wal-Mart raising its
prices on goods? Neither have I. That’s because it can do so almost
imperceptibly, by a few cents here and there, and no one notices or cares,
because its stuff is already so cheap, and its pricing strategies are sneaky. It remains profitable even in the face
of rising prices and inflation</span></li>
<li><span style="text-indent: -0.25in;">WMT is low maintenance—it isn’t the kind of
company you have to constantly monitor. As long as you buy at a good price, you
can just sit back, collect the dividends, and reinvest them to take advantage
of compound interest. While the company has suffered recent share declines, it’s
just now approaching appropriate buying levels again</span></li>
<li><span style="text-indent: -0.25in;">Wal-Mart has been paying a dividend for years,
and the rate increases by an average of over 10% per year. Even if the share
price goes nowhere, you still get paid as an investor through dividends and
share buybacks</span></li>
</ul>
<br />
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<o:p></o:p></div>
<h2>
Getting More Technical</h2>
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<o:p></o:p></div>
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<br /></div>
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Going a step further than what I’ve mentioned above, there
are other, more technical factors to consider when deciding whether to invest.
And you can get all of this information by simply going to <a href="http://finance.yahoo.com/">Yahoo Finance’shomepage,</a> entering Wal-Mart’s Ticker symbol (WMT) in the top search bar (then click Search), and clicking on Key
Statistics on the left sidebar. Here are some of the factors you should look at:</div>
<div class="MsoNormal">
</div>
<ul>
<li><span style="text-indent: -0.25in;">Price to Book Value. Book Value is the value of what the company owns compared with what it owes, on a per-share basis. Compare the company’s book
value with that of its competitors to determine in part whether the current
share price warrants purchase</span></li>
<li><span style="text-indent: -0.25in;">Free Cash Flow. This is the amount of cash a company has
after making investments in its business. Preferably, get a hold of a <a href="https://ycharts.com/companies/WMT/free_cash_flow">graph showing this FCF over time</a>, and make sure it’s either flat or increasing</span></li>
<li><span style="text-indent: -0.25in;">Dividend History—dividends should be increasing
over time, and have at least a 10-year history of nonstop payouts. Again, <a href="http://www.dividend.com/dividend-stocks/services/discount-variety-stores/wmt-wal-mart-stores/">get a graph showing this over time</a></span></li>
<li><span style="text-indent: -0.25in;">Consistent Profit Margins. Make sure the company is not making less and less profit per item is sells over time. <a href="https://ycharts.com/companies/WMT/profit_margin">This graph is a great example.</a> Diminishing profits
margins over time is a bad sign</span></li>
</ul>
<br />
<h2>
Qualitative Factors</h2>
<div class="MsoNormal">
<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
Furthermore, it’s not a bad idea to do some cursory research
on a few other miscellaneous things about a company’s history and management.
Open up Google, and look up the following:</div>
<div class="MsoNormal">
<span style="text-indent: -0.25in;"><br /></span></div>
<div class="MsoNormal">
</div>
<ul>
<li><span style="text-indent: -0.25in;">Does the company have a solid management team?
And are they incentivized to increase the profitability of the business (this
is good), or increase their share price artificially (bad), and is management’s
compensation tied to this?</span></li>
<li><span style="text-indent: -0.25in;">Is the company issuing and new shares of stock,
or are they buying shares back? The company should have a net amount of shares
bought back every year, instead of share issuances. In other words, its number of outstanding shares should be <i>decreasing. </i><a href="http://www.vuru.co/analysis/WMT/dividendsBuybacks">Here's an example. </a>A company typically issues
shares if it’s having trouble financing operations, and doesn’t have good
enough credit with banks to get loans for expansions. This is a bad sign</span></li>
<li><span style="text-indent: -0.25in;">If the company has a net amount of shares bought
back, are they buying when their stock is cheap, or when it’s at all-time
highs? It should be when the stock is cheap</span></li>
<li><span style="text-indent: -0.25in;">If the company acquires other businesses, does
it do so efficiently, and when those businesses are cheap?</span></li>
</ul>
<br />
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<o:p></o:p></div>
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<br /></div>
<h2>
Pulling Out the Charts</h2>
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<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Lastly, before we decide to buy, we need to make sure the <i>timing is right. </i>In other words, the
company is in good shape, but should we buy right away, or wait for the price
to move around into a more advantageous position in the short term?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
We use charts to determine this. I look at a few things:</div>
<div class="MsoNormal">
<span style="text-indent: -0.25in;"><br /></span></div>
<div class="MsoNormal">
</div>
<ul>
<li><span style="text-indent: -0.25in;">52-Week Chart—helps me determine where the stock
has been over the past year, and whether</span><span style="text-indent: -0.25in;">
</span><span style="text-indent: -0.25in;">the price appears to have any floors or ceilings anywhere. Wal-Mart's chart is shown below. You can see that the stock has a solid price floor around the mid-50's, and it hasn't been suffering along with the general market in recent weeks, which is a good sign</span></li>
<li><span style="text-indent: -0.25in;">If there are any price floors or ceilings, where
are they, and is the price closer to the floor, or the ceiling? We want to buy
lower, not higher</span></li>
<li><span style="text-indent: -0.25in;">Bollinger Bands. Using Stockcharts.com, I can look
up the immediately short-term price envelopes the stock is trading within. If
it’s about to bump down against its price floor, that’s a good indication that
we’re ready to buy. In the second chart below, the lower green line is the lower Bollinger Band. Wait for the price to decline a bit and approach the line to buy Wal-Mart</span></li>
</ul>
<a href="http://2.bp.blogspot.com/-TMec6css46M/VqenP0XQEKI/AAAAAAAAErU/LbqD1-TxuXg/s1600/WMT-52-week-home-buying-stock-buying-easy.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="140" src="http://2.bp.blogspot.com/-TMec6css46M/VqenP0XQEKI/AAAAAAAAErU/LbqD1-TxuXg/s320/WMT-52-week-home-buying-stock-buying-easy.png" width="320" /></a><br />
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<o:p></o:p></div>
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<br /></div>
<h2>
</h2>
<h2>
</h2>
<div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-P3R7TiVDgzQ/VqeoAa6w8ZI/AAAAAAAAErc/CwmVaocmQbI/s1600/WMT-home-buying-stock-buying-easy-bollinger-band.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="192" src="http://1.bp.blogspot.com/-P3R7TiVDgzQ/VqeoAa6w8ZI/AAAAAAAAErc/CwmVaocmQbI/s320/WMT-home-buying-stock-buying-easy-bollinger-band.png" width="320" /></a></div>
<div>
<br /></div>
<h2>
</h2>
<h2>
</h2>
<h2>
</h2>
<h2>
</h2>
<h2>
Do We Buy?</h2>
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<o:p></o:p></div>
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<br /></div>
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Don’t ever consider making a long-term investment (2-5 years)
without looking into all of these factors. It seems like a lot, but really only
takes a few minutes, and your due diligence will pay off. After all, you wouldn’t
lay down $3000 on a crap shoot in a casino, so why would you lay down $3000 on
a crap-shoot in the stock market, and not do any research?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
WMT seems like a really good buy right now. Business-wise,
the company is in great shape, and great hands. The financials are sound, and
the company is trading at a discount in virtually all accounts compared with
its competitors.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Furthermore, the charts on WMT look good. WMT was trading at
an all-time-high of around $88 just one year ago, and is now down near $62,
after hitting a bottom of $56 last November. <o:p></o:p></div>
<div class="MsoNormal">
What happened with the shares? Some bigtime bank, Goldman Sachs,
downgraded the stock to a “Sell,” based on political pressure Wal-Mart has been
facing recently to raise wages to its workers in stores, which would cause its
bottom line to take a hit.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Well, I disagree with Goldman’s, AKA, the Devil’s,
assessment. I’ll believe that Wal-Mart is at risk for a major decline from here
when the company can no longer cover its interest payments, when we stop seeing
free cash flow, as profit margins begin to shrink, and it dividend no longer
rises. I just don’t see any of that happening any time soon, so I’m confident
that an investment in WMT is smart, especially at this price point.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<h2>
The Short-Term Setup Could Be Better, So Please Wait</h2>
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The setup in the super short-term isn’t incredibly great. It’s
trading near its upper Bollinger Band, meaning the price is at risk for a
short-term decline. I’d prefer to see the price back around $58 before feeling
completely safe jumping in here. I think once that happens, we’re taking on
very little risk buying.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
On the bright side, with the recent decline in share price
over the past year, WMT is almost within acceptable range to add to our Options
Trading Short List. I’d feel better if it were around $40, but I think that’s a
bit too much to ask for. If you have only one option position open in your
portfolio at a time, making a $5800 capital at risk investment in order to
generate 1.2% per month on a 100 shares of WMT may not be a bad idea. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Watch for a decline down to $58 to buy WMT.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<h2>
That’s All There Is To It</h2>
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As I mentioned at the beginning, investing is not nearly as
sophisticated or complicated as it’s made out to be by Wall Street, and
investment or wealth advisers. And why is that? They want <i>you </i>to pay <i>them </i>for advice, and not for you to DIY.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
For the most part, investing is common sense. If your
adviser can’t boil down a simple concept like how to identify a good investment
into understandable terms for the average lay person, it’s time to fire them
and <a href="http://thevillageid-vestor.blogspot.com/2014/09/be-your-own-jedi-master-money-manager.html">become your own adviser.</a><o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Investing is as simple as making a checklist for what your criteria are for what constitutes acceptable, and quickly working through the checklist to make sure everything is there. Like a simple grocery or to-do list.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I’ve included quite a few links in this article to the
sources of information you need to place your first trade after doing your
investing due diligence. If you have any questions about this, give me a holler
at <a href="mailto:thevillageid-vestor@gmail.com">thevillageid-vestor@gmail.com</a><o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Live long and invest,<o:p></o:p></div>
<br />
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Jeremiah<o:p></o:p></div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-38303643017505722562016-01-13T17:06:00.000-07:002016-01-14T08:32:21.113-07:00Suck On These Winnings, Powerball<h2>
Double This Penny 38 times</h2>
<br />
It's a fascinating social experiment to play with people who are bad at math...<br />
<br />
<a href="http://4.bp.blogspot.com/-PGvxAZ52-Wk/VpbemsmQ3XI/AAAAAAAAEps/8-hDBGeFFhY/s1600/penny-winnings-lotto-powerball-suck-on-this-options-village-id-vestor.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="201" src="http://4.bp.blogspot.com/-PGvxAZ52-Wk/VpbemsmQ3XI/AAAAAAAAEps/8-hDBGeFFhY/s320/penny-winnings-lotto-powerball-suck-on-this-options-village-id-vestor.jpg" width="320" /></a>Sit the average grade-schooler down, and ask him this question:<br />
<br />
"If I were to offer you a penny today, two pennies tomorrow, four pennies the next day, and so on, doubling the amount every day for the next thirty days, or $1 million dollars right now, today, which one would you take?"<br />
<br />
Invariably, the choice the unwitting kid will make is for the $1 million today. Easy money, right?<br />
<br />
Most people, when given the choice, will take the huge chunk of money and run with it, not giving it a second thought. That's because humans, especially the generation of today, are so adverse to waiting... they're used to having everything handed to them. Knowledge, entertainment, and gratification is available at your fingertips, why would you falter to reach out and take it?<br />
<br />
Well, here's the big reason.<br />
<br />
<a href="http://3.bp.blogspot.com/-9NCphDDVbYU/Vpbg_0b4_CI/AAAAAAAAEp4/nGNT1H6RL5I/s1600/table-winnings-lotto-powerball-suck-on-this-options-village-id-vestor.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="400" src="http://3.bp.blogspot.com/-9NCphDDVbYU/Vpbg_0b4_CI/AAAAAAAAEp4/nGNT1H6RL5I/s400/table-winnings-lotto-powerball-suck-on-this-options-village-id-vestor.jpg" width="192" /></a>I've outlined this neat little chart which gives the cumulative earnings of adding up all those pennies and dollars over the course of 30 days.<br />
<br />
As you can see, on day 27, the wise, patient fifth-grader is handed just over $600,000, for a cumulative amount of $1.42 million.<br />
<br />
Fulfilling the rest of the deal, the 30th day gives a total amount over $10.737 million.<br />
<br />
By day 38, if you've been patient, you've cumulatively surpassed the payout of the largest Powerball Lottery pool in U.S. history--and won $2.68 billion.<br />
<br />
Such is the power of small, successive winnings over time, and of compound interest. <br />
<br />
That's what I try to teach people to make here at the Village... small, successive, repetitive winnings which add up over time. And I OFFER IT FOR FREE. <br />
<br />
I teach you how to safely invest in the markets, using stocks and options, to net 20% or more over the course of any given year. These kinds of returns <a href="http://thevillageid-vestor.blogspot.com/2016/01/how-bad-did-village-cream-market-in-2015.html">spank the general market like a disobedient child.</a><br />
<br />
This is fascinating stuff....<br />
<h2>
A Pitiful 1.2% Per Month For 10 Years Equals..... HOW MUCH???</h2>
<br />
Let's say you've been wise enough to save up $3,000, so that you can start investing, and give the strategies I talk about a little bit of testing.<br />
<br />
My strategies usually bring in about 1.2% per month, give or take a small amount, adjusting for the general volatility of the market--sometimes, much, much more, but generally, not any less.<br />
<br />
The first month, taking my advice you make just $36. Sure, it doesn't seem like much. But reinvested in another opportunity, the next month, you'd make $36.43.<br />
<br />
<a href="http://3.bp.blogspot.com/-VdbMw2sQW4U/VpbmGTY_wLI/AAAAAAAAEqI/h_sBH96q5_g/s1600/math-do-the-winnings-lotto-powerball-suck-on-this-options-village-id-vestor.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" src="http://3.bp.blogspot.com/-VdbMw2sQW4U/VpbmGTY_wLI/AAAAAAAAEqI/h_sBH96q5_g/s200/math-do-the-winnings-lotto-powerball-suck-on-this-options-village-id-vestor.jpg" width="142" /></a>By Month 12, you're making an additional $41 and some change. By the end of year three, that has become $54, and by the end of year 10, it's $148 in income per month... and it only "costs" you 5 minutes a month to execute. That's an "hourly" wage of $1786 per hour. Your $3,000 became $12,554 over ten years--which is the <a href="http://thevillageid-vestor.blogspot.com/2014/08/and-math-shall-set-you-free.html">amount of time I believe it should take the average person to become financially independent.</a><br />
<br />
This is how you create wealth: little by little over time, using safe strategies where it's almost impossible to lose money. I've written several articles in the past, demonstrating how this is not a dream--but a reality. Read about a few of them <a href="http://thevillageid-vestor.blogspot.com/2015/01/screw-vegas-i-am-casino.html">here</a>, <a href="http://thevillageid-vestor.blogspot.com/2015/01/how-to-evaporate-your-investing-fears.html">here</a>, <a href="http://thevillageid-vestor.blogspot.com/2015/07/the-market-slaying-stealth-millionaire.html">here</a>, and <a href="http://thevillageid-vestor.blogspot.com/2015/12/2016-financial-markets-dont-look-rosy.html">her</a><a href="https://www.blogger.com/null">e. </a><br />
<br />
And <a href="http://thevillageid-vestor.blogspot.com/2016/01/how-bad-did-village-cream-market-in-2015.html">get a recap of all my 2015 trades here.</a> <br />
<br />
Heck, while you're at it, why not just read <a href="http://thevillageid-vestor.blogspot.com/p/random-posts.html">everything I have?</a><br />
<br />
How is this going to make you financially free? Well, you don't just slap down $3,000 every month and sit and wait... you add to the investment fund every month, and invest that money as well.<br />
<br />
By taking that initial $3,000, and committing to add just $400 a month into your investment account (<a href="http://thevillageid-vestor.blogspot.com/2014/08/have-extra-4000-on-me.html">check this article</a> or my section on <a href="http://thevillageid-vestor.blogspot.com/p/mastering-art-of-personal-finance.html">personal finance</a> if you need help finding the money to do this), and investing those same funds, you'll have $118,710 in wealth over 10 years. The more you commit to your investment fund each month, the quicker your wealth grows.<br />
<br />
<h2>
It's Just Simple Math</h2>
<br />
Let me reiterate: this isn't fantasy. <a href="http://thevillageid-vestor.blogspot.com/2014/08/and-math-shall-set-you-free.html">It's just simple math.</a> Everyone out there buying lottery tickets, hoping to win it big, is going to be disappointed. But we won't be.<br />
<br />
Investing is a game where more than one person can win the Big Powerball in the long run. Are you going to be one of them?<br />
<br />
If you want to be, check out what I've written on the subject of using options to pad your investment returns. This is all found in my <a href="http://thevillageid-vestor.blogspot.com/p/short-term-trading-and-speculation.html">Short-Term Trading and Speculation</a> section.<br />
<br />
Let's do this.<br />
<br />
Live long and invest,<br />
<br />
JeremiahUnknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-12830352985730057622016-01-13T17:05:00.000-07:002016-01-15T14:45:53.595-07:00Volatility! Get It While It's Freaking Hot!<h2>
We're Doing It Again</h2>
<br />
This might be the shortest post I've ever made, and that's because I want to get it out there before the opportunity disappears.<br />
<br />
If you're the average investor involved in the markets, you're probably clamoring for a solution for all the red in your portfolio, appearing just after the beginning of the year, and so far, not yet abated.<br />
<br />
<a href="http://2.bp.blogspot.com/-SfCc-xa2wxA/VphGWlIvi0I/AAAAAAAAEqY/6rcrIsKcWG4/s1600/strike-while-its-hot-volatility-csco-put-options.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://2.bp.blogspot.com/-SfCc-xa2wxA/VphGWlIvi0I/AAAAAAAAEqY/6rcrIsKcWG4/s1600/strike-while-its-hot-volatility-csco-put-options.jpg" /></a>Boo-hoo! So, your investments aren't performing as well as you want them to? Well, maybe it's time to shift course. Time to do something different. Time to do something you've never done before, maybe because your <a href="http://thevillageid-vestor.blogspot.com/2014/09/be-your-own-jedi-master-money-manager.html">financial adviser (erroneously) told you to stay away.</a><br />
<br />
It's time to sell some put options. It's time to cash in on the volatility dividends waiting to pad the lining of your account, if only you'd break out of your comfort shell, and do what I'm begging you to do.<br />
<br />
It's times like these when we have the lowest-risk, highest-reward setup possible to sell put options, because the premiums are so high due to increased volatility. As volatility increases, put option prices go through the roof.<br />
<br />
Remember the mantra, "buy low, sell high?" That applies here as well. Only, its order is reversed since we're selling initially instead of buying.<br />
<br />
Here's what you need to do along with me.<br />
<br />
<h2>
Load 'Em Up Boys!</h2>
<br />
I'm backing up the truck on one of my old stand-by's, Cisco. CSCO is on my short list of stocks, and I'm comfortable owning the shares at any reasonable price in the low- to mid-twenties. The company's balance sheet is rock solid, and it's at the top of its industry. <a href="http://thevillageid-vestor.blogspot.com/p/blog-page_74.html">Read more about it here if you wish.</a><br />
<br />
The stock has suffered a big selloff right alongside the rest of the market, and all the technical indicators are screaming for a market reversal over the next couple of weeks. That means, I'm expecting that over the next couple of weeks, the market should see a lot of good days. CSCO should move up right along with it.<br />
<br />
What we're doing when we sell the put is agreeing to buy 100 shares of CSCO if the price of the stock is below a certain threshold (the "strike" price) on a future date. We get paid, upfront, to make this agreement.<br />
<br />
The best setup right now is the <b>February 19, $26 CSCO</b> put option. It's offering us an instant payout of $130 per contract ($1.30 per share, which is deposited instantly into our investment account), in exchange for the obligation to buy CSCO for $26 per share if the stock is trading below $26 on February 19.<br />
<br />
That $130 represents a fat, juicy 5% of our total purchase obligation, or 49.3% in annualized gains. To put this in perspective, we usually get around 1-2% over the same length of time (37 days) selling options.<br />
<br />
How is this low risk, if I have to potentially buy something for more than it's trading for on the open market? Simple.<br />
<br />
We get paid upfront for the agreement, so our cost basis on the stock is actually lowered to $24.70. Therefore, we're taking on less risk with this method than if we were to buy the stock outright. If we are obligated to buy the stock at $26, we're actually buying it at the strike price, minus the premium per share of $1.30. Make sense?<br />
<br />
So, we make money on this trade over the next 37 days as long as CSCO is trading above $24.70 on the expiration date of the option. The stock can reverse another 1.8% from here before we even begin to lose money. If things don't start reversing, we can always chicken out and buy back the option to avoid losing money.<br />
<br />
Since I'm confident this little decline is not the end of the world, and that the market will go up, the value of this put option will lose much of its value as CSCO increases in price, and as time ebbs closer to February 19.<br />
<br />
These two factors are highly in our favor.<br />
<br />
The higher CSCO goes, the cheaper the value of the put option I sell will become. This is what we want to happen. If this reversal happens quickly, the option premium will also decline quickly, and I may even be able to buy it back much cheaper than I sold it, and close the trade in a short period of time for a gain.<br />
<br />
<h2>
What If the Market Doesn't Go Up From Here? Does the Plan Fall Apart?</h2>
<br />
Of course, the market could head lower. But swings like this, which cause the price of valuable companies to just keep going down, down, down, and which don't subsequently reverse, have happened literally only less than a handful of times in the past couple of decades. There's nothing happening now to be a catalyst for that sort of cataclysm.<br />
<br />
And even if I do end up being assigned the shares (buying them), like I said.... I'm comfortable owning this business, which is the best of its kind. And, all owning the shares will do for me is give me <i>more income </i>in the form of dividends, capital gains, and call options sold against the shares, to the tune of <i>yet still 1-2% per month.</i><br />
<br />
Who would complain about that?<br />
<br />
So here we are. I've opened the February 19 $26 put option for $1.30 per share. Short and sweet. Let's see how this turns out.<br />
<br />
Live long and invest,<br />
<br />
Jeremiah<br />
<div>
<br /></div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-46903526162351115092016-01-04T21:08:00.001-07:002016-01-08T05:51:23.525-07:0011 Ways The Village Id-Vestor Creamed the Market in 2015<h2>
Winning At Money Feels Great</h2>
It's that time of year when you sit back, and begin reflecting on your successes and failures of the past year--especially your financial ones. As you do this, I want to congratulate you on your wins. On your failures, I exhort you:<br />
<br />
Do better next time. And don't get creamed <i>ever again, starting now.</i><br />
<br />
What needs to change for you <a href="http://thevillageid-vestor.blogspot.com/p/about_20.html">to win</a>? Do you know where every dollar of your money is going? Do you know how much you're spending each month, and what's left over? And how well the "leftovers" are growing?<br />
<br />
If you answered "no" to anything above, you need to change. RIGHT NOW. Getting your <a href="http://thevillageid-vestor.blogspot.com/p/mastering-art-of-personal-finance.html">personal finances</a> straight is the first step. Saving comes next. <a href="http://thevillageid-vestor.blogspot.com/p/learning-to-become-successful-investor.html">Investing </a>comes last, since you won't have any money to invest at all unless you can manage and save money well. This the fun part. It's the part where you get to <i>cream the market, </i>instead of it creaming <i>you.</i><br />
<br />
<a href="http://1.bp.blogspot.com/-OdMD8qylJcY/Vorw9xd_n0I/AAAAAAAAEpY/6tE0_8dJ4k8/s1600/how-village-creamed-market-2015-winning-at-money-stock-options-winning.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="224" src="http://1.bp.blogspot.com/-OdMD8qylJcY/Vorw9xd_n0I/AAAAAAAAEpY/6tE0_8dJ4k8/s320/how-village-creamed-market-2015-winning-at-money-stock-options-winning.jpg" width="320" /></a>It's been a fantastically successful year in my household money-wise, by almost any standard. I didn't win the lottery, but I got the next best thing: I started an awesome new job early in the year, which gave me a higher income, lower expenses, less travel time, less stress, a better work-life balance, and greater potential for personal and professional growth.<br />
<br />
We've paid off lots of debt, saved up large chunks of change, ramped up our <a href="http://thevillageid-vestor.blogspot.com/2015/12/how-to-knock-out-22k-debt-when-your-paycheck-says-impossible.html">debt-payoff plans for the near future</a>, and staked our claims for financial freedom in the coming years. The future is bright indeed.<br />
<br />
But you probably don't care much about what I did personally--you're here on this blog <i>for you. </i>You're here to glean a little bit of knowledge, sharpen up the old financial noggin, and you're looking forward to the shiny veneer of a financial household and life that's strong, steady, and impregnable to any financial Moby Dicks ready to belly flop onto your ship's deck. A life where money works for you, instead of the other way around.<br />
<br />
I've published quite a few articles this year about how to best grow your wealth safely, incrementally, and intelligently. Today, I want to review some of the recommendations I've made, and some I haven't, and look at how much closer to financial freedom you might be in the future if you stick with me.<br />
<h2>
Trade Recaps - A Few Things to Consider</h2>
By browsing through my <a href="http://thevillageid-vestor.blogspot.com/p/random-posts.html">list of all past articles</a>, you can pick out a handful of times I wrote about ways the Village would cream the market by investing with stocks and stock options.<br />
<br />
I've long said that the safest investing strategy is to <a href="http://thevillageid-vestor.blogspot.com/2014/09/wolves-sheep-and-fistfuls-of-dollars.html">marry the concepts of investing in stocks, and speculating with options</a>, to capture the long-term benefit of capital appreciation and compound interest, while also taking advantage of short-term market moves, and volatility, to juice investing returns by double digits every year.<br />
<br />
This is what I've been doing, and you should do it, too. You'll see the proof of "why" in a minute.<br />
<br />
What I'll do today is outline the "speculation" side of things.... ways I've used options to give me returns far above and beyond <a href="http://blogs.wsj.com/moneybeat/2015/12/31/when-the-sp-500-is-unchanged-one-year-what-happens-the-next/">what the general market gave us in 2015--which was -.7%.</a><br />
<br />
Each of these position gains I list below include adjustments for trade commissions paid to my broker, so nothing is inflated at all.<br />
<br />
<h2>
Portfolio Returns</h2>
<br />
I don't always have time to write a new article for each and every new investment or speculation I make on my own accounts. For that reason, if you look over the below list of positions and see some which you don't remember reading about on the blog, don't fret... it simply means that I didn't write about it. But I still made the trade. On some I made money, others I lost it.<br />
<br />
I calculate the gains based on the principal of "annualized returns." This helps me to compare any investment to another "apples to apples." For questions in detail on how this is done, see <a href="http://thevillageid-vestor.blogspot.com/2014/10/make-10-billion-in-next-two-minutes.html">this article I wrote. </a><br />
<br />
Here are the positions I took this year in energy, tech, gold, oil, volatility, and inverse leveraged funds over the course of this year:<br />
<br />
<ul>
<li>PHX (Panhandle Oil & Gas)</li>
<ul>
<li>5/27/15 - 6/15/15, Equity only, 5.1%, $104.2</li>
</ul>
<li>INTC (Intel Corp)</li>
<ul>
<li>7/20/15 - 8/21/15, Covered Call option, 2.04%, $60.28 </li>
<li>8/24/25 - 8/28/15, Long Call option, 21.04%, $19.82</li>
<li>8/28/15 - 9/25/15, Covered Call option, .72%, $21.28</li>
<li>9/28/15 - 10/16/15, Covered Call option, 2.07%, $61.29</li>
</ul>
<li>GDX (Market Vectors Gold Miners Index)</li>
<ul>
<li>9/25/15 - 10/16/15, Covered Call option, 3.69%, $53.29</li>
<li>11/4/15 - 11/20/15, Naked Put Option, .59%, $30.72 </li>
<li>12/28/15 - 1/22/16, Covered Call option, 1.14%, $33.28</li>
</ul>
<li>CSCO (Cisco Systems, Inc)</li>
<ul>
<li>6/15/15 - 7/27/15, Naked Put Option, 1.25%, $35.27</li>
</ul>
<li>USO (U.S. Oil Fund)</li>
<ul>
<li>11/4/15 - 11/19/15, Naked Put Option, $-168.46</li>
<li>11/19/15 - 12/18/15, Naked Put Option, $181.28</li>
<ul>
<li>Combined = $12.82 gain</li>
</ul>
<li><b>12/18/15 - Shares were assigned, still open, cost basis = $13.88</b></li>
</ul>
<li>VXX (iPath S&P 500 VIX ST Futures ETN)</li>
<ul>
<li>9/17/15 - 9/17/15, Long Call option, 8.79%, $5.82</li>
<li>10/9/15 - 10/14/15, Long Call option, 15.27%, $27.82</li>
</ul>
<li>SDS (Proshares UltraShort S&P 500)</li>
<ul>
<li>10/16/15 - 11/20/15, Long Call option, -100%, -$72.59</li>
</ul>
</ul>
<br />
<b><u>Total Gains: $393.30</u></b><br />
<br />
The returns don't seem like much, but I wasn't using a lot of capital to do this. In any case, it's better than you made over the past decade in your savings account.<br />
<br />
These gains required about $3000 in available capital at any given moment. So, if I would have had $50,000 to invest instead of $3000, I'd have done much better dollar-wise.<br />
<br />
To determine my gain for the year, I take the $393.40 I made, and divide it by the amount of cash I needed in my portfolio in order to initiate these trades. I've over-estimated that amount at $4000 in order to be conservative, since some of the positions overlap, and more cash was needed at times, but most of the time, we needed about $3000. But if I put the number at $3000, the gains would be exaggerated, and I don't want to do that.<br />
<br />
Here's the math:<br />
<br />
$393.30 / $4000 = 9.83%.<br />
<br />
Remember, we only had trades opened for about 219 days out of the year, or 60% of the time. We calculate what our <a href="http://thevillageid-vestor.blogspot.com/2014/10/make-10-billion-in-next-two-minutes.html">annualized gains</a> would be (the amount we would have made if we replicated these trades over the course of the whole year) by doing the following:<br />
<br />
= 1 / (219/365) * 9.83%<br />
<br />
<b>= 16.39%</b><br />
<br />
So, from May 27 through December 31, we grew our money by 16.39% annualized.<br />
<br />
That's not bad. In fact, it's GREAT, considering the loss I would have incurred simply by placing my money into the S&P 500 Index for the year (OK, with dividends, I would have made 1.1% last year, but that's no better than a savings account, really. By that comparison, I might as well not be investing at all, since my savings is guaranteed).<br />
<br />
Also, the historical return over the past 80 years in the market is about 12%. So, I consider myself not only lucky, but somewhat skilled at executing these market-creaming strategies. <br />
<br />
<h2>
Look What Happened When I Broke My Cardinal Rules</h2>
<br />
In short, I <i>got creamed.</i><br />
<br />
You'll notice there are a couple of <i>losses </i>sitting in my portfolio. I hate to admit it, but yes, EVEN I LOSE SOMETIMES.<br />
<br />
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<a href="http://2.bp.blogspot.com/-OAnmI9eofgs/VorwVZTXPRI/AAAAAAAAEpQ/mRZh_8lfypI/s1600/how-village-creamed-market-2015-winning-at-money-lose-stock-options-put.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="213" src="http://2.bp.blogspot.com/-OAnmI9eofgs/VorwVZTXPRI/AAAAAAAAEpQ/mRZh_8lfypI/s320/how-village-creamed-market-2015-winning-at-money-lose-stock-options-put.jpg" width="320" /></a></div>
I only lost money doing the things I recommend no one do: selling naked put options and buying call options on volatile securities. In this case, they were USO put options, and an SDS call option, a leveraged S&P 500 index fund.<br />
<br />
I don't generally recommend anyone without several year's trading experience and discipline undertake speculation by buying call options, or by selling naked put options on anything that's not rock-solid.<br />
<br />
The reason I entered these trades is, I thought I had the market on those securities figured out. "Prices on oil just can't go lower," I thought. Well, oil <i>did get creamed. </i>Things can get a lot worse than we often think they can.<br />
<br />
I held the USO options far longer than I had originally planned, and lost my shirt. I had to enter a new position to cover the old one, trying to turn it into a winner. I succeeded a little, but I'm still underwater a bit, but in the coming months as things roll forward, I am confident I'll realize the gain.<br />
<br />
As for SDS, well, I expected the market to drop in the short term, but it ran up much higher than I thought within the time frame where the option was live.<br />
<br />
Had I not been so stupid, I would have made $453 on $4000 in capital, 11% in 219 days, or 19% annualized.<br />
<br />
<h2>
Replicating These Gains</h2>
If you're crafting an investment strategy which involves the use of options, I BEG you: Do not undertake this with your life savings, or if you have just $4000 total to invest as it seems like I've indicated here. <i>The market will CREAM you. </i>How so?<br />
<br />
Position sizing is the concept of making sure no single investment in your portfolio exceeds a certain percentage of the total amount of money you have available for trading. Following this rule ensures you don't have all your eggs in one basket when you drop it.<br />
<br />
Taking a $3000 position in options trading, when you only have $3000-$5000, is foolhardy. Anyone doing that is bound to get burned. I wouldn't recommend doing it with anything less than $20,000-$30,000 in total investable funds. Having more capital would allow you to take 8-10 medium-sized positions across several sectors of the economy, which is enough for a small portfolio to be sufficiently diversified, avoiding risk.<br />
<br />
So, if you don't have $20,000, save up until you do, then attempt options. Park your cash in some <a href="http://thevillageid-vestor.blogspot.com/p/equities-research.html">solid stocks</a> I've written about elsewhere until you've saved/grown your money enough, and take the meantime to learn as much as you can about how all of this works.<br />
<br />
The best way to learn is to <i><a href="http://thevillageid-vestor.blogspot.com/2015/10/13-best-investing-books-start-reading-now.html">read, read, read as much as you can</a> </i>to learn about how the general market and individual commodities and sectors function. Once you'd like to whet your feet,<i> </i>open a "paper" account with your broker, which most brokers such as E-Trade, TDAmeritrade, and Scottrade all offer. Paper accounts allow you to simulate trading strategies without actually putting capital at risk in things you don't understand.<br />
<br />
As we move into the new year, I look forward to booking even more impressive gains.<br />
<br />
The outlook for the market isn't exactly "rosy", as I've noted <a href="http://thevillageid-vestor.blogspot.com/2015/12/2016-financial-markets-dont-look-rosy.html">in a previous post</a>, and I feel like there are going to be many opportunities this year for us to grow our money in unbelievable ways.<br />
<br />
It's going to be a great year, so follow along.<br />
<br />
Live long and invest,<br />
<br />
Jeremiah<br />
<br />Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-1143103510109105602015-12-22T21:02:00.002-07:002016-01-08T05:30:54.702-07:002016 Financial Markets Don't Look Rosy, Here's Why I'm Giddy<h1>
Chaos is Money</h1>
<br />
<a href="http://4.bp.blogspot.com/-FAHMI5-fnhk/VnocTO84OsI/AAAAAAAAEo8/ll2zBZtEzVo/s1600/2016-markets-dont-look-rosy-heres-why-im-giddy-options-cbi.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="187" src="http://4.bp.blogspot.com/-FAHMI5-fnhk/VnocTO84OsI/AAAAAAAAEo8/ll2zBZtEzVo/s320/2016-markets-dont-look-rosy-heres-why-im-giddy-options-cbi.jpg" width="320" /></a>As some of you might know, I work for a community-based financial institution as what one might call a "financial analyst. What might surprise you is, my position has nothing at all to do with telling you how to manage your personal finances, or where to invest your money in the market.<br />
<div>
<br />
I only do that here, on this website. If I did that for a living at my dayjob, I'd have a clear conflict of interest in writing for this lovely blog you've happened upon. </div>
<div>
<br /></div>
<div>
But I do work with these types of people--the ones who like to go out with their crystal balls among my company's unwashed masses, telling them where the stock market is supposed to go, when it's going to happen, and what's surreptitiously causing it. They tell people what to do in the market when things aren't looking so rosy in the near future.</div>
<div>
<br /></div>
<div>
If you've been reading very long, you know <a href="http://thevillageid-vestor.blogspot.com/2014/09/be-your-own-jedi-master-money-manager.html">my opinion about most wealth advisers</a> such as these. It's <a href="http://thevillageid-vestor.blogspot.com/2014/10/most-experts-you-know-of-are-snakes.html">not entirely positive.</a><br />
<br />
You also know my position about <a href="http://thevillageid-vestor.blogspot.com/2014/10/8-timeless-wealth-growing-tips.html">stock market prognosticators</a>--no one can tell you with any certainty where the market is going, when you'll see it happen, and identify with any absolute certainty what's the catalyst. But some people do try--in fact, lots of rich people out there think they know exactly what the market is going to do. This year, they think it's not looking too rosy. In fact, things look downright chaotic. And that's fine.</div>
<div>
<br /></div>
<div>
I don't try to prognosticate or predict market movements--most of what I do is much more simple, and not even very sophisticated. In fact, it's surprising to me how many people take me seriously. Most of what I know can be gleaned on your own in the vast world of the internets.</div>
<div>
<br /></div>
<div>
Oh, I guess this <i>is </i>the internet.</div>
<div>
<br /></div>
<h1>
What <i>Do </i>I Do Here?</h1>
<div>
On top of extolling the virtues of cultivating good personal financial habits, and railing on general financial stupidity I see around me in the world, what I most enjoy writing about on this site has to do with investing--growing and preserving wealth. It's what I'm most passionate about. Investing puts the "giddy" in me.</div>
<div>
<br /></div>
<div>
What I do in that regard is simple. I research companies, sectors, commodities, and funds which I perceive as safe, solid investment opportunities ("rosy" investments), and build "shopping lists" of sorts from which I craft successful long- and short-term opportunities for profit. </div>
<div>
<br /></div>
<div>
The strategy from there is simple. I keep this "shopping list" in the back of my mind, and wait for "hiccups" to occur in the market, which causes fear for most investors, and temporarily skews the prices of these different investment vehicles into territory favorable for comparatively high returns and low risk. </div>
<div>
<br /></div>
<div>
Not surprisingly, the best opportunities in the market arrive when there is <i>absolute pandemonium </i> in the streets of the financial world--<i>when things are all but "rosy</i>." The chaos which ensues when market participants panic is what creates these money-making opportunities. It's a time when money and wealth are shifting from the foolish and finicky, to the patient and prudent.</div>
<div>
<br /></div>
<div>
What else characterizes market panic such as these?</div>
<div>
<br /></div>
<div>
Investors become willing to pay outrageous prices to "insure" their investment portfolios (using stock options and other instruments) against the losses they're likely to incur on the risky investments they've jumped into in the months leading up to the chaos, positions they most likely only entered because the rest of the thundering herd couldn't stop talking about it at the water cooler, or on CNBC.</div>
<div>
<br /></div>
<div>
I know what happens to herds. There's an entertaining little biblical account about one such herd of pigs which ended up diving off a cliff after being possessed by what I can only assume were the ghost ancestors of today's foolish market participants. Those hogs drowned, and the spirits were left without a pit to piss in. </div>
<div>
<br /></div>
<h1>
Watching the Market Pigs Drown</h1>
<div>
Watching the pigs of the market drown (i.e., watching fools lose money) is a fascinating, but harrowing and enriching exercise. In the second week of August earlier this year, I wrote about how most of these market pigs (or ostriches, pick your favorite animal) had their <a href="http://thevillageid-vestor.blogspot.com/2015/08/head-in-sand-economy-in-crapper-market.html">head in the sand about the actual condition of the financial markets</a>, and warned that soon we'd see a market correction precipitating a larger eventual financial meltdown, and that most were going to be taken unawares.</div>
<div>
<br /></div>
<div>
Just seven short days later, the market experienced <a href="http://thevillageid-vestor.blogspot.com/2015/08/when-stock-market-lottery-during-crash.html">its biggest drop in over three years. </a></div>
<div>
<br /></div>
<div>
Nobody likes to watch pigs get slaughtered, but the reality is, this is inevitable. If you can handle the stench of chaos, and have the guts and gumption to step into the chaos and pick up the bargains you know exist, you can make a killing. </div>
<div>
<br /></div>
<div>
That brings me to today. I recently sat down with one of the financial advisers where I work for a friendly market conversation. </div>
<div>
<br /></div>
<div>
Surprisingly, he echoed sentiments similar to much of what I see being talked about by the only sources I trust in the financial world. Despite recent pullbacks, today's markets are still a bit frothy. There's not much room for upward momentum for stocks in the coming year. Couple that with a few other things--such as bubbles in auto loans and student loans, not to mention the breakdown of the junk bond market--a precursor to absolute market disaster--and we both arrived at the same conclusion: we MUST remain cautious, but bullishly so.</div>
<div>
<br /></div>
<div>
This surprised me, and honestly it restored my faith somewhat in some advisers. For once, someone who gets paid money to manage other peoples' money, <i>actually agreed with me</i> (me, being someone who makes their own money grow regularly).<br />
<br />
I mentioned to him briefly my involvement in using alternative investments--stock options, which I talk about a lot on this website--alongside traditional equities (stocks), in order to generate above-average market returns. </div>
<div>
<br /></div>
<div>
His response was typical. "That's risky stuff. I'd advise you to stay away unless you really know what you're doing." </div>
<div>
<br /></div>
<div>
I couldn't help but laugh on the inside. First of all, because <i>he has to give this advice. </i>It's his job to try to keep people from things he perceives as risky. Pity... it also showed me how little he knows about the best investment vehicles in the market. But secondly, I had to laugh because...</div>
<div>
<br /></div>
<div>
Remember that little market downturn I mentioned earlier? <a href="http://thevillageid-vestor.blogspot.com/2015/08/Survive-3-trillion-loss-without-losing-lunch.html">While the rest of the world was losing money hand over fist, my own portfolio was up--doubling the market returns year to date. </a></div>
<div>
<br />
And here I was, getting told I'm risking my financial future with speculation! <br />
<br /></div>
<div>
Using options is easy, and it makes sense when the markets look chaotic and un-rosy. Options are meant to be used as portfolio insurance to protect what you currently own.... but also to generate income that even historical market returns in the long run simply can't touch. I use them in the way they're intended---mainly to pad my regular returns, not to speculate wildly or try to predict market movements with certainty.</div>
<div>
<br /></div>
<div>
Here's what I'm doing with options today to make some money going into the new, chaotic, un-rosy year of 2016.</div>
<div>
<br /></div>
<h1>
I'm Net Selling You a Bridge</h1>
<div>
I've been watching the company <b>Chicago Bridge & Iron (CBI)</b> for a while now, and I'm finally ready to pull the trigger.</div>
<div>
<br /></div>
<div>
This company doesn't build bridges, and it isn't in Chicago. The company actually builds energy infrastructure all over the world. It's a 100+ year old company with a safe balance sheet, low debt, and half a billion in free cash flow sitting around. </div>
<div>
<br /></div>
<div>
But the company's shares are 33% off their highs from earlier this year. What's up with that?</div>
<div>
<br /></div>
<div>
Investors have been worried about a big portion of CBI's business, its nuclear construction division. It's been involved with some troublesome projects across the US, and recently decided to take a big loss and sell off this less-efficient portion of its business. </div>
<div>
<br /></div>
<div>
This was announced in October, and the stock had already been run into the ground by that time. It's even cheaper now, having had ample time to work off the news of the sale of this part of its business.</div>
<div>
<br /></div>
<div>
From a fundamental perspective, CBI is beautiful, as I said before. No revenue slowdowns or balance sheet issues. And from a technical perspective, the setup looks solid.</div>
<div>
<br /></div>
<div>
Here's a recent chart of CBI, which shows what I mean from a technical perspective.</div>
<div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
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<a href="http://2.bp.blogspot.com/-uGQlvNfDDFY/VnnFQwDRvkI/AAAAAAAAEok/ErjfhoY0vBo/s1600/CBI-market-rosy-2016-why-im-giddy-trade-setup.JPG" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="194" src="http://2.bp.blogspot.com/-uGQlvNfDDFY/VnnFQwDRvkI/AAAAAAAAEok/ErjfhoY0vBo/s320/CBI-market-rosy-2016-why-im-giddy-trade-setup.JPG" width="320" /></a></div>
<div>
Over the past several months, the stock has been been bumping up against a price "support" of around $37. "Support" is an indicator telling us the lowest price at which investors are willing to sell the stock.</div>
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<br /></div>
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Price floors give us a safe range to peg down a safe purchase price for the shares of a company or fund.</div>
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<br /></div>
<div>
I've indicated that price floor with a red line here. As you can see, when the price did temporarily go below that area, investors were willing to jump back into the stock and buy, causing the price to rebound. And subsequently, anytime we've seen the stock price approaching this area, the same has occurred twice--even as recently as the last week.</div>
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<br /></div>
<div>
Right now, CBI is trading around $39.10. Here's what we'll do to make a killing in just one month's time.</div>
<div>
<br /></div>
<div>
I'm willing to buy 100 shares of CBI right now, and sell a January 22 $40 call option against those shares. Right now, I'll get $1.25 per share for the option, for a total of $125. </div>
<div>
<br /></div>
<div>
Here's what this means for the investment. Selling the covered call option means I buy 100 shares of CBI at $39.10 today and if the stock is trading above $40 on January 22, I'll be obligated to sell the shares for $40, earning $.90 per share, or $90 in returns, plus the $125.</div>
<div>
<br /></div>
<div>
Taking into account the capital gains and options premiums I collected, minus commissions on a standard brokerage account, I could net up to about $174.28 on this trade on a $3910 obligation in 30 days, or 4.43% <i>in just 30 days</i>. On an <a href="http://thevillageid-vestor.blogspot.com/2014/10/make-10-billion-in-next-two-minutes.html">annualized basis</a>, that's an astounding 52.2%.</div>
<div>
<br /></div>
<div>
That's why I'm giddy!</div>
<div>
<br /></div>
<div>
The option premium of $1.25 per share lowers our cost basis on the stock to $37.66, meaning by entering this trade today, I'm actually taking on less risk than if I simply bought shares of CBI outright at $39.10, because the price of shares can decrease by 3.7% from today's price before I even begin to lose money. </div>
<div>
<br /></div>
<div>
If CBI is trading for less than $40, I have no obligation, I keep the $125, make 2.65% in one month (31.23% annualized), and next month I can either dispose of my shares at whatever the price is at that time, or I can sell another option against the shares for even more income--the more likely alternative.</div>
<div>
<br /></div>
<h1>
Summary</h1>
<div>
It's important to understand opportunity cost when selling call options against shares of stock we own.</div>
<div>
<br /></div>
<div>
What I mean is, you have to understand that if CBI is trading above $40, we're giving up any amount of money we would have made by simply buying the stock by itself. It's completely possible the shares could make it all the way back up to $43 or $44, which is the current "resistance", or price ceiling for the stock, in which case I'd be forfeiting almost $2.75 per share, or $275 in additional gains.</div>
<div>
<br /></div>
<div>
Something similar happened to me several months ago with Intel, Inc. I made over 2% in one month by selling covered call options, but the stock appreciated substantially over one month's time, and I forfeited 10% in gains on the stock.</div>
<div>
<br /></div>
<div>
I don't worry too much about this, because of the "bird in the hand" principle.</div>
<div>
<br /></div>
<div>
No one can predict with an surety whether the future of a company's stock price is going to be rosy, or chaotic. So, instead of making predictions, I take calculated risks.<br />
<br />
I'd rather guarantee at least the 2.65% gain over the next month which I get by selling the call option (the bird in the hand), than to sit back and hope that the stock appreciates by a few extra percent (the two birds in the bush, which I haven't caught). Sitting with that extra gain in my pocket, while the rest of the market tanks, would make me downright giddy. </div>
<div>
<br /></div>
<div>
Gains we have in hand are worth more than gains we are hoping for. But opportunity cost is the price we pay for growing our wealth little by little, in which process we win financial freedom in the long run.</div>
<div>
<br />
If you have any further questions about how any of this works, drop me a line at thevillageid-vestor@gmail.com.<br />
<br /></div>
<div>
Live long and invest,</div>
<div>
<br /></div>
<div>
Jeremiah</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-51083878384671568702015-12-22T12:39:00.000-07:002016-01-08T05:16:56.812-07:00How to Knock Out a $22k Debt When Your Paycheck/Budget Says 'Impossible'<h1>
The Village Leader's 2016 Debt Revolution</h1>
<h2>
Put Together Your Own ''Stop Being Poor'' Goal for 2016
</h2>
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<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-qxbS7WJ5pYU/VnlxxWQdahI/AAAAAAAAEoI/-60LLhZBKvY/s1600/Inigo-Vizzini-Fezzik-inconceivable-pay-off-22k-debt-impossible-budget.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://4.bp.blogspot.com/-qxbS7WJ5pYU/VnlxxWQdahI/AAAAAAAAEoI/-60LLhZBKvY/s1600/Inigo-Vizzini-Fezzik-inconceivable-pay-off-22k-debt-impossible-budget.jpg" /></a></div>
It's crunch time, friends, with no time to waste! The New Year is fast-approaching, and if you plan to succeed this year in becoming more independent financially by knocking out your debts, you have to start planning now. I've got a plan of my own which I want to share with you now. I think you'll like it.<br />
<br />
It involves using a few little-understood strategies for paying down debt and building wealth which you've probably never heard of, and I hope it will inspire you to do something just as dramatic as what I'm planning.<br />
<br />
If you've been reading along with this blog for a while, you know my long-term financial plan is simple:<br />
<br />
<div style="text-align: center;">
"Gain complete financial freedom."</div>
<div style="text-align: center;">
</div>
<div style="text-align: center;">
(<a href="http://thevillageid-vestor.blogspot.com/2014/08/escaping-sociopathic-financial-life.html">i.e., Escape a Sociopathic Financial Life</a>) </div>
<br />
Every big goal you have in life naturally breaks down into smaller, incremental ones... in this case, one of my incremental steps happens to be paying off debt---a crap-ton of it---as quickly as possible.<br />
<br />
And therein lies the rub--doing this proves to be somewhat difficult when your current savings plan and budget look you straight in the eyes and say "F You, That's Freaking Impossible."<br />
<br />
This is an interjection which I promptly and utterly reject. I don't get talked down to like that by <i>anyone,</i> and I won't take it from an inanimate budget, either! The budget is not my boss.<br />
<br />
<h2>
What I'm Going to Accomplish</h2>
<br />
Here's a a high-level view of what I want to accomplish:<br />
<ul>
<li>Pay off my remaining student loan debt</li>
<li>Make extra payments on my mortgage, in order to reach 20% equity, so I can cancel the Private Mortgage Insurance on my home--this will allow
me to reallocate funds from Expenses every month (PMI) to Savings (and Investments) by about 5%-- about $171.</li>
</ul>
Now, what's my time frame?<br />
<br />
I've been pretty judicious about paying down the student loans since I began repayment three years ago, and the same with the mortgage, which I entered about the same time. That being the case, 24 months's worth of time to complete these goals seems realistic.<br />
<ul></ul>
You might think these goals are lofty, even devious and
intricate, but my plan has been working so far--inasmuch as I dutifully
complete the steps along the way. If I'm going to make it happen, here's a further breakdown of what I have to do: <br />
<ul>
<li>Stop wasting money on things I don't need to (be even more careful with everyday spending)</li>
<li>Crank up my <a href="http://thevillageid-vestor.blogspot.com/2014/08/and-math-shall-set-you-free.html">savings rate</a> another 5% of gross (goal is 25%)</li>
<li>Relentlessly use extra money at the end of every month to make extra payments where I can</li>
<li>Use <a href="http://thevillageid-vestor.blogspot.com/2014/08/fixing-sucky-spenders-part-2.html">windfall payments</a> to further reduce debt loads</li>
<li>Continue <a href="http://thevillageid-vestor.blogspot.com/p/learning-to-become-successful-investor.html">growing my wealth</a> safely and successfully, as I have in the past </li>
</ul>
If you're doing this exercise with me at home, do what I've just done. Decide what your long-term financial goal is, break that down into a couple of short-term goals, and decide what specific action you have to take to make them happen. This will involve, ultimately, arriving at a number you need to contribute each month toward meeting that goal.<br />
<br />
<h2>
How Much Debt I'll Pay Down On Average Per Month</h2>
<br />
So, back to me now. I've determined that by December 31, 2017, I need to put away a total of $22,296 to meet my two intermediate goals. That comes down to $11,148 per year, or an average of <b><u><i>just</i></u></b> $929 per month.<br />
<br />
"Hmmmm... I don't think I have that lying around in my budget anywhere close... nope, don't think so. Well, screw that, I guess."<br />
<br />
This is what the average financial weakling's thought process is like. But I'm not average by any stretch of the imagination.<br />
<br />
Although it's true that I don't just have that pile of money lying around, my approach to this dilemma is a bit different than the above. I tend to avoid asking myself dead-end, binary, win-or-lose questions like, "<i>Will </i>this work?"<br />
<br />
Instead, I ask myself questions like, "<i>How </i>can I make this work?"<br />
<br />
And the answer is: "With a vengeance."<br />
<br />
Let me show you how it's done. Take some notes.<br />
<br />
<h2>
Figure Out Your Expenses Using a "Budget"</h2>
<br />
First, I'll look at what money is lying around in my regular budget before I take this extra $929 into account. To do that, I need to know my spending. Here are the items in my own budget, probably similar to yours.<br />
<ul>
<li>Housing $1085</li>
<ul>
<li>Mortgage (Principal, Interest, PMI, Escrow--insurance, taxes)</li>
</ul>
<li>Utilities $295</li>
<ul>
<li>Gas/Oil (Heating), Water, sewer, garbage, electricity, internet, cellphone,</li>
</ul>
<li>Gasoline $110</li>
<li>Auto Loan or Maintenance $100</li>
<li>Clothing $30</li>
<li>Charity Donations $600</li>
<li>Christmas/Birthday/Special Occasion $50</li>
<li>Entertainment $20</li>
<li>Student Loans $300</li>
<li>Auto Insurance "Bank" $60</li>
<li>Food/Groceries/Restaurants $450</li>
<li>Misc Home Necessities $100</li>
<li>Kids Activity Spending (if applicable) $30</li>
</ul>
<ul>
<li>Total Budget Spending Allowance: $3230</li>
<ul>
<li>Additional Proposed Debt Payments/Savings: $929</li>
</ul>
<li>Total Monthly Proposed Expenses for 2016-2017: <b><u><i>$4159</i></u></b></li>
</ul>
OK, now let's see if I make enough money to wipe out this debt:<br />
<br />
<ul>
<li><u>My Income:</u><b> </b>Net Income After Savings, Taxes, and other Deductions: $2980</li>
<li><u>My Awesome Wife's Income:</u> Net Income after taxes, etc: About $860</li>
<ul>
<li>Total Combined Income: <b><u><i>$3840</i></u></b></li>
</ul>
<li>Income Minus Proposed Extra Expenditures of $929: <b><u><i> -$319</i></u></b></li>
</ul>
Crap! We're short. I don't make enough money to do it! My plan is foiled... or is it?<br />
<br />
<h2>
Find Your Extra Sources of Income, Which We All Have</h2>
<br />
At this point, ask yourself this question: "Do I have any extra sources of income that I haven't taken into account?"<br />
<br />
And the answer is: "Of course, we all do!"<br />
<br />
For a refresher on one major source of hidden money in your life, see <a href="http://thevillageid-vestor.blogspot.com/2014/08/have-extra-4000-on-me.html">THIS ARTICLE I wrote on how to make your budget MAGICALLY give you some bonus paychecks every year--at least TWO, to be exact.</a><br />
<br />
Then there's <a href="http://thevillageid-vestor.blogspot.com/2014/08/fixing-sucky-spenders-part-2.html">this article about windfall income</a>, similar to the above but with a few more details on other types of free money you get out of nowhere.<br />
<br />
After reading these articles, you should understand that <i>everyone has spare money lying around if they choose to...</i> so we can proceed.<br />
<br />
Using just the Bonus Paycheck method, I should be able to rake in at least an extra $2900 next year, and the year after in "bonus" paychecks (that's not even counting my wife's income, which will produce about $1600 more). I'll take that extra "magic" money, and toss it into the annual money pit of $11,148, and suddenly, the amount I need to be spending "out of budget" every month to pay off the debt becomes just $687 ($11,148 minus $2900, divided by 12 months). Unfortunately, I'm still short -$77 in my budget. I'll be getting poorer every month if I make all these payments/savings deposits.<br />
<br />
Using the Windfall method, every April, I'll get a Tax Return. Everyone does, as long as they have a mortgage, a student loan, contribute to tax-deductible charities, or produce some extra offspring during the course of the year. Properly applied, that lump sum tax return of about $1200 goes straight into the $11,148 money pit, too.<br />
<br />
Most people don't think about a tax return as a source of income, because they blow it on non-value-added things, like toys. Well, in the Village, we only buy toys when we've disposed of our other toys, and <a href="http://thevillageid-vestor.blogspot.com/2014/08/fixing-sucky-spenders-part-1.html">sold our old dusty junk we don't use on Craigslist.</a><br />
<br />
Having applied all of this spare money, my annual "out of budget" payments are down to just $7048, or $588 per month. I'm now actually ahead by $23. That's great news... but I'm not done yet! I have one more source of income.<br />
<br />
As it turns out, as long as I perform well on my job at work, I can get an annual performance bonus of up to 8% of my annual salary.<br />
<br />
My bonus for the year was just deposited yesterday and looks like it comes to about $2700. If I take that amount and toss it also into the $11,148 money pit, that brings my annual "out of budget" extra debt payments to just $4348, or just $362.33 a month.<br />
<br />
Can I afford that?<br />
<br />
Well, it turns out, yes, I can!<br />
<br />
Since I'm netting $3840 a month with my normal paychecks, and I only spend $3230, I end up making my extra debt payments each month, I can max out by budget spending, and still have $247 to spare!<br />
<br />
Awesome! This plan just keeps getting better and better!<br />
<br />
<h2>
The Only Things You Need to Do to Make This Debt Debt</h2>
<br />
Some observations on this plan. The keys to making this work are: <br />
<ul>
<li>Learning to live on 28 days' worth of pay over the period of 30-31 days of every month using my <a href="http://thevillageid-vestor.blogspot.com/2014/08/have-extra-4000-on-me.html">Budget Magic Trick</a>. When you do that, you'll always have extra money lying around for emergencies, or for paying off debt.</li>
<li>Not blowing your tax return on useless, depreciating garbage, like a new car or other fancy toy. Use it to kill debt, which will give you more money at the end of each month</li>
<li>Finding and holding a great job that incentivizes me to work productively and efficiently</li>
</ul>
Many of you out there might not get bonuses at your employment. That's fine... you can still put together an awesome debt-killing plan using your windfall payments, and by budgeting better.<br />
<br />
Whatever it is you need to do, get on it now! Toss out the TV that's stealing your evenings, nights, and weekends, and do something that's going to pay off for you in the long run!<br />
<br />
The last thing I didn't mention which will make this plan even more powerful, and help you execute it even more smoothly, includes maximizing you 28 days' worth of pay by cutting down expenses.<br />
<br />
The idea is to go line by line through your spending and see what you can reduce, cut back, or eliminate entirely. I've recently written extensively about tons of ways to do this, even <a href="http://thevillageid-vestor.blogspot.com/2015/11/70-taxes-only-ignorant-lazy-or-unhappy.html">giving you over 40 ways, in detail, to cut waste out of your life</a>. Read through that information, and make the changes.<br />
<br />
As you can see, even on the meager salary I bring home, my household is fully capable of indiscriminately knocking out the life-sucking debt in our life--but this can only be done if I have a plan, I'm disciplined, and I'm motivated to see it happen.<br />
<br />
Put together your own plan <i>right now... don't waste another minute.</i><br />
<br />
Live long and invest,<br />
<br />
Jeremiah<i> </i> Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-6670567362421909511.post-21069751887744579992015-12-17T05:17:00.003-07:002015-12-22T08:46:45.793-07:0041 Taxes Only Ignorant, Lazy, or Unhappy People Pay, Part 3<div>
<h1>
Getting Ravaged Everywhere You Go</h1>
</div>
<div>
It ends today...<br />
<br />
In Parts <a href="http://70-ways-youre-taxed-for-laziness-ignorance-stupidity-1/">1</a> and <span id="goog_390177251"></span><span id="goog_390177252"></span><a href="http://70-ways-youre-taxed-for-laziness-ignorance-stupidity-2/">2</a>, I introduced the truth of the world to you.... which is, that you're living in a world of shysters who are constantly groping for a chunk of your wallet at every turn. This series concludes today, with the rest of the details below...<br />
___________________________<br />
<br />
<a href="http://3.bp.blogspot.com/-ANsfWboO-Es/VmdT6Hw1TPI/AAAAAAAAElo/tJFQ19tLW3U/s1600/calvin-hobbes-70-taxes-ignorant-unhappy-lazy-pay.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://3.bp.blogspot.com/-ANsfWboO-Es/VmdT6Hw1TPI/AAAAAAAAElo/tJFQ19tLW3U/s1600/calvin-hobbes-70-taxes-ignorant-unhappy-lazy-pay.jpg" /></a>The truth is, we're living in a world of shysters who are constantly
groping for a
chunk of our wallet at every turn. And it's always been my opinion that
if you get taken advantage of, frankly, it's your own fault for not
doing your "homework."<br />
<br />
Turn on your TV, swipe open
your tablet, walk out your front door, or drive down your street.
Individuals, businesses, and organizations are bent on getting as much
of your hard-earned greenbacks as possible using advertising,
psychology, convenience, bright signs, and even fear to coax you into
having or buying things that won't lend you freedom, security, or give
you lasting satisfaction.<br />
<br />
The bamboozling cacophony of
voices have no shame at all in making sure you stay poor, stupid, and
chained down to a lifestyle you probably never really wanted. It's
sickening to think about.<br />
<br />
There are hundreds of them
out there, barely perceptible... it's like a living conspiracy theory.
And the more stupid, ignorant, and lazy you are, the easier it is for
you to get hoodwinked into forking over your wealth to some conniving
shyster who doesn't deserve it.<br />
<br />
These are the "taxes" I'm referring to--"tolls" you pay for making poor choices, or falling for wealth traps.<br />
<br />
Not long ago, I read
that many wealthy people making over $1 million a year pay absolutely
zero in income taxes. Why is that?<br />
<br />
They've figured out
how to legally play the system in their favor, in order to avoid getting
raked over the coals by the same machine that keeps the average Joe in
the poorhouse.<br />
<br />
Basically, they've learned how to avoid taxes on stupidity, ignorance, and laziness.<br />
<br />
I want the same for you. You may not be
wealthy yet, but someday you will be, if you play your cards right by
making smart money decisions.<br />
<br />
And after today, your
eyes will be opened to ways the world takes advantage of you, the middle
class, and keeps you poor in a micro-spending level. Consider this a
wake-up call for ditching that lifestyle like a bat out of hell, and
starting down the road to wealthiness by saving better, spending less,
and investing your money like smart people do.<br />
<br />
Here's a list of what I'll talk about in this, the conclusion of this article series:<br />
<ul>
<li>Taxes on Personal Finance Illiterates </li>
<li>Taxes on the Poverty-Minded</li>
</ul>
</div>
<div>
<h2>
Time Value of Money (Reviewed from Parts 1 & 2)</h2>
As I continue to address all of these things, remember what we talked about in part 1 and 2 about the Time Value of Money.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<a href="http://4.bp.blogspot.com/-KMDcq4162hE/Vk9pXxiijnI/AAAAAAAAEks/Z42kpzb7sIE/s1600/cost-ignorance-70-ways-taxed-stupidity-laziness-calvin-png.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="113" src="http://4.bp.blogspot.com/-KMDcq4162hE/Vk9pXxiijnI/AAAAAAAAEks/Z42kpzb7sIE/s200/cost-ignorance-70-ways-taxed-stupidity-laziness-calvin-png.png" width="200" /></a>If
you have a $5 bill in your wallet right now, it's worth just $5. But
what's it worth next year if you put it in a savings account or
investment?<br />
<br />
A savings account would make that $5 worth
$5.05 next year. In an investment account, if we estimate an average
yearly return of 12% (the return of the standard stock market index over
approximately the last 70 years), your $5 is actually worth $5.60 one
year from now. If you take $5 every year then, and invest it in the
market, $5 per year over 40 years is worth $4295.71. Crazy, right?<br />
<br />
That's the concept of "time value of money" in a nutshell.<br />
<br />
We'll
be putting all of the below "taxes" into this same lens to determine
how much wealth you might be foregoing over for each of these areas over
the course of 40 years.<br />
<br />
<h1>
Taxes on Personal Finance Illiterates</h1>
<h2>
Banking Overdraft fees</h2>
<div>
For a very short time last year, I worked on the front lines for a big "retail" bank, the banks designed to serve consumers like you and I by providing checking and savings accounts, issuing CDs, and originating all kinds of loans from mortgages, to auto and home equity loans.</div>
<div>
<br /></div>
<div>
When I say these institutions want to "serve" us, I really mean most of them want to "screw" us by taking as much of our money as possible in whatever way they can. </div>
<div>
<br /></div>
<div>
It's true... most retail banks' revenue generation strategies are fee-focused. They seek to generate as much revenue as possible simply by charging you fees on money which <i><b>you're </b>lending to <b>them </b>in your checking account, which they turn right around and loan out to someone else, charging interest and earning profit.</i></div>
<div>
<br /></div>
<div>
They charge fees for checking, fees for saving, fees for loans, fees for investments, fees for credit cards... the list goes on. They're relentless about gutting you everywhere possible, and they'll rarely refund you a single penny of what they've charged you unfairly.</div>
<div>
<br /></div>
<div>
These are the sharks of society--but let me point out that <i>not all financial institutions act this way.</i> But for those which do, one of their biggest sources of revenue, by far (I know this because I've seen the "books" of revenue) are overdraft fees. An overdraft fee is what you get charged if you spend more money than what's currently in your checking account.</div>
<div>
<br /></div>
<div>
<a href="http://3.bp.blogspot.com/-f7VGUzNwP8M/VnKlq_9tXfI/AAAAAAAAEmc/l8fNaJPxee4/s1600/70-taxes-ignorant-unhappy-part-3-overdraft-fees.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="199" src="http://3.bp.blogspot.com/-f7VGUzNwP8M/VnKlq_9tXfI/AAAAAAAAEmc/l8fNaJPxee4/s200/70-taxes-ignorant-unhappy-part-3-overdraft-fees.jpg" width="200" /></a>Due to recent changes in consumer financial protection laws, banks are now required to ask your permission to "opt you in" to overdraft fee collection when you first open an account with them. If you don't opt in, the bank will not allow transactions to go through at the supermarket if you spend more than what your current account balance is. </div>
<div>
<br /></div>
<div>
This gets dangerous for people who don't pay attention. They can get charged up to five $20 fees per day for subsequent transactions on an overdrawn account--$100 a day!</div>
<div>
<br /></div>
<div>
You can "opt out" of allowing transactions to go through if you don't have enough funds, but you still get charged $20 per overdrawn item. That hasn't changed.</div>
<div>
<br /></div>
<div>
Let's say you're irresponsible in keeping your checking account high enough to cover any purchases you make from day to day. How much is it costing you a year? $100? $200? Please don't tell me it's higher than that.</div>
<div>
<br /></div>
<div>
Even $100 a year, taking into account the time value of money, costs you <b><u>$85,914</u></b> in wealth over your lifetime. Don't get shanked by the sharks of society in this way.</div>
<div>
<br /></div>
<h3>
Checking Account Fees</h3>
<div>
I'm sure you have a checking account, everyone does. But is yours free? The bad news is, most institutions are moving away from offering free checking accounts. With interest rates as low as they have been for the past decade, their appetites for greed are no longer satisfied by lending out your money to someone else and charging what essentially amounts to usury (excessive interest). They want FEES, too! (see above)</div>
<div>
<br /></div>
<div>
<a href="http://3.bp.blogspot.com/-svz5E2bUcdc/VnKmFamYZxI/AAAAAAAAEmk/wXcISXCIRA4/s1600/70-taxes-ignorant-unhappy-part-3-free-checking-minimum-deposit.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="202" src="http://3.bp.blogspot.com/-svz5E2bUcdc/VnKmFamYZxI/AAAAAAAAEmk/wXcISXCIRA4/s320/70-taxes-ignorant-unhappy-part-3-free-checking-minimum-deposit.png" width="320" /></a>Many institutions still give free checking, but only if certain conditions on the account are met, like having a regular direct deposit, keeping a minimum balance, use of mobile banking, having a debit card, and receiving electronic account statements. Anytime these conditions aren't met, you get dinged.</div>
<div>
<br /></div>
<div>
This happened to me a few months back. My minimum account balance is set at $500, but I went down to $400 by transferring too much out of the account. At the end of the month, since the balance read $400, I got dinged with a $5 fee.</div>
<div>
<br /></div>
<div>
Good institutions will waive this kind of fee as a courtesy when you call them up if it happens just once, but like I said... most banks are gunning for every penny they can squeeze out of you, so they won't hesitate to tell you to "take a walk."</div>
<div>
<br /></div>
<div>
If this is happening to you every few months, and you have several accounts for different purposes, it could be costing you $50 a year. That's <b><u>$42,957</u></b> in foregone wealth during your lifetime. That's not chump change. That's your freedom getting flushed down the drain.</div>
<div>
<br /></div>
<h3>
ATM Fees</h3>
<div>
Who deals primarily in cash anymore? No one under the age of 40 with an ounce of sense, I'd wager. We much prefer the convenience of paying with cards, collecting rewards points, etc.</div>
<div>
<br /></div>
<div>
But occasionally, we do need some cash for whatever reason, especially for small things like paying another person money we owe them, making donations for charity, contributing to group gifts, or buying and peddling in used items, like I do. Cash is easiest and most trustworthy for this kind of stuff.</div>
<div>
<br /></div>
<div>
The problem is, many people make the mistake of not having cash when they need it, and end up having to use ATM's owned by their non-institution to withdraw cash. When they do this, they are charged a fee. Fees range anywhere from $2-5 per transaction. That's not even counting the use of foreign ATMs, which many have to use while on vacation or business--and fees are much higher overseas, usually around $20 per transaction.</div>
<div>
<br /></div>
<div>
If you spend even a dime on ATM fees, change your behavior right now! Don't spend that extra $40 a year on wasteful fees... that adds up to <b><u>$34,365 </u></b>over your lifetime.</div>
<div>
<br /></div>
<div>
Here's what I do instead of paying fees:</div>
<div>
<ul>
<a href="http://2.bp.blogspot.com/-TnmgpPdmjZ0/VnKmm6shFII/AAAAAAAAEms/PCXjgiGF3BY/s1600/70-taxes-ignorant-unhappy-part-3-atm-fees.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://2.bp.blogspot.com/-TnmgpPdmjZ0/VnKmm6shFII/AAAAAAAAEms/PCXjgiGF3BY/s1600/70-taxes-ignorant-unhappy-part-3-atm-fees.jpg" /></a>
<li>I <b>keep a stash</b> of a couple hundred dollars in cash at my house for when I need it at home. I keep it all in small denominations like 5's, 10's, and 1's.</li>
<li>I <b>plan ahead if I'll be traveling</b> abroad--I stop by my bank to withdraw as much cash as I'll need for the entire trip, if I need any at all. Credit Cards with VISA on them are accepted worldwide, usually with no fees. </li>
<li>For unexpected times when I need cash and I'm not at home, I <b>stash a $20 bill in a wallet pocket I almost forget exists.</b> I keep one there <b>for emergencies</b>--in fact, a couple times when I've needed it, I really did forget it was there.</li>
<li>I <b>store cash inside my phone</b>, in case I forget my wallet on quick trips to the store. I flip open the battery case in back, and put a $20 bill there, safe and sound. If you own an iPhone and the back of the phone doesn't open, stash it in the phone's protective case, most of which these days actually have credit card slots for storage. </li>
</ul>
</div>
<h3>
Credit Card Interest</h3>
<div>
I've paid credit card interest only once in my life, and I vowed never to do it again. </div>
<div>
<br /></div>
<div>
It was the third month of my marriage, and I got the billing statement from the financier on my wife's engagement ring. I thought I had 12 months interest-free to pay off the ring, but I was shystered by the jeweler into paying accrued interest on a balance I was given a "deferral" for paying for the first three months. Lesson learned!</div>
<div>
<br /></div>
<div>
I paid $150 in interest that month, and after berating the financier's customer service reps, I found out that I would not be granted any mercy for my stupidity. We paid off that ring the very next month--problem solved.</div>
<div>
<br /></div>
<div>
Credit cards are a gigantic wealth trap of stupidity. You should NEVER be carrying a balance, <b>not even for "emergencies."</b> A proper emergency fund is <b>CASH</b>, which is<b> free to hold</b>, not credit cards which cost you MORE money than you already don't have in an emergency.</div>
<div>
<br /></div>
<div>
The only thing I use credit cards for is rewards points. I've earned nearly $600 in the last 18 months, the only time in my life I've had and regularly used a credit card. It's been a great scam! And it feels great taking advantage of the credit card companies which unconscionably take advantage of the poor of our society with these wealth traps.<br />
<br />
Not a dime in interest paid... the credit card companies hate people like me. They love the people they scam month after month, and that sure isn't me (anymore).<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
The key here is to only use the credit card to spend what's within your budget, and set up auto-pay every month to pay off the balance.</div>
<div>
<br /></div>
<div>
<a href="http://1.bp.blogspot.com/-7PDV2UGZsgw/VnKnRmoTf1I/AAAAAAAAEm8/AqWeSQy5-Dc/s1600/70-taxes-ignorant-unhappy-part-3-credit-card-fees.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://1.bp.blogspot.com/-7PDV2UGZsgw/VnKnRmoTf1I/AAAAAAAAEm8/AqWeSQy5-Dc/s1600/70-taxes-ignorant-unhappy-part-3-credit-card-fees.jpg" /></a>What does it cost you in wealth to carry a credit card balance? The average credit card household debt in the US is around $16,140 for 2014. At interest rates approaching 15%, that's $2421 a year, or <u style="font-weight: bold;">$2,079,983 over a lifetime. </u>That's an insane amount of wasted money.</div>
<div>
<br /></div>
<div>
I know a few people foolish enough to use credit and carry balances. They frequently "refinance" their cards with consolidation loans, only to rack up more trouble for themselves. I'll talk about these next.<br />
<br />
<h3>
Consolidation Loans</h3>
</div>
<div>
When you've got a ton of high-interest debt at different lenders that's getting out of hand (like credit cards, auto loans, student loans, payday loans, etc), it can be tempting to consolidate, or combine it, all under one roof to simplify your life. But, this may not always be a great idea. </div>
<div>
<br /></div>
<div>
First, how does it work? Let's say you have a credit card balance of $7000 with Chase, a Payday Loan with Check City for $1500, and an auto loan with Low Book auto for $16,000. You could approach your bank or credit union, get a loan for the balance, $24,500, and your bank will write a check to each of the other lenders to pay them off, leaving you with just one clean balance to pay off with the bank. What downsides could there be to this?<br />
<br />
Typically, these consolidation loans are an interest trap.<br />
<br />
In order to find out if your is, you have to know how much interest you were paying on the other three loans combined, and compare that with the interest you'll be paying (both monthly, and in total) with the new loans.<br />
<br />
The bottom line is, will the new loan cost you less in interest every month, or in total for the long run? In many cases, the answer could be "yes", especially if you have high-interest debt like Payday Loans and Credit Cards, because the consolidation loans are usually much lower, somewhere in the range of 8-12%. Do the math, and figure out if it makes sense.<br />
<br />
The bad news is, many institutions offer consolidation loans, not to lower your interest, but to lower your payments, which does nothing more than spread out payment of principal and interest over a longer period, costing you MORE money than before.<br />
<br />
The institution where I work (a credit union) does a lot of consolidation loans, but operates honestly and transparently. I have assisted them in developing our systems to more accurately calculate whether a proposed loan consolidation is in the best interest of our members. When it's not, we don't do it. But, I have seen many loans held at other institutions where this was not the case.<br />
<br />
I've observed that on average, my company saves members around $100 a month in interest by bringing over these loans. If that's standard across the industry, and you have consolidation loans currently outstanding, these could be causing you to forego $1200 a year, or <u><b>$932, 473</b></u> in established wealth over a lifetime.<br />
<br />
Again, this isn't chump change we're talking about. <br />
<br />
<h3>
Credit Reports and Scores</h3>
Keeping a good credit score isn't essential in today's society, but it does simplify things for you, and allows you to live life on the cheap, especially when it comes to auto loans and home mortgages. Keeping a good score requires not only good financial habits, but also credit history and score monitoring.<br />
<br />
Have you paid recently to get a copy of your credit report, or your credit score? Well, you shouldn't have. Both can be had for free. These two things (the report and the score) are actually separate, and it's important to understand the difference.<br />
<br />
A Credit Report lists any accounts or loans you have open under your Social Security Number. You should check this report at least once a year, to make sure that no one out there has opened any accounts in your name without authorization. And it can be obtained FREE once a year. You are legally entitled to this. Go to <a href="https://www.annualcreditreport.com/">https://www.annualcreditreport.com/</a> to get your report from all three Credit Bureaus. It is FREE ONCE A YEAR.<br />
<br />
Here's a tip from the Pro's: <b>even perform the check for your kids. </b>Theft of child social security numbers is on the rise, and it could be extremely damaging for a child to try opening his first credit card at age 18, only to find out someone has been tainting their credit history for a decade. <br />
<br />
Now for Credit Score. Have you ever paid to get it? If so, you probably got ripped off. Did you know that your bank can actually provide your credit score for free to you, almost anytime? Most financial institutions where you hold loans, or even checking accounts, typically pull your credit score every few months to make sure the risk on any accounts they have with you isn't increasing. You can sit down with a banker at your institution, and it's likely they have it available to you right there on the spot. No Questions Asked. I know that to be the case where I bank, which is the same company I work for.<br />
<br />
If you currently pay for credit reports, stop it now. By law, companies cannot charge you more than $12 for your credit score and report. That's not much, but still--if you do that every year, you've forfeited <u><b>$9,324</b></u> in wealth.</div>
<h1>
Taxes on the Perpetually Poverty-Minded</h1>
<h3>
Letting someone else manage your money</h3>
<div>
I've extolled the virtues elsewhere on my site about the necessity of <a href="http://thevillageid-vestor.blogspot.com/2014/10/most-experts-you-know-of-are-snakes.html">learning to manage your own money</a> and <a href="http://thevillageid-vestor.blogspot.com/p/learning-to-become-successful-investor.html">grow your wealth.</a> If you're paying someone else to do it, you're likely making costly mistakes, forfeiting timeless knowledge and wisdom, and taking avoidable risks with your wealth.<br />
<br />
Never trust your wealth to someone else. They don't care as much about your financial freedom as you do--and they charge you an arm and a leg to do it.<br />
<br />
If we stick solely with the fees associated with letting someone else manage your wealth, we could easily assume you're going to save thousands of dollars per year--and that number will only climb once your wealth becomes more substantial. But for the sake of illustrating for this article, let's stick with a nice, round number of $2000 per year.<br />
<br />
By managing your own money, you'll keep <u><b>$1,554,122</b></u> over the course of your lifetime.<br />
<br />
Read the articles I have on learning to invest, and you'll be two steps away from complete independence from incompetence.</div>
<div>
<br /></div>
<h3>
Playing the Lottery</h3>
<div>
I covered gambling briefly in a <a href="http://thevillageid-vestor.blogspot.com/2015/11/70-taxes-only-ignorant-lazy-or-unhappy.html">previous entry</a> in this "70 Taxes" series. Give that section a skim, then consider that you're never likely to win the lottery. </div>
<div>
<br /></div>
<div>
<a href="http://1.bp.blogspot.com/-Qkc63ToNtPQ/VnKnwi2JYSI/AAAAAAAAEnE/4mQE9QNDST8/s1600/70-taxes-ignorant-unhappy-part-3-lottery.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://1.bp.blogspot.com/-Qkc63ToNtPQ/VnKnwi2JYSI/AAAAAAAAEnE/4mQE9QNDST8/s1600/70-taxes-ignorant-unhappy-part-3-lottery.jpg" /></a>Spending $5 a week on the Quick Pick is akin to whistling money into oblivion. You might as well light a Five-Dollar bill on fire on your front lawn. It's just as fun as purchasing a ticket and never winning it big.</div>
<div>
<br /></div>
<div>
Did you know that the average lottery ticket only pays 47 cents on the dollar? For every dollar you dump into your state lottery, in the long run, you'll make 47 cents back. That's a 57% loss on your money. That's one of the worst investments I've ever heard of.<br />
<br />
Five dollars a week on lottery tickets comes to $260 a year, or <u><b>$202,035</b></u> in wealth which you could have accumulated simply by buying and <a href="http://thevillageid-vestor.blogspot.com/2015/07/the-do-nothing-forever-list-of-best.html">holding stocks long term</a> over your lifetime.</div>
<div>
<br /></div>
<h3>
Not Putting Your Savings on Auto-Pilot</h3>
<div>
If you aren't <a href="http://thevillageid-vestor.blogspot.com/2015/08/stash-cash-kiss-ass-goodbye.html">automatically putting a portion of your money</a> away via Direct Deposit in order to build up your wealth reserve, you're making a huge mistake. Even if you never learn to invest--a huge mistake in and of itself--you can still get rich in the long term by establishing a habit of <a href="http://thevillageid-vestor.blogspot.com/2014/08/and-math-shall-set-you-free.html">automatically saving a large proportion of each paycheck</a> you receive.</div>
<div>
<br /></div>
<div>
An even bigger savings mistake most people make is not accepting FREE MONEY when it's offered to them--in the form of Retirement savings.<br />
<br />
I'm talking about 401k and other retirement account matching most employers offer. Many companies will match--dollar for dollar, up to a certain percent of your paycheck--any money you contribute to retirement. This employer match is a 100% RETURN ON INVESTMENT. Guaranteed. You will never find a better way to make money than that.<br />
<br />
How much are people giving up by not taking advantage of employer matching? At an average salary of $52,000 a year, with an employer match of 5%, many are forgoing $2600 a year, or <u><b>$2,020,359</b></u> in FREE MONEY. </div>
<div>
<br /></div>
<div>
But be careful--don't put more money into your retirement account than the match. After that amount, you're better off putting any additional savings into an account you can access, <a href="http://thevillageid-vestor.blogspot.com/p/getting-started_21.html">like an investment account with a broker.</a> You can't retire early if you can't access the money you've saved.</div>
<div>
<br /></div>
<h3>
Not Learning to Invest Yourself</h3>
<div>
This goes along with what I mentioned above about learning to manage your own money... but there's more.</div>
<div>
<br /></div>
<div>
The easiest and most profitable strategies for growing wealth are undertaken by individual investors, investing in things like bonds, individual stocks, and <a href="http://thevillageid-vestor.blogspot.com/2015/01/screw-vegas-i-am-casino.html">STOCK OPTIONS</a>.... I've written repeatedly about how this works on <a href="http://thevillageid-vestor.blogspot.com/p/learning-to-become-successful-investor.html">other areas of the site.</a> Read those articles, and learn how to double the market returns, year after year. Mutual funds, the investment vehicles used mostly in your retirement accounts, can never match that kind of wealth accumulation.<br />
<br />
Unfortunately, there's simply no way to estimate how much more wealth and freedom you can accumulate by being a savvy investor--its more money than you can imagine. </div>
<ul>
</ul>
</div>
<div>
<br /></div>
<div>
<h1>
Conclusion</h1>
</div>
That was quite a list! If we include parts <a href="http://thevillageid-vestor.blogspot.com/2015/11/70-taxes-only-ignorant-lazy-or-unhappy.html">one</a> and <a href="http://thevillageid-vestor.blogspot.com/2015/11/70-taxes-lazy-ignorant-unhappy-people-pay-part-2.html">two</a> of this article, I could have written and sold a small e-book to get this knowledge out there! Luckily for you, I offer it for free.<br />
<br />
Let's recap the amount of wealth we've decided not to forego with today's article.<br />
<ul>
<li>Shun overdraft fees: <b><u>$85,914</u></b></li>
<li>Maintain your checking account fee-free: <b><u>$42,957</u></b></li>
<li>Stop paying ATM fees: <b><u>$34,365</u></b></li>
<li>Ditch Credit Card interest: <u style="font-weight: bold;">$2,079,983</u></li>
<li>Consolidation loans: <u><b>$932, 473</b></u></li>
<li>Get free Credit Reports and Credit scores: <u><b>$9,324</b></u></li>
<li>Learn to build wealth on your own: <u><b>$1,554,122</b></u></li>
<li>Quit playing the lottery: <u><b>$202,035</b></u></li>
<li>Put savings on auto-pilot: <u><b>$2,020,359</b></u></li>
<li>Invest like a pro: ???</li>
</ul>
Part 1: <u><b>$7,276,070</b></u><br />
Part 2: <b><u>$4,512,645</u></b><u><b> </b></u><br />
Part 3: <u><b>$6,961,532</b></u><br />
<br />
Total: <u><b>$18,750,247</b></u><br />
<br />
I know what you're thinking... that looks like a ridiculous amount of wealth, and it sure is. But it's just an illustration of what can be accumulated if we cut out "the fat" in our lives.<br />
<br />
If nothing else, these three articles you've just read should serve as a lesson in opportunity costs. By giving up one thing in life, you gain another.<br />
<br />
I hope that you have a bit more of a perspective on this concept now, and a few ideas you can use to make your life more full, more free, and more simple. That's the true reason I maintain this site... not only to help you all attain true and lasting freedom, but to make sure that's something I keep focused on myself.<br />
<br />
Live long and invest,<br />
<br />
Jeremiah<br />
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Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-76859864642701923642015-11-29T09:47:00.000-07:002015-12-22T08:47:03.356-07:0041 Taxes Only Ignorant, Lazy, or Unhappy People Pay, Part 2<div>
<h1>
Getting Ravaged Everywhere You Go, Part 2</h1>
</div>
<div>
In <a href="http://thevillageid-vestor.blogspot.com/2015/11/70-taxes-only-ignorant-lazy-or-unhappy.html">Part 1</a>, I introduced the truth of the world to you.... which is, that you're living in a world of shysters who are constantly groping for a chunk of your wallet at every turn. This series continues today, in greater detail below...<br />
_________<br />
<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-pg-ztm9XeGs/VlyY5jayy6I/AAAAAAAAElE/w1Y8-uFAQzQ/s1600/70-taxes-ignorant-lazy-unhappy-calvin-hobbes-careen-off-cliff.jpeg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://1.bp.blogspot.com/-pg-ztm9XeGs/VlyY5jayy6I/AAAAAAAAElE/w1Y8-uFAQzQ/s1600/70-taxes-ignorant-lazy-unhappy-calvin-hobbes-careen-off-cliff.jpeg" /></a></div>
As I pondered the comic on the left, I got to thinking about how much of a lazy sucker Calvin is, and how badly he's going to fail in life. He's as spoiled a child as they come.<br />
<br />
Turn on your TV, swipe open your tablet, walk out your front door, or drive down your street. Individuals, businesses, and organizations are bent on getting as much of your hard-earned greenbacks as possible using advertising, psychology, convenience, bright signs, and even fear to coax you into having or buying things that won't lend you freedom, security, or give you lasting satisfaction.<br />
<br />
The bamboozling cacophony of voices have no shame at all in making sure you stay poor, stupid, and chained down to a lifestyle you probably never really wanted. It's sickening to think about.<br />
<br />
There are hundreds of them out there, barely perceptible... it's like a living conspiracy theory. And the more stupid, ignorant, and lazy you are, the easier it is for you to get hoodwinked into forking over your wealth to some conniving shyster who doesn't deserve it.<br />
<br />
These are the "taxes" I'm referring to--"tolls" you pay for making poor choices, or falling for wealth traps.<br />
<br />
Not long ago, I read that many wealthy people making over $1 million a year pay absolutely zero in income taxes. Why is that?<br />
<br />
They've figured out how to legally play the system in their favor, in order to avoid getting raked over the coals by the same machine that keeps the average Joe in the poorhouse.<br />
<br />
Basically, they've learned how to avoid taxes on stupidity, ignorance, and laziness.<br />
<br />
I want the same for you. You may not be wealthy yet, but someday you will be, if you play your cards right by making smart money decisions.<br />
<br />
And after today, your eyes will be opened to ways the world takes advantage of you, the middle class, and keeps you poor in a micro-spending level. Consider this a wake-up call for ditching that lifestyle like a bat out of hell, and starting down the road to wealthiness by saving better, spending less, and investing your money like smart people do.<br />
<br />
Here's a preview of what's in store in this and the next (and final) article on this topic:<br />
<ul>
<li>Taxes on the Unknowledgeable</li>
</ul>
<ul>
<li>Taxes on Big Ticket Spenders</li>
</ul>
<ul>
<li>Taxes on the Easily Entertained</li>
</ul>
<ul>
<li>Taxes on the Impulsive</li>
</ul>
<ul>
<li>Taxes on the Technologically Impaired</li>
</ul>
<ul>
<li>Taxes on Personal Finance Ignoramuses</li>
</ul>
<ul>
<li>Taxes on the Poverty-Minded</li>
</ul>
</div>
<div>
<h2>
Time Value of Money (Reviewed from Part 1)</h2>
As I continue to address all of these things, remember what we talked about in part 1 about the Time Value of Money.<br />
<br />
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<a href="http://4.bp.blogspot.com/-sSafIgTwKDM/Vk9K1MK_DhI/AAAAAAAAEjI/mcXQRCu6_tc/s1600/cost-ignorance-70-ways-taxed-stupidity-laziness-calvin-png.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="113" src="http://4.bp.blogspot.com/-sSafIgTwKDM/Vk9K1MK_DhI/AAAAAAAAEjI/mcXQRCu6_tc/s200/cost-ignorance-70-ways-taxed-stupidity-laziness-calvin-png.png" width="200" /></a></div>
If you have a $5 bill in your wallet right now, it's worth just $5. But what's it worth next year if you put it in a savings account or investment?<br />
<br />
A savings account would make that $5 worth $5.05 next year. In an investment account, if we estimate an average yearly return of 12% (the return of the standard stock market index over approximately the last 70 years), your $5 is actually worth $5.60 one year from now. If you take $5 every year then, and invest it in the market, $5 per year over 40 years is worth $4295.71. Crazy, right?<br />
<br />
That's the concept of "time value of money" in a nutshell.<br />
<br />
We'll be putting all of the below "taxes" into this same lens to determine how much wealth you might be foregoing over for each of these areas over the course of 40 years.<br />
<br />
<h1>
Taxes On the Unknowledgeable</h1>
<h1>
<div style="font-size: medium; font-weight: normal;">
<h2>
Home and Auto Repairs</h2>
</div>
</h1>
</div>
Have you ever thought about what the actual, tangible cost of ignorance is? I know I have, many times. In fact, it wasn't long ago that I learned a $200 lesson in ignorance.
<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-zT8zeypg4b0/Vk9LgnsNlgI/AAAAAAAAEjQ/9EfQgbDGCpE/s1600/cost-ignorance-70-ways-taxed-stupidity-laziness-home-repairs.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://2.bp.blogspot.com/-zT8zeypg4b0/Vk9LgnsNlgI/AAAAAAAAEjQ/9EfQgbDGCpE/s1600/cost-ignorance-70-ways-taxed-stupidity-laziness-home-repairs.jpg" /></a></div>
My wife and I bought the home our family currently lives in about three years ago. During this time, I've learned a lot about the cost of owning a home--from home repairs to renovations, maintenance, and everything else you can probably imagine.<br />
<br />
One of the things I didn't know anything about was a furnace. But lo and behold, fate presented me with an opportunity to learn about it.
I was laying in bed one night, and smelled the scent of something burning. I jumped out of bed, worried my family was going to either die in a fire that night, or asphyxiate from the carbon monoxide that was somehow, for some reason, circulating throughout the house.<br />
<br />
But through all my searches, I found no fire, no smoke, nothing.
Then I realized the scent might be coming from the furnace itself--great, even worse! My furnace is dying. I switched it off for the night.<br />
<br />
The next day, I called my home warranty company to have a technician come out and look at my furnace. It turns out, some wires within the furnace were in contact with a very hot circuit board on the guts of that thing, and the circuit board was getting charred... aha, the source of the scent! The technician took the liberty of replacing the circuit board and resolving my issue--at the cost of over $200. Luckily though, the home warranty I had in place covered the incident at only about $60 out-of-pocket for myself.<br />
<br />
When, or if, this happens again, I'll know where to look, what to do, and how to fix it. Since this first incident, I've had a few other issues with the HVAC in our home, and I've learned how to investigate on my own before calling a contractor to fix my problem. So far, it's saved me hundreds of dollars.<br />
<br />
I've taken this same lesson to heart in other aspects of home ownership.<br />
<br />
As I mentioned before, there were quite a few things we wanted to do with our little home to make it more "ours." I refrained from called in contractors on first point, because contractors are expensive--a ten minute job, simple for them, can cost you hundreds of dollars. Imagine having them finish an entire basement, doing things you can easily do yourself, legally without a permit--putting up drywall, replacing light fixtures, installing tile ceilings, painting, carpeting, and so on.
I learned how to do all of these things myself.<br />
<br />
It may just be my personality, but I'd much rather spend an hour learning how to do something online, and spend a day completing it myself, than pay a team of contractors the equivalent of $300 per hour for them to do it.
This same principle applies to other things I do in life--simple, routine maintenance on my car (oil changes, filters, spark plugs, etc), plumbing issues, and other similar things.
Learning about these things will save you thousands of dollars in the long run, and ensure that your wealth isn't sucked away from you unnecessarily.
<br />
<br />
How much do you estimate you pay per year for contractors or "experts" to fix things in your home or on your car, which could be done by you at a fraction of the cost? A couple oil changes a year, simple automobile maintenance, a plumbing visit to unstop your shower drain, and routine maintenance on a furnace or A/C unit, if all hired out, would probably cost you at least $400 a year.<br />
<br />
What's that going to cost you in wealth accumulation over the course of your life? About <u><b>$343,656</b></u><span style="font-weight: normal;"> in foregone retirement wealth.</span><br />
<span style="font-weight: normal;"><br /></span>
Think about other aspects of life's maintenance you could add to this list--money is wasted every day by lazy people on things like electrical work, yard maintenance, pest control, and even home security. Learn to do them yourself, and you'll be much more wealthy in the long term.
<br />
<h1>
Taxes on Big-Ticket Spenders</h1>
<h2>
Getting Bankrupted By Weddings</h2>
<div>
<div>
Is there any easier way to blow $30,000 in one day and have nothing to show for it, than by having a big, expensive wedding?</div>
<div>
<br /></div>
<div>
<a href="http://2.bp.blogspot.com/-qD98qKcokE8/Vk9LwdRclmI/AAAAAAAAEjY/5UF_5wMWQeg/s1600/cost-ignorance-70-ways-taxed-stupidity-laziness-wedding.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" src="http://2.bp.blogspot.com/-qD98qKcokE8/Vk9LwdRclmI/AAAAAAAAEjY/5UF_5wMWQeg/s200/cost-ignorance-70-ways-taxed-stupidity-laziness-wedding.jpg" width="183" /></a>As I was researching this topic, I wanted to throw up when I read that the average cost of a wedding in the United States sits near $25,000. In most cases, parents who think their daughter needs to be spoiled have just blown the cost of a meager college degree in order to celebrate the giving away of their child to a young man who is probably not worthy of her (what man is better than a woman?), and done so in the course of just 24 short hours.</div>
<div>
<br /></div>
<div>
In worse cases, young couples pay for the wedding themselves, when they can't even afford it. It's not like young couples have $25,000 just lying around. Most will get a loan or put the wedding on a credit card, and will have to think about that wedding once a month for the next five or ten years while they amortize the loan they got suckered into.</div>
<div>
<br /></div>
<div>
Is there a worse way to start a marriage, than to have a $25,000 debt hanging over your head? Opt instead for a cheap but respectable wedding for a couple grand, go on a sweet vacation with some cash you've saved up, and enjoy each other's company instead of the threat of bankruptcy. Or elope!<br />
<br />
A $25,000 wedding amortized over the course of your 40-year working life will cost you $625 per year, or <b><u>$536,963</u></b> in foregone wealth.</div>
<div>
<br /></div>
<h2>
Not Haggling on Appliances and Other Furnishings</h2>
<div>
Do you realize how fluid and negotiable prices on used items are? What about new items? </div>
<div>
<br /></div>
<div>
Yes, it's true... even prices of "new" items are negotiable. Think of every big-ticket store you walk into as a bustling marketplace full of people who are ready to make a deal with you!</div>
<div>
<br /></div>
<div>
As I've written before, my wife and I are bargain shoppers. When we need something, we usually start at the bottom of the price spectrum at "used" and then move up to "gently used" before we even consider buying something brand new.</div>
<div>
<br /></div>
<div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-ycNBbAevlt8/Vk9MWJtL7UI/AAAAAAAAEjo/6Vi8yc03mFg/s1600/cost-ignorance-70-ways-taxed-stupidity-laziness-haggling.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://2.bp.blogspot.com/-ycNBbAevlt8/Vk9MWJtL7UI/AAAAAAAAEjo/6Vi8yc03mFg/s1600/cost-ignorance-70-ways-taxed-stupidity-laziness-haggling.jpg" /></a></div>
If you've never realized how important haggling and negotiation are, it's time to change your mindset. It's a given that if you're buying something used, and the price you're offered is higher than you think it should be, you should ask if the seller they will take less. But did you realize this can be done with new items as well? Here's an example.</div>
<div>
<br /></div>
<div>
About a year ago, we decided to get a chest freezer. We couldn't find anything used that looked reliable, so after exhausting those resources, we opted to look at Home Depot. </div>
<div>
<br /></div>
<div>
We found a unit we wanted to buy, and the store offered free delivery. But their competitor, Lowe's, offered the same unit, without delivery, for about $40 less. After speaking with the store manager, I was able to price-match the item to what the cost was at Lowe's... and saved 25% off the sticker price, while getting free delivery.</div>
<div>
<br /></div>
<div>
This can be done anywhere, especially places where the sales people are paid on commission. They want to make you a deal, so they can get paid. Don't waste money by foregoing negotiation on appliances and furniture. If you shop around, and know you can get the item elsewhere, but like the store you're shopping at, find a sales rep and see how they can get you a discount by being loyal to them.<br />
<br />
Haggling on a couple appliances or some furniture might save you an average of $200 a year in the long term, or<b><u> $85,914 </u></b>over forty years.</div>
<div>
<br /></div>
<h2>
Education</h2>
<div>
This is another HUGE area where it's easy to make gigantic, life-altering, regretful financial decisions in just a short time.</div>
<div>
<br /></div>
<div>
Education is <i>expensive. </i>There's no denying that. So, think about ways you can get the training you need without spending your prime of life (or middle age) doing it.</div>
<div>
<br /></div>
<div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-nIYajaXIimo/VnKyEHLnf-I/AAAAAAAAEnU/tBZkSm9EoX4/s1600/70-taxes-ignorant-unhappy-part-2-education-debt.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://4.bp.blogspot.com/-nIYajaXIimo/VnKyEHLnf-I/AAAAAAAAEnU/tBZkSm9EoX4/s1600/70-taxes-ignorant-unhappy-part-2-education-debt.jpg" /></a></div>
You can get a formal education online now with the few clicks of a button, and at a fraction the cost of a full-time, in-person degree. And while some employers ridiculously look down on online degrees, this can be overcome by going to a "satellite" campus, where you still get name recognition, cheaper education, and the degree you need.<br />
<br />
Speaking of name recognition, some very prestigious universities are actually beginning to offer <a href="http://study.com/articles/Colleges_and_Universities_that_Offer_Free_Courses_Online.html">FREE BEGINNING COURSES</a> in a variety of fascinating fields. Picking up these courses will give you some skills you can use to pad your resume, even to the point where you might not need a degree to get the starter job you want because your skills overcome the deficiency of the "piece of paper" (degree).<br />
<br />
In fact, some big employers are beginning to realize that degrees are becoming more and more useless as time wears on, and have <a href="https://www.timeshighereducation.com/news/ernst-and-young-drops-degree-classification-threshold-graduate-recruitment">begun to strike the requirement of a degree for potential job applicants.</a> I think this is a fantastic development, and could change the culture we have which places too much emphasis on traditional college.<br />
<br />
If you're dead set on some kind of training, consider trade schools instead of formal universities. The <a href="http://www.thesimpledollar.com/why-you-should-consider-trade-school-instead-of-college/">cost is lower, and the return is often much higher and much quicker.</a><br />
<br />
Another way to save on formal education is to attend a 2-year college whose credits transfer to the university where you'll ultimately graduate, and once you're done there, you an transfer. You'll save 50% off the tuition cost of a major university this way, at least for the first two years.<br />
<br />
Overpaying for education has huge life implications. At an average cost of $42,000 for a bachelor's degree in the US, if you can cut that in half, you'll save $500 a year over forty years, or $<b><u>429,571</u></b> in foregone potential wealth.</div>
<h1>
Taxes on the Easily (and Foolishly) Entertained</h1>
<h2>
Lots of Ways to Burn Money on Entertainment</h2>
<div>
Everyone needs ways to relax and recuperate from the stresses of daily life--entertainment is a good way to do that. But many look for entertainment and diversion in all the wrong money-sucking places.</div>
<div>
<br /></div>
<div>
A Washington here, a Lincoln there, every other day, and soon you've spent the equivalent of your monthly utility payment on various forms of entertainment that you'll hardly use, that will get broken, lost, or that corrupt your mind and body, and disrupt your sleep patterns. Here are the biggest taxes you'll pay by not being wise about your entertainment choices.</div>
<div>
<br /></div>
<h2>
Television (Cable)</h2>
<div>
In the day and age of streaming entertainment, I honestly don't understand why anyone still has a regular cable television bill. When plans range from $60 anywhere up to $200 a month, and you only watch a few channels, a few hours a week, you have to realize how wasteful this is. Your television-watching could be costing you $5-10 per hour of actual watching!</div>
<div>
<br /></div>
<div>
<a href="http://4.bp.blogspot.com/-a-5DvFFGmjM/Vk9MuuE8ooI/AAAAAAAAEjw/9nmSEdzYr0Q/s1600/cost-ignorance-70-ways-taxed-stupidity-laziness-cable-guy.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://4.bp.blogspot.com/-a-5DvFFGmjM/Vk9MuuE8ooI/AAAAAAAAEjw/9nmSEdzYr0Q/s1600/cost-ignorance-70-ways-taxed-stupidity-laziness-cable-guy.jpg" /></a>What are the alternatives? Hulu, a television and movie streaming service, offers nearly ALL current television shows, with the exception of premium channels like HBO and Showtime--but who watches that trash anyways? Hulu gives you 90% of the good television shows out there for $7.99 a month. They also have steadily increasing movie offerings--even new movies!</div>
<div>
<br /></div>
<div>
That's not to mention Netflix, the leader in media streaming. Thousands of movies and television shows, new and old, at your fingertips for what, $11 a month now? There's also Amazon Prime, which has similar offerings of streaming TV and movies, for about $8.50 a month.</div>
<div>
<br /></div>
<div>
What if you like to watch sports? Isn't cable the only way? </div>
<div>
<br /></div>
<div>
Heck no! Ever heard of <a href="http://www.sling.com/">Sling TV?</a> It's $20 a month, and they often offer deals for less under promotions. You can pick and choose from the variety of sports and entertainment channels you want, no fluff! Less waste. Alternatively, consider MLB.tv, ESPN3, where you can subscribe just to one channel you like. Get an Amazon Fire or Chromecast stick for $20 and load the streaming entertainment on your phone or tablet, but beam it to your TV! Technology is unbelievable, and helps you live more financially efficient than ever before!</div>
<div>
<br /></div>
<div>
Or, you can be like me, and shun sports watching altogether. But then again, I'm antisocial.</div>
<div>
<br /></div>
<div>
Cut your cable NOW... save yourself an average of $57 per month, $684 per year, or <b><u>$587,653</u></b> over a lifetime.</div>
<div>
<br /></div>
<h2>
Movies and Music</h2>
<div>
Do people actually still buy music? Since the days when Napster was shut down in the late 90's, I've seen increasingly many free music streaming services like Pandora and Spotify popping up everywhere. </div>
<div>
<br /></div>
<div>
<a href="http://4.bp.blogspot.com/-sc-Jgymd9nE/VnKyhTNivNI/AAAAAAAAEnc/sWyjAWqMhAk/s1600/70-taxes-ignorant-unhappy-part-2-itunes-music.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://4.bp.blogspot.com/-sc-Jgymd9nE/VnKyhTNivNI/AAAAAAAAEnc/sWyjAWqMhAk/s1600/70-taxes-ignorant-unhappy-part-2-itunes-music.jpg" /></a>These providers are basically a radio station that comes in over your internet connection (Wi-fi). You can choose your channel name, band, and genre.... so why would you ever buy music, ever again? Do you seriously go anywhere and listen to music where you don't have Wi-Fi? Don't waste money buying MP3's ever again! Never, ever, EVER again set your virtual foot in the iTunes store. What a waste!</div>
<div>
<br /></div>
<div>
And did you know that some cellphone providers, like T-Mobile and Verizon, actually let you stream Pandora content FOR FREE over their data connection, and it doesn't count against your data plan? Stream music all day at work, wherever you are! Look into it! </div>
<div>
<br /></div>
<div>
Let's talk about movies. When was the last time you bought one? Where did you buy it? How much did you pay? How many times are you going to watch it?</div>
<div>
<br /></div>
<div>
If it's not a movie you're guaranteed to watch at least three times, don't bother buying it. Only stupid people become "collectors" of movies. </div>
<div>
<br />
You're better off waiting to watch the movie and pay $1.50 for it at Redbox for the night, or to do a digital rental for $1 or $2 online on sites like Amazon or YouTube. There are even sites like VidAngel, where you can digitally rent movies that are edited for content, for more family-friendly movie nights.</div>
<div>
<br /></div>
<div>
If you're even too cheap for that, just check the movie out from your local library FOR FREE for a week. You might have to wait a while for your turn if it's a new movie, but heck, it's freaking FREE.</div>
<div>
<br /></div>
<div>
Don't even get me started on how expensive regular visits to the movie theater can be. That would double our entertainment costs, so I'll be conservatives and won't even include it.</div>
<div>
<br /></div>
<div>
Entertainment wealth savings on movies and music: $50 a month, $600 a year, or <b><u>$515,485</u></b> over a lifetime.</div>
<div>
<br /></div>
<h2>
Cellphone and Tablet Data Services</h2>
<div>
It's incredibly unfortunate that many don't understand the concept of data conservation. Teenagers who don't understand the concept of self-control will live stream videos on their cellphone data connections, and burn through a month's allotment in an hour!</div>
<div>
<br /></div>
<div>
There's no reason for this to EVER happen. In today's technological world, free Wi-Fi is almost literally EVERYWHERE. Public transportation, airplanes, airports, train stations, you name it. Some are calling the internet a HUMAN RIGHT for crying out loud!</div>
<div>
<br /></div>
<div>
It's likely your employer even has Wi-Fi for customers and employees to use. Log into that bad boy if you're going to surf the internet on your devices on your break, instead of using your own data connection. Save your money!</div>
<div>
<br /></div>
<div>
Do you have a data plan for your tablet? Get rid of it! That's a huge waste! Why? Because you already have one on your phone, that you can beam out for use on your tablet if you're out of range of Wi-Fi for some obscene reason. It's called a Wi-Fi teathering. It turns your phone into a mobile WiFi Hotspot, which you can login into from a separate device. There are hundreds of apps out there for it.</div>
<div>
<br /></div>
<div>
Cellphone carriers used to hate and block Wi-Fi teathering, because it meant you could use your data on more than one device, without having to pay them for a separate plan. Some would even block teathering on devices. But If I'm not mistaken, I believe there was a recent court case that <a href="http://money.cnn.com/2015/02/05/technology/fcc-net-neutrality-cases/">now restricts them from doing that by law.</a></div>
<div>
<br /></div>
<div>
Need a cheap, awesome cellphone carrier with a cheap data plan? I use T-Mobile, have a prepaid data plan, and it costs me $28 a month per line. Service is awesome, reliable, and consistent. I share the plan with five family members. They just send me a check or some money via PayPal for the monthly bill.</div>
<div>
<br /></div>
<div>
Wealth savings on cellphone/tablet data plans: $35 a month, $420 per year, or <u><b>$360,839</b></u> invested over a lifetime.</div>
<div>
<br /></div>
<h2>
Cost of the Apple Tax</h2>
Are you stuck as a slave in the world of Apple's entertainment and media trap? Everything the company does locks you into using their service--almost for life. The content you buy from them is not your own. They keep files you download from their store in a proprietary format, so they can't be dumped onto your computer and used on another non-Apple device.<br />
<br />
<a href="http://3.bp.blogspot.com/-L3noQaKIkKY/Vk9NTCxUslI/AAAAAAAAEj4/ZLqBTWJmDuI/s1600/cost-ignorance-70-ways-taxed-stupidity-laziness-itunes.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://3.bp.blogspot.com/-L3noQaKIkKY/Vk9NTCxUslI/AAAAAAAAEj4/ZLqBTWJmDuI/s1600/cost-ignorance-70-ways-taxed-stupidity-laziness-itunes.jpg" /></a>Even the devices you buy are incredibly over-priced and carry a significant premium over comparable devices from other manufacturers.</div>
<div>
<br /></div>
<div>
Their devices, while user-friendly to the non-tech-savvy, are not friendly to those who like the freedom to share content they've legally purchase across their devices. They restrict content in the Apple store to verified publishers, and <a href="http://www.rollingstone.com/culture/news/apple-removes-confederate-flag-bearing-games-from-app-store-20150626">even selectively remove apps from their store at their leisure if they don't like you.</a></div>
<div>
<br /></div>
<div>
Everything you buy from Apple to entertain yourself can be had by Samsung, Android, or other manufacturers at a lower cost, with the same value. </div>
<div>
<br /></div>
<div>
Getting caught in the Apple Traps costs you AT LEAST $30 of your wealth per month, $360 a year, or <b><u>$309,291</u></b> in the long term scheme of things.</div>
<div>
<h1>
</h1>
<div>
<br /></div>
<h1>
Taxes on the Impulsive</h1>
Impulse is the lifelong enemy of money. The Archenemy, if you will. Impulse steals more money and wealth than you care to count or discuss. How so? Let's count the ways.</div>
<div>
<br /></div>
<h2>
<a href="http://3.bp.blogspot.com/-21qyDqzghgI/Vk9NycK23jI/AAAAAAAAEkA/1Ewvk3YXvgQ/s1600/cost-ignorance-70-ways-taxed-stupidity-laziness-impulse-spending.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://3.bp.blogspot.com/-21qyDqzghgI/Vk9NycK23jI/AAAAAAAAEkA/1Ewvk3YXvgQ/s1600/cost-ignorance-70-ways-taxed-stupidity-laziness-impulse-spending.jpg" /></a>
The Morning Coffee</h2>
<div>
A $3 cup of coffee everyday on the way to work costs you $66 per month, $792 a year, or <b><u>$680,440</u></b> over a lifetime. All because you were too rushed in the morning, and needed a pick-me-up. Get a Keurig, you lazy mofo.</div>
<div>
<br /></div>
<h2>
Rent-to-Own Stores</h2>
<div>
Oh, so you absolutely needed that new furniture for when the friends come over this weekend, but didn't save up the cash? Or that big TV so you could watch the big game this weekend in style?</div>
<div>
<br /></div>
<div>
RTO stores like to claim they're saving you from wasting time, money, and deprivation by offering you their crap to buy over time. Well guess, what? On average, you end up paying THREE TIMES the actual value of things pick up from these shops--all in the name of convenience.</div>
<div>
<br /></div>
<div>
People who buy at these stores are getting taken advantage of. Learn more about how they work byreading <a href="http://www.moneycrashers.com/rent-to-own-stores-furniture-appliances-computers/">this article.</a> They're buying fully into the "have it now" mentality. It's bankrupting them. It's costing them $200 a year, or <b><u>$171,828</u></b> over a lifetime.</div>
<div>
<br /></div>
<h2>
Fast Food / Convenience Food</h2>
<div>
How many times a month do you grab a pizza because you aren't in the mood to cook? Or how often do you grab food from a vending machine, the checkout line at the store, or the deli, because you don't have time to create a decently healthy meal for breakfast, lunch, or dinner?</div>
<div>
<br /></div>
<div>
In my case, it's more than I like to admit. Probably three times a month, and looking over my budgets, I would guess it costs me about $30 a month, $360 a year, or <u style="font-weight: bold;">$306,291</u> in foregone wealth. And guess what? I like to think I'm much more frugal than most. I have a friend whose family eats out <i style="font-weight: bold;">three times a week. </i>They are wasting five or ten times the amount of money I am, since they live in a much more expensive neighborhood, and have more "refined" tastes than I do.</div>
<div>
<br />
<h1>
Taxes on the Technologically Impaired</h1>
<h2>
Antivirus Software</h2>
<div>
Do you seriously, actually buy this? Most reputable modern operating systems, internet browsers, and email servers now have built-in antivirus detection software by default. And if you'd like an extra layer of protection, you can find plenty of free, high-quality anti-virus detection programs, or at least get a year's worth of free coverage when you buy other items from tech deal sites like <a href="http://www.techbargains.com/">Tech Bargains</a>. Not knowing this could be costing you $30 or more a year, or <b><u>$25,774</u></b> over forty years.</div>
<div>
<br /></div>
<h2>
Internet Routers--Are You Renting?</h2>
<div>
Is your internet provider charging you a fee to "rent" their router every month? The router is the little box where your internet signal comes from.<br />
<br />
There's basically nothing special about the router your service provider typically sends you when you begin service with them. In fact, usually, their router is sub-par. You can buy your own for $25-40, and it will last you for years. The one I have is about seven years old now, and works great. Over that period, I've saved $420 in router "rent." I could have bought ten routers by now.<br />
<br />
Check the bill you are getting each month for this service charge--it's typically anywhere from $5-10 a month. This mistake could be costing you $60 a year at least, or <b><u>$51,548</u></b> over your lifetime.</div>
<div>
<br /></div>
<h2>
Computer "Cleanup" Charges</h2>
<div>
A lot of people pay through the nose to have their PC or laptop "cleaned up" every once in a while. Why do they do that? It's simple ignorance. And it's costly.</div>
<div>
<br /></div>
<div>
Look on YouTube to learn how to periodically clean up your computer, by backing up all the files, formatting the hard drive, and reinstalling the operating system. It's actually incredibly easy, and it's more effective than what the computer repair place does. It takes an hour. And it's free. </div>
<div>
<br /></div>
<div>
Paying someone to do this once a year will probably cost you $75-100. I'm not kidding. That's <b><u>$64,435</u></b> over your lifetime. If you need guidance on how to do this yourself, just ask me, and I'll send you some links and information.</div>
<div>
<br /></div>
<h2>
Internet Providers - Switch Up Often</h2>
<div>
Don't get suckered into paying any more than $50 a month for internet. There are much cheaper options out there.</div>
<div>
<br /></div>
<div>
I get 25 MBPS internet every month for $30. It's part of a "promotional" plan I've been on with my provider for the past three years. Every twelve months, when the promotional period is about to expire, and my internet cost is about to double, I call up my provider, and tell them I like the service, but I'm looking at comparable plans that are cheaper. They offer to keep my on the promotional plan for another 12 months at no extra cost. If they ever tell me they can't do it, I'll go to another provider, and get on the other company's "promotional" plan that's cheap and effective for the next twelve months.<br />
<br />
If you save $20 a month on internet, you're keeping <b><u>$103,097</u></b> in retirement money. It all adds up!<br />
<br /></div>
<div>
<br /></div>
<h2>
Online Bill Pay & Check Deposit</h2>
<div>
Are you still wasting money every month on postage to pay your bills? Do you know how much money you're wasting, and how insecure it is to send checks these days? Doing things online is actually much safer, quicker, and cheaper. In fact, it costs nothing.</div>
<div>
<br /></div>
<div>
Set this up for all utilities, mortgages, cellphones, and student loans. Never have another late payment again. Never worry about forgetting to pay and having the lights go our. Save yourself the $4 a month on stamps, save on buying checks from your bank ($25 a year), and save yourself the time of having to fill out those bill slips and send them off. </div>
<div>
<br /></div>
<div>
Also, do you waste time driving around to deposit checks? Ever heard of mobile deposit on your phone? You can deposit a check sipping lemonade by your bedside at night with today's technology. It takes 30 seconds and it's always free. Download your bank's mobile app onto your phone or tablet.<br />
<br />
The savings on postage and checks alone lets you keep about $30 extra per year, or <b><u>$25,774</u></b> in accumulated wealth. That's not to mention the time you save.</div>
<div>
<br /></div>
<ul>
</ul>
</div>
<h1>
Summary - Rescued Wealth Saved So Far--And More to Come!</h1>
Let's recap. Here's a summary of even more wealth we've decided to NOT forego by avoiding taxes on stupidity, laziness, and ignorance in our lives:<br />
<ul>
<li>Learn Home and Auto Repair: <u><b>$343,656</b></u></li>
<li>Elope in Vegas: <b><u><b><u>$536,963</u></b></u></b></li>
<li>Skip traditional college: $<b><u>429,571</u></b></li>
<li>Cut the Cable: <b><u>$587,653</u></b></li>
<li>Stream movies and music instead of buying all the time: <b><u>$515,485</u></b></li>
<li>Be smart about data usage and cell phone plans: <u><b>$360,839</b></u></li>
<li>Shun the Apple Tax: <b><u>$309,291</u></b></li>
<li>Get a Keurig coffee maker: <b><u>$680,440</u></b> </li>
<li>Save money to buy your crap instead of Renting to Own: <b><u>$171,828</u></b> </li>
<li>Make your food, quit being lazy: <u style="font-weight: bold;">$306,291</u></li>
<li>NEVER buy antivirus software: <b><u>$25,774</u></b></li>
<li>Quit renting your router: <b><u>$51,548</u></b></li>
<li>Fix your own dang computer: <b><u>$64,435</u></b></li>
<li>Ditch expensive internet: <b><u>$103,097</u></b></li>
<li>Use the God-given gift of Online Bill Pay and Check Cashing: <b><u>$25,774</u></b></li>
</ul>
Total Savings from Part I: <u><b>$7,276,070</b></u><br />
Total Savings From this Article: <b><u>$4,512,645</u></b><br />
<br />
Grand Total so far: <b><u>$11,788,715</u></b><br />
<br />
Are you feeling rich yet? I know I am!<br />
<br />
Stay tuned for <a href="http://thevillageid-vestor.blogspot.com/2015/12/70-taxes-only-ignorant-lazy-or-unhappy-part-3.html">Part III</a>!<br />
<br />
Live long and invest,<br />
<br />
Jeremiah<br />
<br />Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-63623788726400362852015-11-28T21:41:00.004-07:002015-12-22T08:47:16.543-07:0041 Taxes Only Ignorant, Lazy, or Unhappy people Pay, Part 1<h1>
You're Getting Ravaged By Stupidity Everywhere You Go. Defend Yourself!</h1>
<br />
One of the most fulfilling things for me personally in the
financial journey of my life has been experiencing what it's like to buck a system which I know is
designed to take advantage of me... in essence, "sticking it to the man" who's waiting around every corner to "stick me up" and steal
my wealth and livelihood.<br />
<div>
<br />
<a href="http://3.bp.blogspot.com/-QZtOBRrCAus/Vk9pZl0arAI/AAAAAAAAEk0/Ct8vUiPv6wU/s1600/cost-ignorance-70-ways-taxed-stupidity-laziness-calvin.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://3.bp.blogspot.com/-QZtOBRrCAus/Vk9pZl0arAI/AAAAAAAAEk0/Ct8vUiPv6wU/s1600/cost-ignorance-70-ways-taxed-stupidity-laziness-calvin.jpg" /></a>The truth is, we're living in a world of shysters who are constantly groping for a
chunk of our wallet at every turn. And it's always been my opinion that if you get taken advantage of, frankly, it's your own fault for not doing your "homework."<br />
<br />
Turn on your TV, swipe open
your tablet, walk out your front door, or drive down your street.
Individuals, businesses, and organizations are bent on getting as much
of your hard-earned greenbacks as possible using advertising,
psychology, convenience, bright signs, and even fear to coax you into
having or buying things that won't lend you freedom, security, or give
you lasting satisfaction.<br />
<br />
The bamboozling cacophony of
voices have no shame at all in making sure you stay poor, stupid, and
chained down to a lifestyle you probably never really wanted. It's
sickening to think about.<br />
<br />
There are hundreds of them
out there, barely perceptible... it's like a living conspiracy theory.
And the more stupid, ignorant, and lazy you are, the easier it is for
you to get hoodwinked into forking over your wealth to some conniving
shyster who doesn't deserve it.<br />
<br />
These are the "taxes" I'm referring to--"tolls" you pay for making poor choices, or falling for wealth traps.<br />
<br />
Not long ago, I read
that many wealthy people making over $1 million a year pay absolutely
zero in income taxes. Why is that?<br />
<br />
They've figured out how to legally play the system in their favor, in order to avoid getting raked over the coals by the same machine that keeps the average Joe in the poorhouse.<br />
<br />
Basically, they've learned how to avoid taxes on stupidity, ignorance, and laziness.<br />
<br />
I want the same for you. You may not be
wealthy yet, but someday you will be, if you play your cards right by
making smart money decisions.<br />
<br />
And after today, your
eyes will be opened to ways the world takes advantage of you, the middle
class, and keeps you poor in a micro-spending level. Consider this a
wake-up call for ditching that lifestyle like a bat out of hell, and
starting down the road to wealthiness by saving better, spending less,
and investing your money like smart people do.<br />
<br />
Here's a preview of what's in store in this and the next two articles on this topic:<br />
<ul>
<li>Taxes on the Weak-Minded</li>
</ul>
<ul>
<li>Taxes on Lack of Self-Control</li>
</ul>
<ul>
<li>Taxes on Impatience and Lack of Discipline</li>
</ul>
<ul>
<li>Taxes on the Unstructured</li>
</ul>
<ul>
<li>Taxes on the Unproductive</li>
</ul>
<ul>
<li>Taxes on the Unknowledgeable </li>
</ul>
<ul>
<li>Taxes on Big Ticket Spenders</li>
</ul>
<ul>
<li>Taxes on the Easily Entertained</li>
</ul>
<ul>
<li>Taxes on the Impulsive</li>
</ul>
<ul>
<li>Taxes on the Technologically Impaired</li>
</ul>
<ul>
<li>Taxes on Personal Finance Illiterates</li>
</ul>
<ul>
<li>Taxes on the Perpetually Poverty-Minded</li>
</ul>
</div>
<h1>
Time Value of Money</h1>
As we go into all of this, you'll be learning about a concept called the "time value of
money," and how it factors into how much in "taxes" you're paying by
making money mistakes in life. If you've never heard of this concept,
don't worry... it's a lot easier than it sounds. Here's how this works.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-sSafIgTwKDM/Vk9K1MK_DhI/AAAAAAAAEjI/mcXQRCu6_tc/s1600/cost-ignorance-70-ways-taxed-stupidity-laziness-calvin-png.png" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="113" src="http://4.bp.blogspot.com/-sSafIgTwKDM/Vk9K1MK_DhI/AAAAAAAAEjI/mcXQRCu6_tc/s200/cost-ignorance-70-ways-taxed-stupidity-laziness-calvin-png.png" width="200" /></a></div>
If
you have a $5 bill in your wallet right now, it's worth just $5. But
what's it worth next year if you put it in a savings account or
investment?<br />
<br />
A savings account would make that $5 become $5.05 by this time next year. That's a horrible return.<br />
<br />
Alternatively, in an investment account, if we estimate an average
yearly return of 12% (the return of the standard stock market index over
approximately the last 70 years), your $5 is actually worth $5.60 one
year from now. If you take $5 every year then, and invest it in the
market, $5 per year over 40 years is worth $4295.71.<br />
<br />
This is the concept we'll use to determine how much you're getting taxed over your lifetime by the shysters of society.<br />
<br />
<h1>
Addictions - Taxes on the Weak-Minded</h1>
<h3>
Alcohol</h3>
You
can deny this if you want, but excessive alcohol consumption is an addiction,
plain and simple. The reason alcohol producers are so successful is
because they play upon the weakness of our population, and their desire
to drown out the suckiness of their lives with a conveniently
inebriating substance.<br />
<br />
We could talk all day about the
woes alcohol brings on society, particularly the death and suffering
brought about by its abuse. But let's just talk today about the woes on
your own wallet.<br />
<br />
The Washington Post (if you trust it) <a href="https://www.washingtonpost.com/news/wonk/wp/2014/09/25/think-you-drink-a-lot-this-chart-will-tell-you/">conducted a study recently</a> which basically tells you how much more alcohol you douse yourself with compared to other upstanding members of society.<br />
<br />
According
to the study, if you drink less than 80% of America, you still
down about 6.25 drinks a week. What's the average cost of a drink?<br />
<br />
That
depends on where you get it. If you're doing all your drinking socially in a bar with friends, or to find "dates," you're probably paying around $5 a pop. Crazy! 6.25 of those bad boys
every week costs you $31.25 a week, or $125 a month! That's $1500 per
year, or <b><u>$1,288,713</u></b> over your lifetime.<br />
<br />
Even if you just pop for a 12-pack at the gas station, the average cost is around $1 each. That's $325 per year, or <b><u>$279,221</u></b> in foregone wealth over your lifetime.<br />
<br />
We're talking about just the cost of cheap stuff here--not even the expensive liquors.<br />
<br />
<h3>
Tobacco</h3>
<br />
What
I said above about alcohol being an addiction and a trap for losers,
the same goes for tobacco users. Are you dumb enough to actually smoke
cigarettes? I can't even fathom what goes through someone's mind when
they consider picking up this ridiculous money- and health-sucking
habit.<br />
<br />
<a href="http://1.bp.blogspot.com/-sghlGrdjIM8/VkJKFHFRfuI/AAAAAAAAEhw/zmcmA7kF-WE/s1600/70-Ways-You%2527re-Taxed-For-Laziness-Ignorance-stupidity-part-1-tobacco.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://1.bp.blogspot.com/-sghlGrdjIM8/VkJKFHFRfuI/AAAAAAAAEhw/zmcmA7kF-WE/s1600/70-Ways-You%2527re-Taxed-For-Laziness-Ignorance-stupidity-part-1-tobacco.png" /></a>According to the <a href="http://dqydj.net/how-do-you-compare-to-other-americans-in-tobacco-and-alcohol-spending/">Bureau of Labor Statistics,</a>
the average smoker (with a median income of around ($59,000 a year)
spends about $390 a year on the wide range of tobacco products out
there--cigarettes, e-cigarettes, cigars, chew, snuff, whatever.... that's about
.7% of their annual gross income.<br />
<br />
If you're an average smoker, and smoke all of your life, you're giving up <b><u>$335,065</u></b> in wealth and freedom over forty years.<br />
<br />
Do I have to mention the health and social costs of tobacco use? Smoking-related illnesses take a toll of about <a href="http://www.cdc.gov/tobacco/data_statistics/fact_sheets/economics/econ_facts/">$300 billion a year in the US economy.</a>
That's an average of $3533 per smoker. Smokers pay more for health
insurance, they pay for the diseases of body rot internally and
externally, they pay in social costs (nonsmokers don't tend to hang out
with smokers), and they ultimately pay with their lives. Enough said?<br />
<br />
<h3>
Gambling</h3>
<br />
I've
never pulled a slot machine in my life, but I'm sure many of you have.
For some, gambling is a huge problem--especially online gambling.<br />
<br />
<a href="http://2.bp.blogspot.com/-jNCFZBhxiig/VkJM9JFRJZI/AAAAAAAAEiE/zlebnc3AN7Y/s1600/70-Ways-You%2527re-Taxed-For-Laziness-Ignorance-stupidity-part-1-gambling.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://2.bp.blogspot.com/-jNCFZBhxiig/VkJM9JFRJZI/AAAAAAAAEiE/zlebnc3AN7Y/s1600/70-Ways-You%2527re-Taxed-For-Laziness-Ignorance-stupidity-part-1-gambling.jpg" /></a>The
gambling industry revenues in the US total about $80.45 billion
annually. That's saying a lot, considering that the only state where
gambling is legal is in Nevada. With just under 80 million people
reportedly visiting casinos last year, it's estimated that each person
walking in donates about $1000 to the casino. Donald Trump thanks you
for your campaign donation!<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
But let's assume you aren't that big into gambling, and you spend just $200 a year. That's still <b><u>$171,828</u></b> in foregone wealth over 40 years. What could you do with a pile of money like that?<br />
<br />
<h1>
Automobile Moneypits - Taxes on Low Self-Control</h1>
<h3>
The Mistake of Buying New</h3>
<div>
<br />
There's enough to be said <a href="http://thevillageid-vestor.blogspot.com/2015/10/buying-new-car-feel-biting-asphalt-true-cost-auto-ownership.html">elsewhere on this blog about getting sucked into buying a brand-new car, </a>that I won't go into it here. But I encourage you to check it all out.</div>
<div>
<br /></div>
<div>
Suffice
it to say that I almost cried recently when a relative of mine told me
she had just bought the first "new" car of her life--a 2015 Toyota
Something-Or-Other.</div>
<div>
<br /></div>
<div>
Automobile
depreciation is one of the biggest money pits the middle class throws
themselves into. A new car loses roughly 25% of its value the first
year, another 20% the second year, 15% every year thereafter. This means
a car purchased for $25,000 has lost over 60% of its value in five
years, or <b>$3150 per year over that period. </b><br />
<b><br /></b>
<b><u>$2,706,298</u> over a lifetime.</b></div>
<div>
<br /></div>
<div>
NEVER BUY CARS BRAND NEW. </div>
<br />
<h3>
Drive Responsibly</h3>
<div>
<br />
But
even if you are smart enough to buy used cares, don't be stupid in how
you use them. Follow speed limits, parking rules, etc, and save yourself
some cash. One in six Americans gets a speeding ticket every year, at
an average cost of $150. If this is you, every year, you're forfeiting <b><u>$128,871</u></b> in wealth during your lifetime.</div>
<div>
<br /></div>
<div>
And
if you get a lot of moving violations (speeding tickets), expect higher
insurance costs. A single ticket can cause premiums to rise by as much
as 22%. With the average insurance cost sitting at $1080 per year for
full coverage, you're wasting $237 per year, or <b><u>$203,616</u></b> in wealth.</div>
<div>
<br /></div>
<h3>
Downsize Your Gas-Guzzler</h3>
<div>
<br />
The
last low-hanging fruit on the automobile tree is your monthly
automobile gas bill. Do you drive a gas guzzler? How much could you save
every year by downsizing if you always don't need to drive a tank around?</div>
<div>
<br /></div>
<div>
I
sold the truck I owned about six months ago. I'm saving 50% a month, or
$40, by driving around my sweet Toyota Camry instead of the Dodge Ram--and that's not including insurance costs on the larger vehicle, which was higher.
That's $480 a year, or <b><u>$412,388</u></b> invested over forty years.</div>
<div>
<br /></div>
<h1>
Loan Interest - Taxes on the Impatient or Undisciplined</h1>
<br />
I
work in the finance industry, so I think about loan interest all the
time. I also see plenty of loan stupidity happening around every corner.<br />
<br />
<h3>
The Ignorance of Auto Loans</h3>
<br />
Financing
automobiles when interest rates are as low as they are right now is
very tempting.... but it won't be as tempting when rates begin to rise.
If you're a subprime (bad credit) auto financee, you're already paying
outrageously high rates, for something you probably can't afford. In the
worst case scenarios I've seen, people take out loans on $45,000
vehicles, with interest over 5%--that's $180 a month in interest alone!<br />
<br />
Even
buyers with good credit can get loans for just 2.24%... interest on a
$25,000 vehicle is still $47 a month, $564 a year, or <b><u>$484,556</u></b> over a person's lifetime if that person always has a car loan under their belt.<br />
<br />
<h3>
The Stupidity of Payday Loans</h3>
<br />
What's
a Payday / Title Loan? It's what irresponsible people get because they
need to pay rent on Wednesday, but their paycheck doesn't come in until
Friday, so they pay a $25 fee for an extra $50 now to cover their rent until the
end of the week, then they <i>should </i>pay back that principal. But most don't, because they aren't disciplined. The interest just stacks up, week after week, until things get completely unmanageable. How unmanageable?<br />
<br />
Payday
Loan shops charge interest upwards of 500% per year, or six times the
value of the borrowed money! Would you give a friend $100 if they
promised to pay you back with just $20 by the end of the week? Heck no!
That's what's happening when you get Payday Loans. They're the mark of irresponsible, undisciplined individuals.<br />
<br />
Even one $25 fee per year for a Payday Loan will cost you <b><u>$21,478</u></b> in foregone financial freedom. Frankly, if you have no debt at all, including a mortgage, that amount is enough to get you by for a full year of living.<br />
<br />
<h3>
The Truth About Home Equity Loans</h3>
<br />
<div>
The
allure of home equity loans is strong, I can assure you. Unscrupulous
bankers convince you to "upgrade" your home (which isn't going up in
value) by "tapping into" the cash in your home, with "interest-only
loans." </div>
<div>
<br />
Home equity loans allow you to take
out loans on the equity, or ownership, you have in your house, and you pay just interest on any
outstanding amounts you use for usually the first ten years of the loan. After
that, you MUST pay down the principle. </div>
<div>
<br /></div>
<div>
This
can seem convenient, but there are several problems. First, they loan
is adjustable-rate. Getting a loan at a low interest rate now will begin
to cost you more in the future as rates rise.</div>
<div>
<br /></div>
<div>
The
second problem with a home equity loan is the allure of taking much
more than you need. The HELOC, as it's called, seems like free money, so
you aren't as judicious in dispersing the funds for home improvements.
You take out much more than you need, and it ends up costing you more
down the road than you think it will. </div>
<div>
<br />
Lastly, if you decide to move before the loan is paid off, because of the HELOC, you have much less equity in your home to put toward your next one.<br />
<br /></div>
<div>
The best idea is to just save up the cash and pay for the upgrades outright.<br />
<br />
Not taking out these loans can save you a few hundred bucks a year, or <b><u>$257,742</u></b> over the long term.</div>
<div>
<br /></div>
<h1>
Disorganization - A Tax on the Unstructured</h1>
<br />
<a href="http://1.bp.blogspot.com/-QpINpz4hQh8/VkJQBio4XLI/AAAAAAAAEik/4yXq3dsMJn4/s1600/70-Ways-You%2527re-Taxed-For-Laziness-Ignorance-stupidity-part-1-organized.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://1.bp.blogspot.com/-QpINpz4hQh8/VkJQBio4XLI/AAAAAAAAEik/4yXq3dsMJn4/s1600/70-Ways-You%2527re-Taxed-For-Laziness-Ignorance-stupidity-part-1-organized.jpg" /></a>How
many times have you looked around your home for something you needed,
but you couldn't find it, so you went to buy a new one, and found the
old one a week later? This used to happen frequently in my home,
especially for my own things (tools, electronics, etc), until I began to
discipline myself and organize my life.<br />
<br />
If you don't know what you have in your home, you won't use it, and you'll waste money buying duplicate things.<br />
<br />
What
if you scrapped this bad habit of disorganization, and saved yourself
$100 a year in tools, office supplies, or even groceries? You'll be <b><u>$85,914</u></b> richer in retirement.<br />
<br />
On a much more exciting note, I also read an article claiming that <a href="http://www.itssimplyplaced.com/wellness-wednesday-5-health-benefits-of-being-organized/">being organized is a great indicator for a healthier intimate relationship with your significant other.</a> As it turns out, clutter can wear you down physically, psychologically, emotionally, and intimately!<br />
<br />
<br />
<h1>
Bad Health - Taxes on the Unproductive</h1>
<br />
No, the government isn't taxing you for being overweight.... yet. But I'm sure it's only a matter of time. After all, they're taxing basically everything else.<br />
<br />
A
startling little statistic from the Center for Disease Control told me
that 68.8% of adults in the US are considered obese. Holy crap batman!
This isn't a condition which I've had to battle myself, but I do have
loved ones who have, so I have compassion for those struggling. But do
people realize the financial toll which being obese (or even just
unhealthy, really) takes on a person's wealth? Let us count the ways.<br />
<br />
<h3>
Career Prospects</h3>
<br />
<div>
Did
you realize that your level of health and you appearance has a great
deal of effect on your job performance and earnings in the long term?<br />
<br />
If
you're unhealthy and feel crappy all the time, how do you think this
affects your long-term job performance? You miss work more, you
naturally like your job less, and this affects how co-workers view you.<br />
<br />
The
old moniker of "Dress for the job you want" really is an extension of
the fact that if you are healthy, look healthy, and exhude the
persona of a competent and confident individual, people trust you more
in the workplace. They are more likely to rely on you.<br />
<br />
The more trust and confidence people have in you, the more likely you are to advance in your career.<br />
<br />
How
much can good health affect salary and wages? Let's say it's only
marginal--2%. That small percentage is life-changing for you. Earning
just 2% more per year on a starting salary of $52,000 nets you $1040
more per year, or <b><u>$893,508</u></b> over a lifetime into the old retirement account.</div>
<br />
<h3>
Insurance</h3>
<div>
<br />
Just
because Obama outlawed insurance companies from denying coverage to
people with pre-existing conditions doesn't mean it's not illegal for
insurance providers to discriminate in coverage for people who are
unhealthy.</div>
<div>
<br /></div>
<div>
Numerous previous
employers I've had required medical screenings in order to determine
insurance coverage costs. Things like smoking, excessive alcohol or drug
use can cause you to be placed in the "base" categories--the most
expensive coverage levels.</div>
<div>
<br /></div>
<div>
I
remember that the "base" category of my plans in the past were nearly
DOUBLE the premiums each month. By staying out of the base categories, I
saved $70 per month, or $840 per year, or <b><u>$721,679</u></b> over my lifetime.</div>
<br />
<h3>
Depression, Anxiety </h3>
<br />
I also sympathize with loved ones over the toll which anxiety and depression can take in life.<br />
<br />
Many
of these conditions, while not completely curable, can be lessened by
eating right, getting exercise, and living an active lifestyle.<br />
<br />
If you can abate the effects of these conditions, you abate the costs, such as medications and medical consultations.<br />
<br />
A $14 prescription every month to deal with symptoms comes to $168 a year, or <b><u>$144,335</u></b>
over a lifetime. That's a lot of money you're tossing out the window,
which could be saved if there are "free" treatments to your conditions--like living an active lifestyle.<br />
<br />
<br />
<h3>
Doctor Bills</h3>
<br />
If
you're healthy, you generally don't require medical visits to your
doctor. By eating right, getting enough sleep, and exercising, your body
has a better ability to ward off sickness and disease.<br />
<br />
Given
the skyrocketing cost of even basic health checkups and medicine these
days, consider saving yourself $500 or more per year just on medical
consultations for your family. That's <b><u>$429,571</u></b> for a lifetime of health.<br />
<br />
<br />
<h3>
Treatment for Injuries</h3>
<div>
<br /></div>
<div>
When
you live a more active lifestyle, you are a lot stronger and more
agile. Your muscles and joints are much more likely to take abuse from
falls, trips, other accidents, and lifting things. </div>
<div>
<br /></div>
<div>
Consider
how much it would cost you in physical therapy if you were injured from
a fall and had to undergo that treatment at your own expense.
Thousands? I don't know. What I do know is that the healthier you are,
the less assistance you need to live independently.</div>
<div>
<br /></div>
<h1>
Money Savings Summary So Far</h1>
Let's recap. Here's what wealth we've decided to NOT forego in this article by avoiding taxes on stupidity, laziness, ignorance, and unhappiness in our lives:<br />
<ul>
<li>Skip the extra alcohol/drinks: <b><u>$279,221</u></b></li>
<li>Quit smoking and using drugs: <b><u>$335,065</u></b></li>
<li>Stop gambling, period: <b><u>$171,828</u></b></li>
<li>Stop buying new cars: <b><u>$2,706,298</u></b></li>
<li>Don't get speeding or parking tickets: <b><u>$128,871</u></b></li>
<li>Insurance: <b><u>$203,616</u></b></li>
<li>Trade out your gas guzzler: <b><u>$412,388</u></b></li>
<li>Shun auto loan interest: <b><u>$484,556</u></b></li>
<li>Avoid Payday loans: <b><u>$21,478</u></b></li>
<li>Forget Home Equity loans exist: <b><u>$257,742</u></b></li>
<li>Quit being disorganized: <b><u>$85,914, Plus a better SEX LIFE - Priceless!! :)</u></b></li>
<li>Better career prospects of looking healthier: <b><u>$893,508</u></b></li>
<li>Lower insurance costs by living a healthy life: <b><u>$721,679</u></b></li>
<li>Lesson or cure you depression / anxiety: <b><u>$144,335</u></b></li>
<li>Cut down on: <b><u>$429,571</u></b></li>
<li>Avoid needing treatment for Injuries: ???</li>
</ul>
<div>
If you implement all my suggestions today, and take every
drop of the savings to invest on great investment strategies, you'll be
accumulating <u><b>$7,276,070</b></u> more during your lifetime than the lazy,
alcoholic, gambler, smoker, drug-using, interest-paying, speeding,
disorganized, absentee, depressed redneck living next door to you.</div>
<br />
<a href="http://thevillageid-vestor.blogspot.com/2015/11/70-taxes-lazy-ignorant-unhappy-people-pay-part-2.html">Continue on to Part 2</a>!!!<br />
<br />
Live long and invest,<br />
<br />
JeremiahUnknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-78440128517265941022015-10-28T20:06:00.000-07:002016-04-25T10:15:57.411-07:00Why Buying A New Car Feels Like Eating Asphalt<h1>
<span style="font-size: x-large;">Until now, you never knew how bad you were hosed on your last car purchase</span></h1>
<a href="http://3.bp.blogspot.com/-2gxiATYK0GQ/VjEx3bLhfmI/AAAAAAAAEfo/A9IhZr7mFyU/s1600/ripoff-car-expensive-cost-ownership-per-mile-to-drive.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img alt="screwed car purchase expensive better off investing" border="0" height="180" src="https://3.bp.blogspot.com/-2gxiATYK0GQ/VjEx3bLhfmI/AAAAAAAAEfo/A9IhZr7mFyU/s320/ripoff-car-expensive-cost-ownership-per-mile-to-drive.jpg" title="" width="320" /></a>I work with a guy whose son just graduated high school. The boy earns probably a quarter of what I do by washing cars at a dealership downtown.<br />
<br />
Somehow, he managed to buy a brand new truck, currently valued at roughly what the down payment for my home would be.<br />
<br />
This is no joke.<br />
<br />
In my neighborhood, which is fairly modest, 20% down on the average home can be yours for the low price of $40,000.<br />
<br />
That's what this recent high school graduate just spent on his new 2016 Ford Super Duty.<br />
<br />
I couldn't believe it when I saw it. He couldn't possibly have saved up the money to purchase it outright--he's now got a buttload of debt he'll be sick and tired of paying for in just a few short months.<br />
<br />
It's the dream of every teenager to own a truck like that, one which definitely didn't come true for me. Honestly, I didn't even own my own car until I was 21 and married--and that little "beauty" was a 10-year-old Pontiac Grand Am with 125,000 miles. I just sold it last year after owning it for seven years. It had about 187,00 when I sold it.<br />
<br />
So while I could say it <i>was </i>my dream as a teenager to own a brand new car, it's not so much a dream <i>today</i>. Why is that? I've got a much greater perspective of auto ownership than I had back then.<br />
<br />
I understand what true "ownership costs" mean for my bank account.<br />
<br />
<h1>
<span style="font-size: x-large;">
Auto ownership is expensive, deathly so</span></h1>
<br />
What's that perspective? Everything in life is expensive--so don't buy anything without figuring out to a "T" how much your purchase is actually going to run you. This is the key to A) Not getting ripped off initially, and B) Not going broke trying to make ends meet paying the various out of pocket costs.<br />
<br />
<a href="http://3.bp.blogspot.com/-VvgSVePjthE/VjEz3xn8OpI/AAAAAAAAEf0/P2ZoOhC7r8g/s1600/ripoff-car-expensive-cost-ownership-per-mile-to-drive-iceburg.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img alt="car ownership iceberg of hidden costs expensive financial freedom" border="0" height="133" src="https://3.bp.blogspot.com/-VvgSVePjthE/VjEz3xn8OpI/AAAAAAAAEf0/P2ZoOhC7r8g/s320/ripoff-car-expensive-cost-ownership-per-mile-to-drive-iceburg.jpg" title="" width="320" /></a>As I sat down the other day thinking about the recent expedient purchase of our new "family" vehicle, a 2010 Dodge Grand Caravan, which accommodated our growing family, I got to wondering what the true cost of ownership on that beast was--not to mention the one I had just sold, a much more expensive gas guzzling 2003 Dodge Ram pickup.<br />
<br />
Cost of ownership? What's that?<br />
<br />
Surely you don't think that a car only costs you the amount you buy it for... right? Please tell me you're smarter than that.<br />
<br />
Yes. The second you buy your first automobile, reality begins to hit you like a wrecking ball to the financial gonads. You begin to realize that there's far more to owning a car than simply signing on the bottom line. The true ownership cost is like an iceberg. Sticker price is just the tip of it. The ownership costs go so deep, you'll wish you could "unsee" them once you've taken a look!<br />
<br />
To illustrate, let me provide the motherload of realities that begin to materialize once you enter the wonderful world of legally driving your own car:<br />
<br />
- Auto Insurance<br />
- Gasoline<br />
- Major Repairs<br />
- Minor scheduled Maintenance<br />
- Tires<br />
- Registration<br />
- Safety and Emmissions testing (based on state)<br />
- Sales tax on initial purchase<br />
- Depreciation expense<br />
<br />
All of these things pour into the ultimate cost of driving a vehicle down the road every day. You add up the amount of each of the above expenses coming out of your bank account each year, and divide the total cost by the number of miles driven that year, and you can arrive at a nice little number which tells you how much money you're torching per mile every time you make that extra, unscheduled trip to the grocery store because you didn't plan ahead.<br />
<br />
I really wanted to nail down how much all of this costs for my situation, so I dug into my budgets for the past year to figure all of this out. Here are the stark, naked results for my current "sweet ride," my conservative 2004 Toyota Camry SE:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-2NW02D7Cg_s/Vi_ZSlB-AYI/AAAAAAAAEbk/rnx3Vw5bk3E/s1600/auto-ownership-laid-stark-naked-costs.JPG" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img alt="true car ownership costs expensive ripoff" border="0" height="242" src="https://1.bp.blogspot.com/-2NW02D7Cg_s/Vi_ZSlB-AYI/AAAAAAAAEbk/rnx3Vw5bk3E/s400/auto-ownership-laid-stark-naked-costs.JPG" title="" width="400" /></a></div>
These are my total out of pocket expenses for one year of driving.<br />
<br />
My methodology here was to add up the yearly expenses, and amortize any up-front costs, like sales tax and sticker price, over the period I plan on owning the car.<br />
<br />
I looked back at the mileage I've put onto the vehicles I've owned over the past few years, and it looks like we've driven an average of 9091 miles in five years.<br />
<br />
So I take the total expenses of $3031, divide by 9091, and arrive at a total cost per mile of $.33. A nice, odd number.<br />
<br />
This is my operating cost, or in other words, my cost of ownership for every mile driven.<br />
<br />
This seemed high, since I had always figured it cost me maybe 10 or 20 cents per mile to drive, based on gas mileage alone... but I got somewhat of a relief when I began to investigate what other drivers are paying.<br />
<span style="font-size: x-large;"><br /></span>
<br />
<h1>
<span style="font-size: x-large;">
What AAA says about average costs per mile for ownership</span></h1>
<br />
The American Automobile Association has a lot of great statistics on drivers in the US and their related financials.<br />
<br />
They reported that in 2011, the average cost per mile for US drivers was around $.75. My costs are much lower than average--about 44% lower. Not surprising. I am, after all, the Village Id-Vestor.<br />
<br />
But the next thing I looked at shocked me.<br />
<br />
I just sold my man-machine, my 2003 Dodge Ram pickup, to buy our new family car, and I only owned it for roughly a year. In that short time, I estimate that I racked up about $3080 in total expenses, including a whopping $1800 in depreciation. That was by far the biggest expense, with sales tax coming in second at $587. I only drive it 3000 miles during that time.<br />
<br />
My total cost of ownership to drive that beast for one year? I almost keeled over when I saw it.<br />
<br />
$.9557 per mile. Almost three times the cost of my Toyota. But that's nothing compared to the neighborhood kid! Keep reading to find out what his cost of ownership is!<br />
<br />
<h1>
<span style="font-size: x-large;">
The morals of auto ownership to live by</span></h1>
<br />
What are the nuances we need to take away from this little exercise on cost of ownership?<br />
<br />
<ul>
<li>Hidden costs of ownership for ANY big-ticket purchase you make are rampant: homes, property, automobiles... even children. Don't ever think that "sticker price" is your actual cost.</li>
<li>Shop around for your car. Make sure you get a good deal, so that if you're selling it down the road after only a short time, you won't get your face ripped off by depreciation, and end up selling the car for substantially less than you paid, or more than you owe on a loan, if you're financing the car--which I don't recommend</li>
<li>Own a car for as long as you can, and don't buy one newer than 4-5 years. This ensures that the car is depreciated quite a bit, as far as market value is concerned. Owning it for a long time takes your cost of ownership down substantially, because you can depreciate the value of your car over a longer period, as well as the initial sales tax on the car. Shoot for ten years or more. Good vehicles will depreciate slowly after the initial few years, and last you well towards 200,000 miles.</li>
<li>Cost of gasoline is usually the main performance factor taken into account when buying a vehicle these days, but the greatest cost buyers face, especially on new cars, is depreciation. A new car can lose 25% of its value the first year--that's like buying a $40,000 car, then lighting $800 on fire every month for a year and watching them burn. This is the sole reason you always need to avoid buying from dealerships, and NEVER buy a brand new car.</li>
<li>The more miles you drive each year, the lower your "cost per mile" may seem... but don't be fooled. The more you drive, the more you have to pay in gas, maintenance, insurance, tires, repairs, and depreciation.</li>
<li><b>And finally.....</b></li>
</ul>
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If you do buy a BRAND NEW automobile, be sure you're willing to own it for at least ten years, or you will face the financial consequences of wealth destruction</div>
<h1>
<span style="font-size: x-large;">Buying a car: The folly of youth</span></h1>
So, back to the "asphalt" thing... why is buying a new car as painful as eating asphalt? Because it hurts your bank account just as much as eating a mouthful of rocks would hurt your teeth. <br />
<br />
I really, really wish the neighbor kid knew what he was doing when he bought that huge money-sucker.<br />
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Just a year down the road, it'll be worth 25% less than what it is now. Five years from now? 75% less on average, according to Kelly Blue Book's average statistics.<br />
<br />
He's unknowingly losing ten grand on that truck to depreciation over the next year. With his age and driving record, insurance will be at least triple what mine is, probably around the national average of $1006. Sales Tax will be five times what mine was. All things considered, I'm guessing he will be paying around $1.44 per mile he drives, or about <b>4.36 times what I will.</b><br />
<br />
There's nothing like getting into debt when you're young, and not being able to get out of it.<br />
<br />
This kid would be much better off, and much more satisfied about six months from now once that "new car euphoria" wears off, to have bought a nice, conservative car, saved money on insurance, gas, and taxes, socked away his money into his "freedom" account, and read a few of my articles on starting to invest and grow his money. I know, because I've seen this scenario play out in real life before.<br />
<br />
I have a friend from high school who bought a nice little cheap Honda CRX when we were sophomores. About the end of our junior year, he was already tired of the "boring" little CRX which got 40+ miles per gallon, so he went out and upgraded his ride to an Acura Legend. Within a few short months, he was already feeling the pain of that upgrade, for all the reasons I've mentioned above.<br />
<br />
If only I had personally known what I know now about money when I was 18, I would have made completely different decisions... and I'd be much closer to freedom today.<br />
<br />
<h1>
<span style="font-size: x-large;">Use the "cost of ownership" for other purchases, too</span></h1>
The little exercise I've done today can be formed around any purchase you make. Don't think it's limited to automobiles. You can also use it to think of ways to "upgrade" your life by "downgrading" some of the expensive stuff in your life.<br />
<br />
If you did this little exercise on your own, I guarantee you'll think differently about things going forward. You'll probably be a little bit more upset about getting ripped off on your last purchase, too. But don't worry: the auto industry will get what's coming to them soon. Why is that?<br />
<br />
I just read an article which tells us the auto industry is about to start experiencing some major financial issues.<br />
<br />
You've heard about the subprime housing bubble from back in 2007-2008? Well, a subprime auto bubble has been forming for some time, and many dealerships have begun experiencing rising levels of default from sub-par borrowers. They're going to experience some major losses within the coming months in connection to this.<br />
<br />
In addition, supply is waaaaayy up on vehicles sitting unbought in car lots, and consumer sentiment towards buying a vehicle is at a three-year low--meaning, record few people are thinking of buying a car in the near future.<br />
<br />
If no one is buying cars, and there are lots of them sitting out there, the auto industry is about to get hosed on their earnings reports. Auto stocks are going into the red. <a href="http://www.zerohedge.com/news/2015-10-27/us-automakers-worst-nightmare-2-charts">Learn more about that here</a>.<br />
<br />
Live long and invest,<br />
<br />
JeremiahUnknownnoreply@blogger.com7tag:blogger.com,1999:blog-6670567362421909511.post-21026905795429122082015-10-15T11:11:00.001-07:002015-12-10T06:55:27.890-07:00#1 Way to Win at Investing: Get Paid to Bargain Shop With Options<span style="font-size: xx-small;">October 15, 2015</span><br />
<br />
<h1>
Invest Like a Bargain Shopper</h1>
<br />
I love sales.<br />
<br />
The wife and I have always been bargain shoppers. When we want to buy something, we try to avoid buying something that's completely new... why?<br />
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It's like buying a brand new car. The second you buy it, you've already lost money. If I bought a car last month, but decide now to sell it to someone else for one reason or another, do you think for one second I'll be able to sell it for the same amount as I bought it?<br />
<br />
Absolutely not. There's a "new car premium" attached to vehicles at every car lot in the country. If you read the fine print, you'll find language which translates roughly to to the statement: "you're getting hosed!"<br />
<br />
Getting hosed makes my blood boil.<br />
<br />
So, when I want to buy something, I start looking at the cheapest places first, and work my way up to "new-ish," if I have to. When I find a deal I'm comfortable with, I pull the trigger.<br />
<br />
This way, I always have some value (perceived value, at least) built into my purchase from the get-go. It's like when you buy a house for less than it's worth on the market. You have instant equity ("value") built into your purchase.<br />
<br />
Since it's so hard to find good deals on specific things I want, I often wish I was able to put out bids at thrift stores or yard sales for an item I'm looking for, at a price just below what seems to be the market value of what I'm looking to buy, and offering anyone the chance to sell me that item, at that specific price, sometime within the near future.<br />
<br />
If there's anyone out there desperate enough to sell me their stuff and get their cash, they'd take me up on that deal--because they need the cash so bad.<br />
<br />
This whole bargaining process sounds vaguely familiar....<br />
<br />
Oh, that's right... this is how investments should work, in an ideal world.<br />
<br />
Most investors simply don't think about investments this way. Buying an investment ought to be like bargain shopping, or browsing a pawn shop. If you know what to look for, and you look hard enough, you'll find a sweet deal, that will really pay off. Sadly, most "investors" look in all the wrong places, for all the wrong things to buy, and have no idea of the difference between price and value, and they get stuck holding things that aren't likely to make them much money--even if the companies they are buying are actually good.<br />
<br />
That's a fundamental rule of investing. <i>Even if you're buying a good business, if you buy at the wrong price, it's a bad investment.</i><br />
<br />
With investments, it's actually possible to "throw out bids" on things you want to buy, and get paid for it. It's done using something called a put option.<br />
<br />
<h1>
Real-World Example of How to Bid, and Buy Your Investments Cheaper</h1>
<br />
I've written recently about put and call options before in several places: <a href="http://thevillageid-vestor.blogspot.com/2015/01/screw-vegas-i-am-casino.html">here</a>, <a href="http://thevillageid-vestor.blogspot.com/2015/01/how-to-evaporate-your-investing-fears.html">here</a>, <a href="http://thevillageid-vestor.blogspot.com/2015/07/aaaaaand-markets-are-tanking-what-can.html">here</a>, and <a href="http://thevillageid-vestor.blogspot.com/2015/07/the-market-slaying-stealth-millionaire.html">here</a>. Browse these articles for the mechanics, and some more examples to supplement this article.<br />
<br />
A great way to get paid for bidding right now is with the company <b>Oracle Corporation. </b><br />
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You know Oracle well, whether or not you realize it. It's a computer technology company that produces both hardware and software products--database systems, enterprise software, servers, and network storage systems. Its software products are in everything from PC's to television sets. It's the second-largest software maker behind Microsoft.<br />
<br />
Oracle's in the bargain-shopping bin right now. It suffered from the selloff in August, and hasn't recovered as well as some of our other blue-chip stocks we can easily and cheaply trade options on. That's a good thing.<br />
<br />
The company's stock is down 19% off its highs from nine months ago. It's trading only about 5.5% off support, around $37.50.<br />
<br />
That's nearly a 4-to-1 Risk-Reward setup. Four times the upside, compared with the downside.<br />
<br />
What this means for us is, the stock doesn't have much lower to go, even if the general market were to move lower from here a bit.<br />
<br />
And the good news is, October through December is typically bullish for stocks, so we can count on Oracle moving higher from where it is now, at least in the intermediate-term.<br />
<br />
Since volatility is so much higher lately, we can sell a November 20th $37 put option on 100 shares of Oracle stock right now, and get paid $.71 per share, or $71. This obligates us to buy Oracle for $37 per share on November 20th if the stock is trading below $37 on that date.<br />
<br />
Getting Oracle at that price would be a 1% discount off its current price, and the $.71 per share builds and additional 2.1% safety cushion into our trade, meaning that the stock could go down 3.1% from where it is now, before we even start losing money.<br />
<br />
This means, we've hedged away 3.1% in downside risk as opposed to a simple buy-and-hope strategy that the average investor uses.<br />
<br />
And if the stock goes nowhere, we make 1.9% in 35 days, or 19.71% on an <a href="http://thevillageid-vestor.blogspot.com/2015/08/sizing-up-returns.html">annualized basis</a>, meaning that if we repeated the trade every month for a year, our account would grow by 19.71%. That's one and a half times the historical market return.<br />
<br />
If we get put the shares next month, we'll own Oracle, and begin collecting its 1.5% dividend. We'll also begin selling monthly covered call options on the stock at higher strikes, in order to get steady yearly returns on this position of around 19%. That doesn't even include the dividends, or the capital gains we might earn if we are forced to sell the stock.<br />
<br />
<h1>
Start Using Options Right Now</h1>
<div>
<br /></div>
Selling options is for bargain shopper investors. Doing this ensures you lower your cost basis, and boost your overall returns.<br />
<br />
Doing what I've described is a great way to earn some extra cash going into the holiday season, if you need it. I recommend not waiting even another minute before learning how it can benefit you. I've mentioned before: If you can learn this skill, it will literally change your financial future, and improve the speed at which your money grows.<br />
<br />
Learn more <a href="http://thevillageid-vestor.blogspot.com/2015/01/screw-vegas-i-am-casino.html">here</a>, <a href="http://thevillageid-vestor.blogspot.com/2015/01/how-to-evaporate-your-investing-fears.html">here</a>, <a href="http://thevillageid-vestor.blogspot.com/2015/07/aaaaaand-markets-are-tanking-what-can.html">here</a>, and <a href="http://thevillageid-vestor.blogspot.com/2015/07/the-market-slaying-stealth-millionaire.html">here</a>.<br />
<br />
Live long and invest,<br />
<br />
Jeremiah<br />
<br />Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-58105982795151270592015-10-12T12:42:00.000-07:002015-10-30T13:08:55.467-07:00Put the Smack Down on the Market -- By Being MacGyver<span style="font-size: xx-small;">October 12, 2015</span><br />
<h1>
Be MacGyver When Investing</h1>
There are two truths I've learned about the world of finance.<br />
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Number 1: Nothing sells in the news business like a good crisis! Especially a stock market crisis...<br />
<br />
And Number 2: A good crisis in the world of finance is a <i>terrible </i>thing to waste.<br />
<br />
Crises happen all the time, usually small ones every couple of months. And people lose tons of money when they happen.<br />
<br />
That's because, for the most part, people make <i>stupid</i> decisions with their money. They get emotional during crises, and make irrational decisions. When you couple that with the fact that most people get into investments in the first place for completely irrational reasons, the result is that there's a ton of money to be made by being on the opposite end of what the losers in the market are doing.<br />
<br />
It's tough luck for the losers, but great luck for you, because you're not stupid.<br />
<br />
Don't get me wrong--I'm not happy that people are stupid with their money. My goal is to educate and inform people to point where they can make wise decisions with money, be successful with investing, and become financially free... but I'm also not in denial about the driving forces of human nature. <br />
<br />
And understanding basic human nature, in investing, is big money.<br />
<br />
As I've mentioned before time and time again that it's possible to make money in any market--whether it's going up, going down, or going nowhere ("sideways").<br />
<br />
You'd think that it's easiest to make the most money when markets are going up constantly... and you'd be wrong.<br />
<br />
Something you need to realize is that markets go up a heck of a lot slower than they go down... a bull market that's produced 10% gains in the stock market over a period of six months to a year can disappear in a matter of days, leaving you with nothing. That' a lot of wasted time. We want to avoid that.<br />
<br />
On the other hand, during a crisis <a href="http://thevillageid-vestor.blogspot.com/2015/08/someone-just-made-112-times-their-money.html">you can make a hundred times more money in a single day</a> than you could on any other normal day, if you know how to do it, and are well-positioned and well-disciplined.<br />
<br />
There's nothing immoral, illegal, or unethical about this. It's no different than walking into a pawn shop and buying a rare item that's on sale for $20, when you know it's worth $200, and can turn around and sell it for that price. <br />
<br />
That's why today I want to explain how this is done, and hopefully empower you to take the steps so you're able to take the right steps to make a killing, while others are getting killed. You'll learn how to be MacGuyver when the market's a ticking time bomb.<br />
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MacGyver always seems to find himself in supremely effed up situations. He's either the target of evil machinations, or he has to clean up the mess that someone else has gotten themselves into. And, he has to be nimble, efficient, and quick in order to make it out alive.<br />
<br />
That same analogy applies to short-term investing.<br />
<h1>
One of the best Charts to Use When Speculating</h1>
<div>
<br /></div>
Short-term market opportunities often evaporate just as fast as they appear, and we need to be keen of that fact. If we're in things for the short term, dealing in volatile instruments, we have to realize that we almost literally have a ticking time bomb in our hands with our livelihood strapped to it. If we're not nimble, and on top of things, we're going to explode.<br />
<br />
Here's the biggest tool in my arsenal for identifying short-term profitable setups.<br />
<br />
The "Fear Gauge." I've written about it before... in fact, I just wrote a nice little article a couple of weeks ago, about how <a href="http://thevillageid-vestor.blogspot.com/2015/09/market-volatility-friend-of-foe-depends.html">volatility is your friend</a>. Read through it along with this one.<br />
<br />
The Fear Gauge is otherwise known as the VIX, or Chicago Board of Options Exchange's volatility Index. Here's what it looks like recently:<br />
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<br />
Note the extreme change in volatility conditions during the August debacle. <br />
<br />
The VIX is called the "fear gauge" because it measures how high a price people are willing to pay to protect their investments.<br />
<br />
In this chart, you can see how complacency suddenly turned to outright terror, and how completely desperate people were to buy insurance against loss on their portfolios.<br />
<br />
The standard way to execute this protection strategy is with a "put
option," and this chart effectively tracks the price movement of this
instrument. It more than tripled over a period of just two days.<br />
<br />
As the markets began tanking in August, millions of investors and
institutions stepped in at once to buy insurance on their stock
holdings. This panic-buying bid up prices to levels not seen in over four years.<br />
<br />
When someone buys a put option, they're setting a minimum price they'd be able to sell their investment for in cases where the market takes a big drop.<br />
<br />
It's no different than buying an insurance policy for your home or automobile. If your house is worth $200,000, you take out a $200,000 policy for it, no less, and you pay a premium. Then, if your house burns down completely in a fire, the insurance should make you whole up to $200k.<br />
<br />
It's the same with portfolio insurance. If the current price is $21 on your investment, and you don't want to get less than $20 per share for your investment in the midst of a market panic, you buy a put option with a $20 "price floor", known as a strike price. Then, if the prices goes to $19, you get to still sell yours for $20 up until the expiry date of the option.<br />
<br />
Let me point out that all of the <a href="http://thevillageid-vestor.blogspot.com/2015/07/where-to-startthe-worlds-safest-stocks.html">positions I recommend investing in for the long haul</a> don't require insurance of this nature. We buy them when they sit at a substantial discount to market value. Their prices are stable and predictable, falling little during panics, and rebounding quickly even if they do. I wouldn't, for example, recommend something that could lost 30% of its value over the next few months...<br />
<br />
On top of all this, we use options to generate income on these same companies whose fundamentals we know are sound, resulting in basically a risk-free cash flow. That's because the risk inherently involved with using options evaporates
if we have a well-balanced portfolio composed of companies whom we know won't be in the gutter next month.<br />
<br />
The safest way to use options is to be the seller, not the buyer. Tying this back into our insurance example along with the VIX discussion, we capitalize on market fear by <i>selling </i>the portfolio insurance that others were so willing to buy at three times its normal value.<br />
<br />
Just like insurance companies collect insurance premiums from you like clockwork every month or every year, it's fairly simple to form a strategy of profitably selling options on a regular weekly or monthly schedule, on stocks you wouldn't mind owning (and which you can buy at a discount to current prices thanks to the option), or stocks you currently own, which you'd like to sell for a big, juicy profit.<br />
<br />
By "big," I'm talking in the range of 1-4% per month, depending on the level of volatility. It doesn't sound like much, and it won't make you rich overnight... but compared to the market's 70-year average return of 12.8%, this is <i>absolutely, hands down, the best and most-safe strategy .</i> In fact, <a href="http://qz.com/58535/goldman-sachs-had-236-profitable-days-of-trading-last-year-and-just-15-days-of-losses/">this is how the big investment banks make all of their trading profits, day after day.</a><br />
<h1>
Invest With Success, Like the Big Banks Do</h1>
<div>
<br /></div>
Here's an example of how this works.<br />
<br />
I've always like the company Intel. It's at the head of it game, has unbeatable market share, leads the pack among competitors in chip innovation, and has sound financials. Its computer chips are in just about every device you've ever owned, including your phone, your PC, and the clock on your wall.<br />
<br />
Intel is also a great "leading indicator" for the markets, meaning that when we see a market downturn, in the short term, we'll see Intel reflecting that trend before the rest of the market. The same is true when the market goes up.<br />
<br />
Intel's a bit expensive right now at $32, but let's say I thought it was a bit undervalued, and would probably go up over the next month.<br />
<br />
In this case, I'd consider owning Intel if it traded at $31, a 3.2% discount to current price. So, I could sell one put option contract, which expires on November 20, at a strike price of $31. In doing this, I agree to buy 100 shares of Intel at $31, even if the stock is trading below that price on the expiry date.<br />
<br />
I go to Yahoo Finance, and look up the option prices for Intel. I see that I can sell the November 20, 2015 $31 strike put options for $0.76 per share, or a total of $76 for the contract.<br />
<br />
So, I collect $76 in my account today, and I'm potentially obligated to pay $3100 for 100 shares of Intel on November 20, if shares are below $31. That's a 2.45% return on my potential obligation, in just 38 days.<br />
<br />
I keep the premium of $76, free and clear, no strings attached. It should increase the cash balance of my account overnight. <br />
<br />
On November 20, if the stock is still above $31, I still keep the premium, and have no further obligation. The put option expires automatically, and the buyer of the option on the other end of the trade loses 100% of their investment (just like when we pay an insurance premium, and don't have to make any insurance claims. We get nothing for our investment).<br />
<br />
However, if the stock is trading below $31, my broker automatically buys the shares for me at that price. The $76 I got up front in option premium actually lowers my purchase price to $30.24 ($31 minus the $.76 per share in premium), so I'm actually profitable on the trade down to that level. If the price is lower than that, I take a loss.<br />
<br />
But here's the key: In this scenario, I'm selling the option, confident that the stock won't be going lower (possibly because it is trading at the lower end of its range). When I take all this into account, I'm lowering the risk on the trade substantially from the get-go.<br />
<br />
And, even if I end up having to buy the shares, next month I can then execute a covered call option strategy, to sell the shares I bought at a profit.<br />
<br />
I would then sell a Call Option at a strike anywhere above $30.24, like maybe $32 (most larger stocks have options on the dollar, and every fifty cents), instead of a put option, which obligates me to sell the shares at that price, and collect the premium.<br />
<br />
If conditions are the same as they are today one month from now (which is likely), I'd collect $61 for agreeing to sell my shares for $32, receive the $61 in premium, and make up to $1 per share when I sell the shares down the road (remember, I would have bought them for $31, and sold for $32).<br />
<br />
At that point, I'd actually be up to 7.6% in just two months' time, for an <a href="http://thevillageid-vestor.blogspot.com/2015/08/sizing-up-returns.html">annualized return</a> of about 45%. Not bad at all.<br />
<br />
<i>To reiterate, this trade setup basically couldn't go wrong for us. </i>Premiums are so thick right now, it'd be very hard to lose money.<br />
<br />
But, how do you spot MacGuyver opportunities like this with the VIX?<br />
<br />
The trick is to watch for times when the VIX is a ticking time bomb, about to explode--and to use your awesome skills to diffuse the bomb in your favor.<br />
<br />
This is easy to spot.<br />
<br />
Below is another chart of the VIX, this time with some added lines called "Bollinger Bands."<br />
<br />
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<a href="http://2.bp.blogspot.com/-KYTsBeqmQ28/VjD8O5qGwBI/AAAAAAAAEfI/uZHFcGsO1Y8/s1600/put-smack-down-market-be-macgyver-investing-success-stock-options-vix-volatility-bollinger.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="386" src="http://2.bp.blogspot.com/-KYTsBeqmQ28/VjD8O5qGwBI/AAAAAAAAEfI/uZHFcGsO1Y8/s640/put-smack-down-market-be-macgyver-investing-success-stock-options-vix-volatility-bollinger.jpg" width="640" /></a></div>
<br />
The upper and lower solid blue Bollinger Bands indicate the most likely price range for a stock. When the stock continually "bumps" up against, or closes outside of the bands, this is a huge signal that a price reversal is about to occur. I've circled these "bumps" in green.<br />
<br />
So for the VIX, when the lower band is breached like around June 23 or so, this is a sign that volatility is about to increase in the markets, .i.e, the market is about to fall.<br />
<br />
When the upper band is breached (multiple scenarios above), this indicates that the market should turn higher.<br />
<br />
Right now, the lower band is getting "bumped." The more sustained the bumps are, the more likely we are going to see the market fall, at least in the short-term. <br />
<br />
How can we play these moves in the market when we see the setups? If you're extremely maverick (or even worse, stupid) you can wildcat the market by buying a put option on the S&P, via the ETF symbol SSO. Any downward falls in the market within a few days should produce a tidy profit for you. But be careful: you can easily lose your shirt this way, if things don't go as planned. You're not guaranteed any profits whatsoever when buying options.<br />
<br />
Alternatively, as suggested throughout this article, a safer strategy is to wait until you actually see the market fall, then quickly sell put options on high-quality blue chip companies like CSCO, INTC, ORCL, or MSFT while volatility is high. You collect premiums up front, and minimize risk.<br />
<br />
The higher volatility is, the better profits you'll make with this option selling strategy, along with that of selling covered calls, as I've written about <a href="http://thevillageid-vestor.blogspot.com/2015/01/juice-your-returns-like-never-before.html">here</a> and <a href="http://thevillageid-vestor.blogspot.com/2015/01/growing-your-money-like-boss.html">here</a>. When you're "long", or buying options, you have to get in before the market moves in order to easily book the profits.<br />
<h1>
Conclusion: "MUST SELL OPTION"</h1>
<div>
<br /></div>
If there's nothing else you take away from this article, I hope you've learned that your first thought during a market panic should be, "MUST SELL PUT OR CALL OPTION."<br />
<br />
I may talk more about the mechanics of this later, but if you sell options when volatility is really high, and hold for a few days while it cools off, you can often buy back the option for a profit, even if the market or underlying stock has moved nowhere since then. That's because options are the price of volatility, so if volatility changes, so will the option price.<br />
<br />
I hope this wasn't too much for you. There's a lot to learn about options trading, so PLEASE, PLEASE, PLEASE don't just jump in with both feet before understanding how it works to a "T." With options, you have a lot of capital on the line.<br />
<br />
Please, do some research, or send any general questions you have about this concept, and I'll be happy to answer them (thevillageidvestor@gmail.com), although I can't provide individual investment advice for your situation.<br />
<br />
In fact, if you have questions and send them my way, I'll tack them onto the end of this article for future reference, and other readers' benefit as an FAQ.<br />
<br />
Live long and invest,<br />
<br />
JeremiahUnknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-27837484254576894232015-10-06T11:21:00.002-07:002015-10-30T13:08:46.999-07:0013 of the Best Investment Books to Start Reading NOW<div class="MsoNormal">
<span style="font-size: xx-small;">10/6/15</span><br />
<h1>
Investing Books are Not For the Birds</h1>
People who enjoy making their money grow, and are successful
at investing, should be avid readers of not only politics, business, and
personal finance matters they find online, but also <i>actual
books.</i> You know, paper? That outdated, antiquated stuff that comes from
trees? <o:p></o:p><br />
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I deeply apologize if this little gem of wisdom somehow
derails you or your friends’ theory that everything important you need to know
can be gleaned from social media—it’s just not true.<o:p></o:p></div>
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<br /></div>
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The great businessmen of this last century, responsible for
creating some of the world’s best products, businesses, systems, and piles of
wealth, have imparted their wisdom through a variety of sources. What I’ve put
together below is what I consider to be a good collection of “starter” reading
material from these sources for those who want to become serious, disciplined,
principled investors. There are hundreds of books out there, but I believe
these are the best.<o:p></o:p></div>
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If you choose to proceed, and devour this gigantic pile of
wisdom, you’ll come out a much more intelligent, informed money manager than
99% of the gamblers out there who dubiously call themselves “investors.”<o:p></o:p></div>
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<br /></div>
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You’ll come away with a better understanding of general
economics, investor psychology, business mindset, history of finance, macroeconomic
theory (much more interesting than it sounds), value investing, trading, and speculation….
And luckily, since some of the authors are incredible writers and comedians,
you’ll be thoroughly entertained, also.<o:p></o:p></div>
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<br /></div>
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I update this list periodically as I find new, useful, interesting things to read.</div>
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<b>The Little Book that Beats the Market – Joel Greenblatt<o:p></o:p></b></div>
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<br /></div>
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Fantastic gem on how to buy shares of great companies at
reasonable prices. Focuses on value investing, and long-term wealth creation.<o:p></o:p></div>
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<b>One Up on Wall Street – Peter Lynch<o:p></o:p></b></div>
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<br /></div>
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This is a general book about the stock market, written a
couple decades ago, but contains timeless wisdom which helps investors learn
the need to understand fully what they are investing in.<o:p></o:p></div>
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<b>Eat the Rich – PJ O’Rourke<o:p></o:p></b></div>
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This comedian author strives to help us understand the world
of economics and wealth through his hysterical world travels. <o:p></o:p></div>
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<b>The Big Short – Michael Lewis<o:p></o:p></b></div>
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Fascinating book about the unfolding of the 2008 financial
crisis, focusing on several key players in the industry who saw it all coming,
and made fortunes off of it.<o:p></o:p></div>
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<b>Winning on Wall Street – Marty Zweig<o:p></o:p></b></div>
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<br /></div>
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Zweig is a legendary stock market analyst, who made a
fortune trading stocks. The focus of the book is more focused on understanding
the “technical” aspects of investing (using charts and such) than value
investing, which focuses on the financial and business fundamentals of
investing.<o:p></o:p></div>
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<br /></div>
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<b>Economics in One Lesson – Henry Hazlitt<o:p></o:p></b></div>
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<br /></div>
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Hazlitt was a libertarian thinker of economics and free markets.
Learn from this 70-year-old book about the truths behind common economic
fallacies and perils our modern world, such as government intervention and
central planning.<o:p></o:p></div>
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<b>Beating the Street – Peter Lynch<o:p></o:p></b></div>
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The author delves into the details around investing in
specific industries, and offers his 25 Golden Rules of Investing<o:p></o:p></div>
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<br /></div>
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<b>The Richest Man in Babylon – George Clayson<o:p></o:p></b></div>
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A classic, quick read which provides insight into
wealth-building and success in handling money.<o:p></o:p></div>
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<b>Crisis Investing for the Rest of the 90’s – Doug Casey<o:p></o:p></b></div>
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Doug Casey is a wizard at wealth creation, having founded
several firms focused on providing investment research and wealth advice to
millions of readers around the world. This book teaches sound underlying
principles of investing, although the information is somewhat dated, and many
of the author’s predictions about the financial markets of the 90’s didn’t come
true.<o:p></o:p></div>
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<b>Rich Dad, Poor Dad – Robert Kiyosaki<o:p></o:p></b></div>
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<br /></div>
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A great book from the 90’s which tries to teach its readers
practical ways on how to think about money, and understand the relationship
between personal assets, liabilities , debt, cash flow, taxes, personal income, and wealth
generation. Purely a motivational book, not a technical one about investing.
This was the first book I ever read about money nearly ten years ago, which got
me interested in finance.<o:p></o:p></div>
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<b>F Wall Street – Joe Ponzio<o:p></o:p></b></div>
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<br /></div>
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How to avoid the pitfalls most investors face, and succeed
at value investing in great businesses.<o:p></o:p></div>
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<b>Market Wizards – Jack Schwager<o:p></o:p></b></div>
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The author interviewed some of the most world-renowned
traders and investors in the word, and gleaned many insights for us about
investor mentality and behavior.<o:p></o:p></div>
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<br /></div>
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<b>The New Market Wizards – Jack Schwager<o:p></o:p></b></div>
<br />
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Another book, newer than the one above, which contains
interviews and insights from expert investors about the financial markets.<o:p></o:p><br />
<br />
Have you read any great books you'd recommend? Hit me up at thevillageidvestor@gmail.com<br />
<br />
Live long and invest,<br />
<br />
<br />
Jeremiah</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-12411953016493641932015-09-29T20:42:00.000-07:002015-11-03T13:16:31.783-07:00Rubbing America the Wrong Way: Financial Porn<div class="MsoNormal">
<span style="font-size: xx-small;">9/29/15</span><br />
<h1>
Financial Porn: Destroying the Middle Class through Fiscal Policy and Personal Financial Habits</h1>
<br />
So much truth about how to reach happiness and contentment in life is obscured by people in society who relentlessly peddle flawed ideas and corrupt philosophies. The sad truth is, these flawed ideas are intended to empower individuals to reach lasting satisfaction, but they're incapable of delivering that.<br />
<br />
I'm mostly talking about the majority of politicians, celebrities, and media moguls, who while exercising their right to free speech, steer naive, uneducated, or misguided people of all ages and backgrounds toward worldviews which promote dependence on government, selfishness towards fellowmen, and jealousy of the successful, instead of liberty, altruism, and compassion.<br />
<br />
You see, that's the inherent flaw of freedom of speech: People from all walks of life are free to use whatever platform they have to preach ideas they're passionate about, no matter how fundamentally defective their methods are at producing anything that even resembles independence, empowerment, or elevation.<br />
<br />
It's the beauty, and flaw, of America, isn't it?<br />
<br /></div>
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We need a poster child for these ideas, so I'll use the one person's visage who most stands out in my mind when someone mentions the term "painfully misguided."<br />
<br />
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You guessed it: it's Bernie Sanders. Feel the Bern!<br />
<br />
If you know anything about Bernie, you either love him, or you hate him with a fiery indignation.<br />
<br />
Since I don't condone hatred toward anyone,
regardless of political persuasion, I'd like to re-focus your
hatred of Bernie away from his character, and instead onto his ideas and
aspirations.<br />
<br />
And although he is a self-avowed socialist, I won't pretend even for a second that I think Senator Sanders is involved in some sort of worldwide socialist conspiracy, bent on destroying democracy, morality, and healthy conservatism.<br />
<br />
No, no, no. That would be giving him WAY too much credit.<br />
<br />
As I said, I think he's just misguided--he doesn't understand how the real world works. But he and his followers are so willfully bent on their ideas, that many of them have become as hooked to them as a drug addict. Even if they know what's right, they can't resist.<br />
<br />
One "substance" the Senator peddles is a dreaded, addictive philosophy I've termed "Financial Pornography." Never heard of it? That's because I just made it up.<br />
<br />
Let me explain, by first talking about Actual Pornography.<br />
<br />
Regardless of your personal opinion of pornography, you should understand that both scientific studies, as well as behavioral and psychological observations, indicate that porn is one of the most most deceptive, destructive and addictive "substances" in the world today.<br />
<br />
How so? Pornography promises its users satisfaction and lasting pleasure. Yet in reality, all it delivers is fleeting fulfillment, and damaged and corrupted thoughts and ideas about sex, love, and relationships. Its peddlers claim that pornography has the ability to somehow strengthen physical bonds... but in reality, it sews marital infidelity, causes feelings of betrayal, mistrust, and devastation to the partners of the users. It leaves its users feeling lonely, depressed, and demeaned. It functions as an addictive drug, rewires the brain to respond more to artificial stimuli than physical, and causes users' ideas about what is morally right to become corrupt. It promotes sex trafficking, and objectification of men and women. Lastly, it keeps lonely people from engaging in <i>real</i> sexual activity.</div>
<div class="MsoNormal">
<br />
Similarly, the tenets of financial pornography promise its users financial security in life, and a degree of lasting contentment. Yet in reality, all it delivers is fleeting security, and damaged and corrupted thoughts and ideas about money, economics, and business. It promises to solve problems of wealth inequality and poverty... but in reality, it only sews class warfare, and causes feelings of jealousy, resentment, and hatred toward financially successful people in society. It leaves its users feeling entitled to whatever anyone else has, yet woefully dependent and insecure in the absence of government assistance. It functions as an addictive drug, breeds ignorance, teaches incorrect ideas about how to build real wealth, and fosters unhealthy bottom-up pride in individuals. <br />
<br />
Lastly, financial porn keeps people from gaining actual, <i>true and lasting wealth.</i><br />
<br />
Financial porn isn't an actual "thing"... it's a gathering of false ideas and flawed movements, which promise one thing, and deliver another.<br />
<br />
It's a product peddled by many in our society, especially democratic politicians. It makes lofty promises of greater wealth, prosperity, and elevated social status for the poor, and greater equality for all.<br />
<br />
It can achieve none of these things, but its advocates seek to make it so via broad legislation at the federal level which restrict individual liberties and contradict natural economic laws. In fact, it is the cause of many of the world's current financial woes. It comes in the form of many lies. For example...<br />
<br />
<h1>
<span style="font-size: large;"><b>Lie #1: "Government and Central Bank Intervention Is Good for the Economy."</b></span></h1>
<br />
For the most part, government meddling produces no lasting value for our economy.<br />
<br />
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Consider the past six years of monetary intervention on behalf of the Federal Reserve, which promised to make the poor and middle class whole again, by restoring jobs and financial stability to the world. The Fed promised to prop up and stimulate the economy by injecting new money, via the lending process, and lowered bank overnight lending rates to fuel consumption, in the process also seeking to control inflation/deflation.<br />
<br />
Well, guess what? Real employment is at all-time lows. But of course, jobs are plentiful if you enjoy working as a server in restaurants, bars, or fast food.<br />
<br />
Has the Fed restored wealth or financial stability to the middle class?<br />
<br />
During the past seven years, the wealth of the middle class has increased by just .7%. All the government meddling did was allow the rich to have greater access to capital, which they put to good use, and became substantially richer. My point is, the Fed's monetary stimulus programs failed in its intentions to assist those who needed it: the poor and middle class.<br />
<br />
These are only a couple examples which illustrate that government is woefully ineffective at achieving anything it sets out to do. Government policies should be judged not by their intent, but by their results.<br />
<br />
Consider Obamacare. Great intent--lower costs, and increase access to insurance for the poor. did it work?<br />
<br />
<a href="http://3.bp.blogspot.com/-h6UixbyrKNA/VjD6w2jfoGI/AAAAAAAAEeQ/OlN9MqS3Nbc/s1600/rubbing-america-wrong-way-financial-pornography-obamacare-hurts.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://3.bp.blogspot.com/-h6UixbyrKNA/VjD6w2jfoGI/AAAAAAAAEeQ/OlN9MqS3Nbc/s1600/rubbing-america-wrong-way-financial-pornography-obamacare-hurts.jpg" /></a>The truth is, insurance is now much more expensive than it ever was in the past, and we have higher out of pocket costs. <a href="http://libertyblitzkrieg.com/2015/09/24/obama-promised-healthcare-premiums-would-fall-2500-per-family-they-have-climbed-4865/">Average premiums have risen by nearly $5000,</a> while the promise was to <i>decrease them </i>by $2500 per family.<br />
<br />
To claim that increased government intervention or oversight is the solution to the problems in our economy, is to claim that increased doses of heroine will free the addict of his vice. Advocating for more government oversight or meddling in the economy is financial porn of the worst sort.<br />
<br />
<br />
<h1>
<span style="font-size: large;"><b>Lie #2: "If you're poor or middle class, you've been victimized."</b></span></h1>
<br />
Senator Sanders, along with other hard-line socialists, employ some very subtle, yet galvanizing tactics to woo their followers into action. Foremost among these tactics is simple victimization.<br />
<br />
Sanders frequently posits the false dichotomy that if you're poor, you're automatically a victim of the rich, and the only way out is to upend the status quo--take from the rich what they've supposedly "taken" from you!<br />
<br />
He persuades people to believe that the situation they find themselves in has little to do with their own life choices, and everything to do with their being ripped off by the wealthy class of our society. The rich and corrupt are to blame for all their woes. And consequently, the rich must be made "to pay."<br />
<br />
Of course, we know this isn't true, even in the slightest. I recently asked the question of all of you, <a href="http://thevillageid-vestor.blogspot.com/2015/09/one-percent-screwed-you-lately.html">"How has the 1% personally hosed you lately?"</a> The answer, of course, is, they haven't. While perhaps there are some corrupt among the wealthy class, for the most part, their wealth was created through hard work, creativity, ingenuity, and long years of being a working class drone.<br />
<br />
Victimization syndrome persuades individuals to hang out in pity parties, instead of inspiring them to create better situations for themselves, something which is wholly within their control. It encourages people to give up on making a better life for themselves through work and sacrifice, and to selfishly take for themselves what they incorrectly believe others around them haven't earned.<br />
<br />
<h1>
<span style="font-size: large;"><b>Lie# 3: "My financial future doesn't depend on me making wise personal decisions. It depends on me getting my fair share of what the big corporations and wealthy people have stolen from me."</b></span></h1>
<br />
The sum total of an individual's choices over the course of his life determine where he ends up.<br />
<br />
Consistently making a lot of good choices along your life path pays off--literally and figuratively--and enables you to eventually make big, good choices. If an individual works hard at part-time jobs while going to college or gaining vocational training, and gains valuable and marketable skills along the way as they plot out their financial future and career path, he's going to succeed at what he wants.<br />
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There are myriad poor choices a person can make along the way that will take them down a path of financial ruin... they can hardly be listed here. But an obvious one is making the assumption that it's possible to live a full life, and earn a living wage early in life without some kind of education or training.<br />
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There is a substantial push by the left in America today to raise the minimum wage to unsustainable levels. This idea is peddled, based on the premise that a minimum wage does not provide a full and substantial lifestyle for honest-working people. <br />
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That's correct, but it's important to remember that minimum wage was never intended to be the end of the career road. It's a starting point, meant to be used to provide some basic necessities of life for those who are on the path to something bigger--someone gaining training or education. After all, in today's world, <a href="http://thevillageid-vestor.blogspot.com/2015/09/it-not-your-employers-job-to-make-you.html">your employer will never make you rich</a>. That obligation lies with you.<br />
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This means that those who are trying to "raise a family" on minimum wage have made incorrect assumptions about the purpose of a minimum wage. They've made incorrect life decisions earlier (such as not planning before starting a family, or not mapping out a path to a better career, getting education, etc), which have led them to where they are today.<br />
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So, the next time one of your liberal friends screams about demanding a higher minimum wage, why not have a discussion about the "financial pornography" of demanding a "living wage," and instead discuss the life choices which led them to where they are today?<br />
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<span style="font-size: large;"><b>Lie # 4: "It's the government's job to ensure I don't get taken advantage of financially, and to make sure I live a comfortable life."</b></span></h1>
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The plight of those in society who willfully remain in ignorance of personal financial skills breeds addiction to financial pornography and all of it woes--especially the victimization syndrome.<br />
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What's the biggest side effect of ignorance? Getting taken advantage of by the snakes of society. Do you enjoy being taken advantage of? Getting ripped off? People making inordinate amounts of money off of your stupidity?<br />
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Then do something about it. You have to be careful, because the biggest financial scams today are out in the open, and touted as necessary to living the "American dream." Buying a huge home you can't afford, which steals your wealth and fouls up your credit history.... buying lots of things on credit, which then costs you a ton of money on interest... buying brand new cars, which quickly depreciate... rent-to-own stores... payday loan centers... debt consolidations... I could go on. I work in the finance industry, so I've basically seen them all being perpetrated by the vermin of society.<br />
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<h1>
<span style="font-size: large;">The Escape From Financial Pornography</span></h1>
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So, what can we gather about financial pornography? There's a lot more out there than what I've mentioned above, and it all falls under the falling attitudes:<br />
<ul>
<li>Relying on someone else to take care of your financial future for you, particularly the government</li>
<li>Blaming others for your own situation, instead of doing something about it yourself</li>
<li>Wanting what others have, but being unwilling to work for it </li>
<li>Not taking responsibility for your own mistakes</li>
<li>Remaining in ignorance, and hoping things work out for you</li>
<li>Not being willing to learn new concepts and skills that you can use for a lifetime </li>
</ul>
In other words, the only way to learn how to evade or escape financial porn is to take personal responsibility for your life, don't assume anyone is going to do you any favors, and learn as much as you can about how to be successful financially.<br />
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You can't steal permanent success from someone else. Speaking of stealing... stealing from the rich, in the form of higher taxes, won't do anything for the poor and middle class in the long term.<br />
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You could take all the money in the world from the rich, and give it to the poor, and the rich would have it back in their bank accounts by the end of the week. That's because people with no financial education, and no wealth-building skills, don't have the slightest idea about what to do with money. On the other hand, rich people have learned where money grows best, and they know how to nurture it.<br />
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This is the primary reason that the the rich have gotten substantially richer since the financial crisis, while the poor have gotten slightly poorer, and the middle class has gone nowhere. <br />
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The only way to lift up the poor is for them to learn what the rich do. Unfortunately, no one can force them to learn, they have to make the choice themselves.<br />
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<h1>
<span style="font-size: large;">Lifting the Poor and Middle Class Is Simple</span></h1>
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The first step in lifting people out of poverty is to teach basic financial skills. The poor and middle class <i>need </i>to learn how to budget their money, stay out of debt, and save a substantial portion of their paychecks.<br />
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Once they've learned how to consistently save money, and while their cash is stacking up month by month, the middle class needs to be learning how to invest.<br />
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This is where I come in with this blog.<br />
<br />
At the most basic level, this blog exists as an outlet for me to provide you with an understanding of high-level economic principles and concepts which should guide
your thinking about business and money. The world revolves around business. The more you understand, the better you'll perform, no matter what field of work you're in.<br />
<br />
As we delve deeper, I try to help you learn specifically about the financial markets, and how they work. I try to provide an understanding about how different financial instruments function, and how you can use them to make money.<br />
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As I further develop this blog, I'll be adding new features. Once that happens, my goal is to constantly be on the hunt, independently identifying strategic market opportunities for you, teaching you how to determine whether a company is a good investment, and how to spot low-risk, high-quality investment opportunities.<br />
<br />
Finally, I talk a lot about tactical opportunities--taking advantage of short-term conditions in the markets which can quickly change to your advantage, and in doing so, you can capture lots of small, consistent profits regularly, in order to have long-term success and profitability in investing.<br />
<br />
Ultimately, I want to teach you how you can farm your own ideas from the concepts I teach, and to be free of me. You should work on creating your own repertoire of investment ideas, companies you like, and concepts which intrigue you, so you can make you own path to financial freedom.<br />
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I know that probably sounds idiotic to you, because then you won't be my listener anymore... but my number one goal is to empower you to be become self-sustaining. It's what I would want if you were in my shoes, and I in yours.<br />
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And I'd encourage you, if you find something I've provided to be of value to you, to share my ideas with others that might benefit from them. That helps me keep this blog alive!<br />
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<o:p></o:p></div>
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Live long and invest,<br />
<br />
Jeremiah</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-28522653760922887952015-09-21T20:14:00.000-07:002016-01-11T15:37:05.625-07:00Why Stock Market Crashes Are a Great Thing<span style="font-size: xx-small;">9/21/15</span><br />
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<span style="font-size: large;">Why It's Great to See Market Crashes</span></h1>
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Today I want to tell you about one of the most counter-intuitive things you'll ever hear in the world of finance.<br />
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<a href="http://1.bp.blogspot.com/-piHmhOj6ePM/VjD5W94aOvI/AAAAAAAAEdY/std71idJszw/s1600/why-market-crashes-are-a-good-thing-volatility-huge-gains-roller-coaster.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://1.bp.blogspot.com/-piHmhOj6ePM/VjD5W94aOvI/AAAAAAAAEdY/std71idJszw/s1600/why-market-crashes-are-a-good-thing-volatility-huge-gains-roller-coaster.jpg" /></a>If you've been watching the financial markets at all over the past few weeks, you must know that the strategy of the average investor--buying stocks, collecting a few dividends, and hoping what you buy goes up in price--is far from guaranteed to make you a lot of money.<br />
<br />
You don't even have to turn on the television to know the markets took a massive dive lately--in August alone, the markets lost 10% of their value over the course of only a few days. It's been quite a ride.<br />
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It's times like these that financial advisers, the career a few friends of mine have opted for, find themselves the most busy. Every one of their clients and their dog are calling them up in panic, freaking out, wondering what they need to do with their investments or nest egg. Consequently, advisers also "cash in," so to speak, during market panics, because they rack up tons of fees making adjustments to client investment holdings. Not a bad business model, from their perspective.<br />
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Yes... volatility has returned to the markets, and most agree that it's not going away any time soon.<br />
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Most financial advisers, and even self-directed investors, for that matter (which is what I'm trying to turn you into) avoid volatility. It's a dirty word. The town pariah. The leperous stepbrother with the skin falling off, whom no one wants to touch.<br />
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If you're in the business of managing someone else's money, "buying" volatility, or putting your clients' money to work in the more risky asset classes, especially if you don't know what you're doing, is a sure-fire way to get your clients to transfer their assets to a more risk-averse asset manager, and to doom yourself to bankruptcy.<br />
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But when you know what you're doing... you'll makes fortunes.<br />
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<h1>
Volatility: The Great Divider Between Rich and Poor, Smart and Dumb</h1>
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So, what is volatility, anyway?<br />
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It's a measure of the degree of change in the value of an investment over a certain period of time, particularly underscoring the degree of <i>negative </i>change occurring in the markets.<br />
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In other words, if volatility in the stock market is low, like it has been for years it seems, it means stock prices have been going up, without much deviation to the downside. The markets look something like this:<br />
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On the other hand, if volatility is extremely high, it means stock prices have been plummeting extremely quickly. The markets look something like this:<br />
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<a href="http://3.bp.blogspot.com/-fHIZz0gdCRY/VjD5lAWS5bI/AAAAAAAAEdo/JsRliSDZHO8/s1600/why-market-crashes-are-a-good-thing-volatility-huge-gains-S%2526P-1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="284" src="http://3.bp.blogspot.com/-fHIZz0gdCRY/VjD5lAWS5bI/AAAAAAAAEdo/JsRliSDZHO8/s640/why-market-crashes-are-a-good-thing-volatility-huge-gains-S%2526P-1.jpg" width="640" /></a></div>
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That's what a 10% correction looks like. That's what happened in late August.<br />
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Volatility is tracked in the financial markets by an index called the VIX. It's referred to by most as the "fear gauge", because when the VIX is high, market pandemonium is ensuing. Here's a recent chart, showing the level of the VIX for the past two years:<br />
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The red arrow from the second chart, and the green arrow from the second, highlight the same market movement. So, you can see how the two function inversely. You can also see that August was the most volatile time in almost four years.<br />
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Risk-tolerant investors tend to put their money into investments which are extremely volatile, because they're hoping that over a short period of time, they can make a lot of money--but that doesn't always work out in their favor.<br />
<br />
By far, the most volatile financial instruments average investors use are stock options. Under extremely volatile environments, prices can swing by <a href="http://thevillageid-vestor.blogspot.com/2015/08/someone-just-made-112-times-their-money.html">thousands of a percent in a single day.</a> On even an average day, prices can move anywhere from 20-50%.<br />
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An alternative title for today's article could be "Volatility Is Big Money, If You Use It Right." Investing in volatility means that either money is coming your way, or it's leaving you, and quickly.<br />
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Most people use it in the wrong way, or the risky way. Instead of acting like sophisticated investors, they take on the role of stock market gamblers, thinking they can make a quick buck overnight.<br />
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That's why I said at the beginning of this article that what I was about to explain was so counter-intuitive: A) Smart money doesn't flee volatility, it waits for it, and B) The smart way to make money on volatility is counter to the way 99% of investors use it.<br />
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Here's a bit of proof for you.<br />
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In case you haven't heard the name, the most notorious investment bank in the world is Goldman Sachs. This company makes billions of dollars per year managing money, selling investment advice, and speculating (wisely) in different kinds of assets. The company is so good at what it does, its win rate in trading is 94%.<br />
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Out of 251 trading days during the year 2013, this bank made net profits on 236 of them. How would you like a record like that?<br />
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So, you ask, what is the company's secret?<br />
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There are sloughs of former Goldman Sachs traders entrenched in the industry... many end up working for the Federal Reserve, some start their own management funds, others write newsletters and advisories... and from what I've seen, they all write the same thing about options as they cash in with their "memoirs." Here's the secret...<br />
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Goldman Sachs doesn't buy stock options on equities, typically.... it sells them. The company's millions of dollars per year invested in analytics allows them to make huge profits (over time, small percentages per day, not in windfalls of hundreds of percent) by cashing in on changes in volatility. They sell options when volatility is high, and when volatility dies down, they buy back what they sold, for a lower cost, and a net profit.<br />
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Individual investors, who don't understand this philosophy, buy volatility (volatile stocks and options), when they should be selling it. The same mantra of "buy low, selling high" applies to options trading.... and as we know, in order to make money, you need to "buy low, sell high."<br />
<br />
Let me give you an example. Last month, I wrote about how I <a href="http://thevillageid-vestor.blogspot.com/2015/07/my-next-caper-will-make-me-double.html">double the market's historical return</a> by simply agreeing with my broker to sell some shares I own at a higher price than I bought them, using an instrument called a "covered call option."<br />
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At the time, markets were still on their skyward march into oblivion. Volatility was still extremely low.<br />
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I agreed with my broker to make 2% on my money over the next 30 days by agreeing to sell some shares I owned, an annualized gain of 24% a year. Again, volatility was low, so options premiums were not very "fat."<br />
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Compare that time around the beginning of August to the trading environment of today. Making the same trade right now, when implied (or "predicted") volatility is much higher, I can earn as much as 3.4% over the next month--put another way, that's 66% juicier. Much "fatter."<br />
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This is because the premium I receive for agreeing to sell my shares is much higher, due to the volatility in the markets. Volatility inflates options premiums. Or, as a professor of mine always used to tell me, <i>"Options are the price of volatility." </i>And volatility is now somewhat higher of late... but not as high as it was in August.<br />
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<h1>
Don't fear market crashes - Cheer them on!</h1>
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Successful investors, who hold rock-solid investment portfolios made up of shares of industry-dominating dividend-payers, <a href="http://thevillageid-vestor.blogspot.com/2015/09/the-relationship-between-money.html">sleep well at night</a>, and watch the markets with interest by day for times when volatility has increased--when shares of <a href="http://thevillageid-vestor.blogspot.com/2015/07/where-to-startthe-worlds-safest-stocks.html">great companies </a>have irrationally decreased to cheaper levels. When that happens, they can buy more shares and sell options against them to make a killing.<br />
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Everyone from fund managers, investment bankers, to portfolio managers all use implied volatility as a central part of their asset hedging strategies and equity valuations. It's often used as a measure of risk. <br />
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I use it as a market gauge, to know when I can get the juiciest returns, in the shortest period of time, with the smallest amount of risk to my savings.<br />
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By watching market indexes like the VIX (most widely traded under the ticker symbol VXX), you can know when the best time is to sell put or call options on the safest stocks in the market, in order to generate above-average returns. Doing so can <a href="http://thevillageid-vestor.blogspot.com/2014/08/and-math-shall-set-you-free.html">cut your working life in half</a>, as I've written before.<br />
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Isn't that the most ideal way to invest? Quick, juicy, and low-risk?<br />
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Live long and invest,<br />
<br />
Jeremiah<br />
<br />Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-67544947244413079942015-09-19T14:00:00.000-07:002015-10-30T12:33:28.483-07:00Shotguns, Hail Mary's, Investing, Oh My!Dear Whomever-You-Are,<br />
<br />
I wrote the article below about a year ago, and today I wanted to run it once again, anew and with updated commentary, to engage your minds with something so many of you enjoy this time of year... good ol' American football.<br />
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I'll admit, I'm not a huge fan myself, but since most of you are, I thought I'd write a few thoughts I hope you'll find it interesting to about the correlation between these two completely different things.<br />
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Live long and invest,<br />
<br />
Jeremiah<br />
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____________________<br />
<h1 style="text-align: center;">
Shotguns, Hail Mary's, Investing, Oh My!</h1>
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Well, it looks like college football season is upon us. A friend of mine chuckles at the fact that I can’t name even one college or professional football player.<br />
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Laugh if you want, I guess it's just the way I was raised.</div>
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<a href="http://3.bp.blogspot.com/-NF5v03kBNzw/VGEJxI2dT9I/AAAAAAAADpk/f9-rcz9J-Ng/s1600/pigskins.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img alt="id-vestor pigskins investing growth wealth" border="0" height="211" src="http://3.bp.blogspot.com/-NF5v03kBNzw/VGEJxI2dT9I/AAAAAAAADpk/f9-rcz9J-Ng/s1600/pigskins.jpg" title="" width="320" /></a>I don’t know that I’ve missed much, because as I've been told, there's really only one game of the year worth watching, if you miss all the others: the Superbowl.<br />
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It’s the game which is the culmination of an entire series of unlikely successes over the course of seventeen weeks. Call me a nerd, but what interests me most about the Superbowl is statistical anomalies.</div>
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<i style="mso-bidi-font-style: normal;">That's what determines who goes to the bowl. </i><br />
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Year after year, tiny little mistakes or streaks of luck determine the fate of teams across America.</div>
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Let's say "Team Awesome" is the darling of the NFL. They're based in a big, rich city with lots of publicity. Because the team is such a large, money-making franchise, the team attracts most of the top talent... all the great players want to get drafted there, and get paid millions to catch and throw an inflated lemon.<br />
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With all the money the team makes, and all the talent it attracts, shouldn't this team have guaranteed win in the Superbowl, year after year? </div>
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Well, I guess even if you have lots of top talent, winning isn't as easy as it sounds. Lots of things can go wrong... <br />
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How likely is it, even for a great team, to not screw up badly at least once over the course of sixteen games? For example...<br />
<ul>
<li>How are the team's draft picks working out?</li>
<li>What's the coach like? Is he an idiot, or does he bring the team together?</li>
<li>Do the players get along? Do they have good team dynamics? </li>
<li>Have there been any injuries to first string or star players? </li>
<li>Has anyone been suspended for bad behavior, or implicated in scandals? </li>
<li>How did the weather affect the team's season?</li>
<li>Does the team have a case of the <a href="https://en.wikipedia.org/wiki/Super_Bowl_curse">Superbowl Curse</a>? </li>
</ul>
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Considering all these factors, statistically speaking, it really takes an alignment of the stars for any given team to win the Superbowl year after year, even if all the money in the world is thrown at the team. Teams who won the year before just don’t win it again the next time. They revert from a star back to an average team, or second-place-loser.</div>
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<br />
But, what if you happened to notice that early in the season, all of these factors adversely affecting team performance were fading away to nothing... wouldn't it be easier to predict the winner? And, wouldn't you feel much more confident picking the right odds, when you put your money into the pot for the winner?<br />
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Like good football teams, all kinds of investments—commodities, stocks, bonds, real estate, you name it—all have times when their stars align...when all the factors which could negate positive performance have melted away.<br />
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All types of investments have times when prices, valuations, and market sentiment all seem to indicate that something interesting is about to happen... a market anomaly is dropping into your lap.</div>
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<br />
<h1>
Win By Investing In High Probabilities</h1>
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We should take advantage of anomalies. Just like you would bet 100 to 1 on the worst team in the NFL if you knew all the other teams were being paid off to throw the season.<br />
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These are the setups when we make a killing.</div>
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<a href="http://4.bp.blogspot.com/-81g_x9TfiMs/VGEKxew203I/AAAAAAAADpw/zl7iCSn_ukA/s1600/blood.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img alt="id-vestor contrarian investing wealth creation" border="0" height="224" src="http://4.bp.blogspot.com/-81g_x9TfiMs/VGEKxew203I/AAAAAAAADpw/zl7iCSn_ukA/s1600/blood.png" title="" width="320" /></a>Baron Rothschild, of the famous banking family, is believed to have said, “The time to buy is when there’s blood in the streets.” His basis for the statement is literal. He made a fortune buying up distressed assets ensuing the Battle of Waterloo in 1815.</div>
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The heart of this concept—Contrarian Investing—is the conviction that the worse things look for an industry, the better the opportunities may be for profit.<br />
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But how bad do things have to be, and how do we gauge this?</div>
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<li class="MsoNormal" style="mso-list: l0 level1 lfo1; tab-stops: list .5in;">General investor sentiment (opinion surveys) on the stock or commodity has to be very low—investors aren’t interested in it</li>
<li class="MsoNormal" style="mso-list: l0 level1 lfo1; tab-stops: list .5in;">No one in the media is talking about it</li>
<li class="MsoNormal" style="mso-list: l0 level1 lfo1; tab-stops: list .5in;">The majority of those trading the commodity should be bearish, or selling</li>
<li class="MsoNormal" style="mso-list: l0 level1 lfo1; tab-stops: list .5in;">Selling volume will be extremely high of late, even peaked</li>
<li class="MsoNormal" style="mso-list: l0 level1 lfo1; tab-stops: list .5in;">The asset has to be cheap by most historical standards</li>
<li class="MsoNormal" style="mso-list: l0 level1 lfo1; tab-stops: list .5in;">Technical indicators (“charts”) should show that there is little else to drive the price lower</li>
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As an example of this concept, consider the price around this time last year of wheat, grain, and soybeans. Below is a chart of JJG, an ETF that tracks this commodity price movement.<br />
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What you are seeing is that from about May to November of 2014, the price of these commodities has been down by nearly 40%. Prices of grain hadn’t actually been this low in over four years. The tall red bars on the right indicate that basically everyone’s been selling the commodity over the past three months, or that the sellers are much more in control of the price than the buyers.</div>
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Back in mid-June of 2014, traders speculated that the weather wasn’t going to hold up as it had through the early season, and began to push prices up slightly. As you can see, they were very disappointed, as prices swooned even further for the next two months.</div>
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Not long after that, a public opinion survey reported that wheat hasn’t been hated by investors this much in nearly 15 years, and corn in over four years.</div>
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Needless to say, I personally haven’t seen any talking heads extolling the virtues of wheat and corn.</div>
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On a historical level, we should be seeing this commodity index trading at least 15-20% higher than it was back then.<br />
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As I write this now, prices are even lower. JJG is trading around $32.05. As we move into the winter months, price seasonality on this commodity should be kicking in.</div>
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Everything I’ve mentioned indicates that sometime within the next 4-6 months, we could witness a “snap-back” effect on the price of wheat, soybeans, and corn. In other words, supply is extremely high now as we approach the end of summer, and prices are low. But, prices should rise due to seasonality, and the price changes can happen almost overnight.<br />
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Looking at this ETF over the last year, we saw the price "whip-saw" between a price "floor", or resistance, around $32, and movements up near $40--a swing in price of around 25%!<br />
<br />
As demand remains the same as it is now going into fall, supply will begin to drop, and cause some serious price action for these commodities—and the only direction it can basically go is up. Supply for corn and wheat don’t come out of thin air and cause unexpected supply gluts.</div>
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With this example, we’re viewing a classic scenario of extreme pessimism. Our take on falling asset prices is that we want to be standing far, far away while the price is falling, just as we would avoid a safe falling from the top of a skyscraper. Sure, there’s lot of money in the safe, but if you’re in the way as it falls, you’re not going to come out alive.</div>
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Rather, wait until the safe has fallen and cracked open, then walk over and pick up the money and give it a good home.</div>
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Following this strategy with all asset classes ensures that we won’t get our faces ripped off—in other words, we won’t get taken advantage of by investors on the other side of the trade.</div>
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The stars have aligned for us in this space. Everything is out of the way for this commodity to make a good comeback, even if it's only seasonal, at some point in the next 4-6 months.<br />
<br />
Of course, just like in football, not all risk can go away in investing, especially with commodities. In football, a freak storm can turn the best team into losers in a single game. And in commodities, a strengthening US dollar, relative to other currencies, would cause commodities to sink even further.<br />
<br />
But the dollar has been on a long winning streak over the last few years, and peaked last March. It is about 6% off its all-time. It's got almost nowhere to go but down.<br />
<br />
Since the Fed decided it wouldn't begin to raise the overnight lending rate for banks just two days ago, it's safe to assume we won't be seeing a strengthening dollar before the end of the year.<br />
<br />
This reinforces the scenario for commodities to enjoy a good run over the next few months, because, as the value of the US dollar erodes, commodities rise in price.<br />
<br />
<h1>
Conclusion</h1>
<br />
The easiest way to win at investing is to take full advantage of the highest-probability wins in the market. We will enjoy our profits as we watch for setups similar to the above in other assets.<br />
<br />
I hope you’ll think differently about football going forward too. I bet you never thought investing and your fantasy football team were related, did you?<br />
<br />
Live long and invest,<br />
<br />
Jeremiah<br />
<br /></div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-91774857904192750532015-09-14T21:17:00.002-07:002015-10-30T12:33:04.866-07:00Investor Insomniacs? I Don't Think They Exist<span style="font-size: xx-small;">9/14/15</span><br />
<br />
<h1>
Up-All-Night Investors Are Doing Something Wrong</h1>
<br />
I have three young children, two of them under the age of three. Except on rare occasion, two of them tend to be night owls. To be honest, nights like those really suck. Sometimes at work, I feel like an insomniac.<br />
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It can get exhausting, especially when you have a newborn--you can be up five times a night! I can't begin to tell you how prolonged periods of sleep deprivation begin to negatively affect everything from your work ethic on the job, your mood during the day, to your diet, and everything in between.<br />
<br />
If there's one piece of advice I can give to you, it would be, don't do anything in life that will keep you up unnecessarily at night.<br />
<br />
Anything in relation to money--earning it, saving it, and investing it--should never be one of these things, and they don't have to be.<br />
<br />
If you gain valuable skills, training, and education, and learn how to market yourself, earning enough money to provide for yourself and your family will never be a problem.<br />
<br />
If you learn from a young age the value and necessity of saving in order to build wealth, saving will come first nature, and you'll always have a safety net against catastrophe.<br />
<br />
And if you learn the<a href="http://thevillageid-vestor.blogspot.com/p/sentient-university.html"> principles of safe investing</a>, like I try to preach to you on this site, investing will not cause you to lose any sleep at night.<br />
<br />
But I've been there, I'll admit.<br />
<br />
As I've stated before in these pages, back in college I didn't feel challenged very often, so I would sit in the back of the classroom on boring afternoons and trade stocks on my laptop. I thought I was pretty awesome.<br />
<br />
At the time, I was especially into trading commodities-based stocks. So-called "junior" gold and silver miners (risky small-cap stocks), and commodity-based ETF's (exchange-traded funds, kind of like a stock which represents the price of a commodity).<br />
<br />
To make things worse, I would end up buying and trading stock options on these investments, which only added to the volatility of my portfolio. Stock options can swing in price by hundreds of percent in one day, and go to zero value the next.<br />
<br />
Without getting into too many details, I'll just say that some days, from the time the markets would close for the day, until they opened the next morning, my mind was constantly whirling, hoping, and stressing about where prices would open. I lost countless hours of sleep tossing and turning with insomnia, hoping beyond hope for losing positions to turn into winners the next day.<br />
<br />
It was an <a href="http://thevillageid-vestor.blogspot.com/2015/08/the-emotionless-investor.html">emotional roller coaster.</a> I wouldn't wish that on any real investor.<br />
<br />
The worst part was having to tell my wife about my mistakes. I had to fess up, and promise never to make those mistakes again. Luckily, she's a very trusting and understanding woman--one in a billion.<br />
<br />
I haven't made mistakes like that for a long time, and I hope you won't either.<br />
<br />
<h1>
Live the Simple Investor Life</h1>
<br />
Things are much different for me now. If I were a fisherman, I'd probably refer to my investment strategy as the " gone fishin' " method. When I have some cash and see an opportunity, I buy shares of quality businesses at the right price, with little to no actual fear that I'm going to suffer any kind of catastrophic loss overnight, or even over the next year or ten years. Then I "go fishin'".<br />
<br />
The " gone fishin' " method involves picking the right companies to buy, then buying the right amounts in relation to the size of your overall investment portfolio (called position sizing). It also involves not only ensuring that you've placed your investment "eggs" into different baskets to avoid huge losses when certain sectors of the market go into the tank, but also choosing investments which offset one another, so that you are making money no matter which direction the market is moving.<br />
<br />
The companies you're buying should be rewarding you, the shareholder, in the form of dividends, which increase over time, and share buybacks. They should have financial statements that look like impregnable fortresses of safety for your hard-earned greenbacks.<br />
<br />
Finally, you should learn a few extra tricks to make sure you can <a href="http://thevillageid-vestor.blogspot.com/2015/01/juice-your-returns-like-never-before.html">squeeze every extra percent</a> return possible out of the investment you are making. In the long run, increasing returns by even just 1% a year will have a dramatic effect on the returns you take advantage of later in life--hundreds of thousands of dollars.<br />
<br />
I personally do this by safely using a special type of investment called a "covered call," which I've outlined before. I actually generate an extra 12-15% per year with this strategy, above and beyond all other profits I make in capital gains and dividends.<br />
<br />
I've written about this in another of my classic articles, eloquently entitled "<a href="http://thevillageid-vestor.blogspot.com/2015/01/growing-your-money-like-boss.html">Growing Your Money Like a Boss</a>," AKA, "investing for b-dasses."<br />
<br />
Once you learn how to do this, it almost isn't possible for you to lose money again, unless you're incredibly STUPID.<br />
<br />
<h1>
Leave the Sleep Deprivation to the Day Traders</h1>
<br />
As you probably know, recently the market took a dive. And it's possible that this week, with the Federal Reserve making the "do or don't" decision to begin raising interest rates after along 7-year period, we may see even more downside to the stock market.<br />
<br />
While the world markets lost trillions of dollars over the past several weeks, my portfolio saw a 4% rise.<br />
<br />
Millions of people were tossing and turning at night, while I was sleeping like a baby.<br />
<br />
I welcome more downside, not because I want other people to lose money, but because it just means I'll have some opportunities to buy more shares of a few awesome companies which I've had my eyes on for a while, with the cash I raised recently after taking some gains off the table.<br />
<br />
I know one thing is for sure: no matter what happens in the markets this week, I won't be losing any sleep over it. If anything, I'll be having the sweet dreams of future financial freedom.<br />
<br />
Live long and invest,<br />
<br />
Jeremiah<br />
<br />Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-76089408362053573242015-09-10T15:17:00.003-07:002016-02-29T10:59:07.437-07:00Rich, Schmich... The 1% Doesn't Control Your Fate<span style="font-size: xx-small;">9/10/15</span><br />
<br />
<h1>
The 1% Doesn't Control Your Life... Contrary to Liberal Belief</h1>
<br />
Bring on the vitriol and defamation.<br />
<br />
When people are unhappy about what I've written, it means I've hit a "nerve"... and it means I'm writing about something people actually care about. Well, I care a lot about it, too.<br />
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Over the past few weeks, as I've sat pondering the way our world is turning, I've put together a few words about "the One Percent" in our society. Here it goes.<br />
<br />
I hate when people talk about the One Percent.<br />
<br />
But I hate it for a far different reason than you probably do, and I'll explain why that is a little later.<br />
<br />
You may think that the concept of the One Percent is rather new... and if you do, you would be wrong.<br />
<br />
While it is true that the <i>visibility </i>of the One Percent and its role in the world are substantially increased as of late, especially since the wake of the financial crisis (a time when a good portion of the world became somewhat poorer, while the top economic tiers of society, the "One Percent," became substantially more rich), this group has been kicking around our world for far longer than any of us personally have.<br />
<br />
<h1>
Some Background on the Big Shot, Fancy-Pants Members of Society</h1>
<br />
Throughout most of recorded history, the vast majority of wealth has always been concentrated in the hands of a few--the so-called One Percent. The most powerful members of society have always been by far the most wealthy, as they have proven themselves to be the best procurers and consolidators of resources, and the most adept at applying those resources to progress. Whether or not their methods of consolidation were moral--well, that is another issue entirely, which I won't go into much here.<br />
<br />
So, this situation in our country is nothing new. The wealthiest One Percent control an estimated 40% of the wealth you see around you, which is substantial. They even control the majority of the means of production.<br />
<br />
That includes you and I.<br />
<br />
It's disconcerting to realize you're being used as a pawn in someone else's game... frustrating, even. It makes you feel violated, degraded, deceived, and betrayed. And it's for these reasons, in my opinion, that people get so energized about the One Percent. Rightly so.<br />
<br />
But what can you do about it? <i>Should </i>you do anything about it? Should you really <i>care</i>?<br />
<br />
More to the point, perhaps a question we should ask ourselves is, <i>"How has the One Percent directly screwed me over lately?" </i>Has the 1% meddled in your life, stolen your livelihood, taken away your liberties, or physically assaulted your loved ones?<br />
<br />
If not, then why do you even care now? Does knowing that the One Percent is controlling our society's politics, business, and social spheres fundamentally change how you are now going to live your life?<br />
<br />
I hope the answer is "yes" to a degree--but, again, for reasons you might not expect. I'll explain later.<br />
<br />
To be honest, I don't feel the One Percent has unilaterally screwed me over in any meaningful way, ever, period. I've always been able to live my life in the way I've felt was best, and never been inhibited by a "One Percent Boogeyman" staring over my shoulder, kicking at my heels, or denying me anything.<br />
<br />
But not everyone feels that way. Perhaps they're more observant than I am. Or perhaps their worldview skews their perception of things.<br />
<br />
Why <i>do </i>people spew so much vitriol about the One Percent so often in the media? Here are some ideas:<br />
<ul>
<li>They make so much more dang money than almost everyone else (at least $343,927
per year, or a minimum of almost seven times the average American household (Clearly an evil in and of itself!)</li>
</ul>
<ul>
<li>They own an estimated 34.6% of the wealth (real and financial assets) in America (Those filthy, spoiled rich boys!)</li>
</ul>
<ul>
<li>They hold a tremendous amount of political sway in the world--enough to finance electoral campaigns and sway votes in their favor with campaign donations (Not good if taken to an extreme, but definitely not illegal).</li>
</ul>
<ul>
<li>Many of them earn around two to three hundred times what the average worker makes in their respective companies (Outlandish and excessive, to be sure, but immoral? No. After all, many of them built these successful businesses from the ground up).</li>
</ul>
<ul>
<li>Their wealth grew by 31.4% in the aftermath of the financial crisis, while the average American's wealth grew by just .4% (Seems suspicious,l but it's really only frustrating if you don't understand why and how it happened this way)</li>
</ul>
<ul>
<li>Most of them are selfish, old white guys (That's typical. Old white guys are always the devil incarnate.)</li>
</ul>
Okay, that last point was somewhat of a joke, but I've included it because it underscores the
general sentiment of the remaining vocal "Ninety-Nine Percent" of us, which falls somewhere along the spectrum of "we hate them" to "we want them dead," or "we want to take their money."<br />
<br />
In case you didn't notice, most of the reasons we have for hating the One Percent are based on wealth inequality, or unequal income distribution... as if such a situation were inherently immoral.<br />
<br />
Honestly, this endless mantra about inequality reminds me of a playground argument from Kindergarten. "Hey, he got two! I want another one!" This brings to mind a simple truth a friend of mine once told me:<br />
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<span style="font-size: large;">"Fair ended in Kindergarten."</span></div>
<br />
Can I just take a second to point out the obvious? There's nothing about life that is fair. Everyone is born into different circumstances, with different resources, and varying degrees of self-motivation and support systems. No one is born equal. That's life. Deal with it.<br />
<br />
But everyone has the same ability to make smart choices which determine how financially successful their life ends up.<br />
<br />
Even if you're born wealthy or make it big in life, it's quite easy to <a href="http://www.businessinsider.com/famous-people-who-became-homeless-2012-7?op=1">end up poor and in the gutter.</a> It's simply a matter of personal choices 99% of the time. I know this to be true, because there are countless success stories out there of <a href="http://www.businessinsider.com/formerly-homeless-people-who-became-famous-2012-6?op=1">people who had absolutely nothing, and made it big through hard work or personal sacrifice.</a><br />
<br />
Yet, many still think we're justified in despising the wealthy on the basis of higher income, greater wealth, or greater influence in society. But if we strip away these superficial justifications, we realize that we despise them only because they chose a different life path than us, which led to where they are now.<br />
<br />
Is it either rational or moral for us to take a stance like this? Are we really justified in wishing for the downfall of the rich, based on the fact that they have so much more than us of something which we are all trying to obtain more of, every day of our lives?<br />
<br />
<h1 style="text-align: center;">
<b>"We despise them because they have attained </b></h1>
<h1 style="text-align: center;">
<b>something which we're all trying to attain?"</b></h1>
<br />
It occurs to me that in America, we don't we celebrate success anymore. Success is derided, but inwardly coveted, by those without it.<br />
<br />
Let me just throw this out in the open.<br />
<br />
If you despise the wealthy for having money, <b>you're living a lie</b>. We're all trying to make a decent living. We all want some level of financial stability or independence.<br />
<br />
Most of you would agree that simply having money isn't evil... that it isn't necessarily the wealthy's income level you have a problem with; it's what they do with that income, which creates problems for others.<br />
<br />
If that's the case, then why the incessant mantra to "spread the wealth around?" Why even speak of wealth redistribution? Can permanent wealth and prosperity be handed out on street corners?<br />
<br />
<b>Why do you think that prosperity can be achieved if money is forcibly transferred from the stewardship of the extremely wealthy and powerful (the 1%), to the stewardship of the extremely bureaucratic, wasteful, and powerful (the government)?</b> All government does is siphon money out of what it collects in order to feed itself.<br />
<br />
So maybe your real "beef" with the wealthy is based on their meddling in politics, social issues, and foreign policy. Let's roll with that fallacy.<br />
<br />
Honestly, put yourself in the shoes of some extremely wealthy person. You've worked for the past thirty or forty years of your life, building a company or business from scratch, and you're now living quite large. Now, let me ask you a few questions.<br />
<br />
Do you really think you would be giving every cent of your "extra" wealth away to charity, as you think the rich should be doing right now? <b>Do you do that in your own life?</b> Consider that many of the one-percenters donate more of their wealth to charity (and to taxes) in one year, than all the wealth most of us would accumulate put together in 10 lifetimes. I guess<b> providing hundreds of thousands of jobs, with paying salaries and benefits, just isn't "giving back" enough</b> these days for the truly compassionate left. Real "charity" demands a cradle-to-grave social safety net.<br />
<br />
Do you really think that if you were the head of a successful business, <b>constantly battling against rising costs of production</b> to keep your business profitable, that you would deem it wise to double worker salaries from $7.50 to $15.00 per hour overnight, without a second thought for how it would affect the solvency of your company? What would the <b>investors </b>think, who have put their money at <b>risk </b>in your company to help make it grow? What would the bank think, to whom <b>you owe $1 billion</b> in debt payments this year? What would the middle-rung workers think, who have <b>worked hard for years to get where they are?</b> How do you think this would affect morale?<br />
<br />
Do you really think that if you were in the shoes of the One Percent, that you wouldn't make calculated risks in making political donations to candidates who will <b>support you in the way you conduct business</b>, or who make it <b>easier for your company to be profitable</b>? Or, that you wouldn't make sizable donations to social causes or interest groups which you think have merit?<br />
<br />
Do you really think that as you've built your wildly successful business, you haven't made contact with people across the globe, upon whom you now <b>rely mutually for success,</b> and that you wouldn't be tempted to <b>get involved politically in ensuring that they are also successful</b> in their own countries?<br />
<br />
Do you really think that if you have <b>strong convictions</b> about any cause or venture, and the ability to <b>influence public decisions</b> to further these things, that you wouldn't <b>legally use your wealth</b> to push things in your favor?<br />
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These are all rhetorical questions. And if you're honest with yourself, you know all the right answers.<br />
<br />
Can you do me a favor? Spare me the argument about the "little guy" getting screwed. As I mentioned above, the "little guy" has the power to change his situation to whatever suits him best--even if he's completely homeless.<br />
<br />
The malcontent against the successful members of our society must end!<br />
<br />
In the words of comrade Barack Obama: "LET ME BE CLEAR."<br />
<br />
We're all the One Percent. Or at least, <b>we're striving to be</b>. We're all guilty of doing what I described above, only on a much smaller scale.<br />
<br />
<h1>
Wealth isn't created by spreading it around... but by producing it through productive means</h1>
<br />
Do I believe that the One Percent could do better at using their wealth for good in society? It's not my place to judge. <b>I certainly don't think it's the wealthy's obligation alone to finance the stupidity of government</b>, which is what most low-earners in society believe.<br />
<br />
I think we all can do better. But we shouldn't be drawing and quartering the wealthy, nor coercing them to "pay their fair share" if they are within the bounds of the law, and the tax code. Is this North Korea?<br />
<br />
This is America, people! <b>We don't get moral credit by forcing someone else to give up their wealth to a cause which we're not personally willing to contribute to. That's called hypocrisy.</b><br />
<br />
I believe it is a moral obligation to use economic liberty to create a better society. So, I do believe the wealthy should use their wealth in ways which will build up a healthy republic, not tear it down. But they should never be forced to help society if they don't feel like it. That's the definition of liberty.<br />
<br />
Demanding higher taxes on the wealthy than what the rest of society is subjected to is antithetical to "equality" that everyone is screaming about in the public square today.<br />
<br />
Higher taxation is a form of coercing the rich to do the government's bidding, when the government is already wasteful and inept at getting things done. The idea is bred from the mentality of the playground argument, "He has more candy than me. I want more."<br />
<br />
He bought the candy himself! He gets to decide what to do with it!<br />
<br />
Please understand this economic truth about how the wealthy have built their wealth:<br />
<b><br /></b>
<b>The rich aren't getting richer by stealing from the poor... the rich are getting richer, because they've learned to put their money where it grows best. </b>They've simply been better positioned, because of their education, their smarts, and their ability to take calculated risks, to profit when everybody else is running for the hills. Is that immoral?<br />
<br />
That's the reason why the One Percent's wealth has grown by 34% since the financial crisis, while the average person's wealthy has only grown by .4%. <b>It's because the wealthy put their money to work, while the average person has no idea that his money can work on its own.</b><br />
<br />
Hostility towards the wealthy members of society is woefully dangerous. If left unchecked, in the midst of an economic, political, or constitutional crisis, this hostility will cause the general populace to do horribly immoral things to the upper class. <a href="https://en.wikipedia.org/wiki/Reign_of_Terror">History has seen it happen before.</a><br />
<br />
<h1>
The Ninety-Nine Percent Created the One Percent</h1>
<br />
Let me bring this discussion full circle. I said earlier that I hate the One Percent for a different reason than you do.<br />
<br />
Well, what I hate about the One Percent is how it came into power in our society.<br />
<br />
<b>Positions of great power are like a vacuum.</b> If the rightful, virtuous leaders of a republican society, such as America, fail to step up and fill that vacuum when they should, or even just fail to keep it in check by oversight, the vacuum occasionally sucks up <b>vermin, parasites, and disease.</b><br />
<br />
<b>The majority of the one percent are not vermin</b>... but the <b>bad apples </b>make them all look bad, don't they?<br />
<br />
And we, the middle class, put them into power. How so?<br />
<br />
Through <b>disengagement and complacency.</b><br />
<br />
Too much of our society is <i>disengaged </i>politically, economically, and intellectually.<br />
<br />
Only 54% of eligible adults voted in the last presidential election. An even smaller percentage in virtually every state participates in local elections.<br />
<br />
Do you see? People care so little about the general direction of our country, that they fail to vote for the man who will be at the helm for the next eight years.<br />
<br />
And they don't even care enough about the direction of their own states or cities to educate themselves about the leanings of their congressional representatives, and to drive two minutes to a ballot box at election time.<br />
<br />
It's also disengagement and complacency which gives rise to the "spread the wealth" mentality.<b> It's easy give other peoples' money away rather than sacrifice some of our own.</b><br />
<br />
And while ignorance, disengagement, and compacency may seem like bliss, they never ends well.<br />
<br />
On the other hand, higher levels of education and enlightenment are correlated with both greater civic engagement <i>and </i>higher income levels. Imagine that!<br />
<br />
It's sad that the average person doesn't understand basic economics, finance, or taxes. They couldn't explain to you what a progressive tax system is, let alone the current proposals for a Fair Tax or Flat Tax. They couldn't explain to you the financial crisis, don't know how to buy an individual investment, don't understand why they earn virtually 0% interest at their local bank's savings account, and spend zero time planning financially for their future.<br />
<br />
<b>It's this ignorance which causes consumers to fall prey to the One Percent who are actually vermin.</b> If you get taken advantage of, it's generally because you didn't do your homework. People need to take more responsibility for their own affairs.<br />
<br />
Yes, shame on the vermin for taking advantage. But shame on you for falling for it.<br />
<br />
As an example, consumers don't understand that <b>personal and sovereign debt</b> can reach unsustainable levels, and when they do,<b> bad things happen, </b>to both people and countries. They also don't realize that going broke is a refining process, meant to <b>weed out the parasite</b> businesses, practices, laws, and individuals from thriving in society.<br />
<br />
The average Joe thinks that taking on tens of thousands of dollars in student loans, or forcing the government to pay for education for everyone, is the only way to get a real job and make money in the world today, as opposed to gaining useful skills, starting a business, and making <b>personal sacrifices</b> along the way.<br />
<br />
There are a thousand other areas of ignorance and stupidity which run rampant in our society today. The sad truth is, it's because of this intellectual and civic disengagement that the One Percent has so much power over us today.<br />
<br />
It's the fault of the people, who have failed to uphold the system.<br />
<br />
<b>You should be the One Percent.</b> You, I, and all our fellow citizens should be the ones in power, but that can only happen if everyone is engaged in all aspects of society. I can guarantee you that if the other 47% of voting-eligible citizens were educated on even a basic level, and conditioned to love liberty and economic empowerment, the One Percent would be bereft of their power.<br />
<br />
So there you have it. Why does the One Percent "ail" me? Because it is a creature of our own demise. We got ourselves into this mess, and we're the only ones who can get ourselves out of it. That's not going to be an easy task.<br />
<br />
So, are you still pissed off that the 1% controls your life? You first step is to take control of your own personal financial future, then to help others do the same. Move up the ladder, and with time, you'll too find yourself in a position to make a bigger difference than you can right now.<br />
<br />
But by and large, I think I'm probably wasting my time preaching to you on this blog. You're unlikely to make any significant changes to your lives based on my words alone.<br />
<br />
The only thing which can really wake up our noble republic to this daunting reality is some sort of terrible catastrophe--beyond anything we've witnessed before.<br />
<br />
And honestly, I think when America's poor financial choices finally come home to roost, perhaps in the coming months, that's exactly what we'll have. Are you ready for it?<br />
<br />
Live long and invest,<br />
<br />
JeremiahUnknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-22394896885034694242015-09-03T09:53:00.000-07:002015-10-30T12:32:49.762-07:00Dayjobs Don't Make You Rich... i.e., Your Employer's Probably Not a Scrooge<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-size: 13.5pt;"><span style="font-size: xx-small;">9/3/15</span></span><br />
<h1>
<span style="font-size: 13.5pt;"><span style="font-size: large;">Your Dayjob Is Keeping You Poor</span> </span></h1>
<span style="font-size: 13.5pt;">I watch with amazement, almost bewilderment, at the debates,
discussions, demands, and protests going on across America about the subject of
wages--minimum wage in particular. Recent issues with Wal-Mart and McDonald's immediately come to mind.<o:p></o:p></span></div>
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<br /></div>
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</div>
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</div>
<div style="margin: 0in 0in 0.0001pt;">
<a href="http://4.bp.blogspot.com/-WrBwqzR1RBc/Vi-DaQ9IrpI/AAAAAAAAEbE/5Pwz2-LIJs0/s1600/dayjob-wont-make-you-rich-employer-not-scrooge-wal-mart-wages-minimum.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="244" src="http://4.bp.blogspot.com/-WrBwqzR1RBc/Vi-DaQ9IrpI/AAAAAAAAEbE/5Pwz2-LIJs0/s320/dayjob-wont-make-you-rich-employer-not-scrooge-wal-mart-wages-minimum.jpg" width="320" /></a><span style="font-size: 13.5pt;">What disturbs me about all that's going on
is that so many people, especially those on the low end of the earning spectrum
who've had no real exposure to any degree of wealth in their lifetimes, seem to
think that it's actually possible for them to grow wealthy and to achieve true
prosperity by relying on their employer.<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-size: 13.5pt;">It’s like people don’t realize that the age of pensions is over…
yet, people across the country are trying misguidedly and fruitlessly to create
a pseudo-pension of unwarranted higher wages and costly government- or employer-sponsored
programs, with the end goal being to gain a higher standard of living without
having to make any personal effort or sacrifice along the way. <o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-size: 13.5pt;">In my mind, no other philosophy goes so far counter to the way
true wealth and prosperity is built in the real world.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-size: 13.5pt;">Amid these perverse observations, I’ve
arrived at a series of mostly self-evident truths, which have underlied the
process of growing<span class="apple-converted-space"> </span><i>truly<span class="apple-converted-space"> </span></i>wealthy or financially independent
for everyone whom I know has gained either of these things.<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-size: 13.5pt;">What follows is this series of bold, hard truths,
elaborated for all those who feel that it<span class="apple-converted-space"> </span><i>is<span class="apple-converted-space"> </span></i><span class="apple-converted-space">somehow </span>possible for your
employer to gift prosperity into your life--and for your dayjob to make you rich.<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<h1>
<b><span style="font-size: 13.5pt;">1. Companies don't exist to make
employees wealthy.</span></b><span style="font-size: 13.5pt;"><o:p></o:p></span></h1>
</div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-size: 13.5pt;">When it comes down to it, business exists
for itself. If you are lucky enough to work for a great company, a by-product
of working there might be that you earn a decent, growing wage over time, as
you continue to provide value to the organization. But providing jobs or
incomes has never been the end-all, be-all for any company I’m aware of.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-size: 13.5pt;">The purpose of a business is, after all, to deliver a product or
service to clients or customers, earn revenue which exceeds its costs, pay productive
employees along the way, then plow anything that's left at the end back into
growth and expansion.<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-size: 13.5pt;">That's how capitalism works. It's a
fantastic system, especially if you're the one who created the business! So,
get to work on that one!<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<h1>
<b><span style="font-size: 13.5pt;">2. If you see yourself as an
employee working for someone else, you'll never be a millionaire or billionaire
like Mark Zuckerberg.</span></b><span style="font-size: 13.5pt;"><o:p></o:p></span></h1>
</div>
<div style="margin: 0in 0in 0.0001pt;">
<b><span style="font-size: 13.5pt;"><br />
</span></b><span style="font-size: 13.5pt;">This one seems
self-evident. The truth is, the value creators and decision makers are always
going to be the high earners. And no matter what the world is shouting about
"the 1%," there's nothing evil about company managers making an
obscene amount of money. I don't care if the ratio of CEO-to-employee pay is
200-to-1 or two-million-to-one.<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<a href="http://3.bp.blogspot.com/-h_aQUEUWx2g/Vi-Dl0S2j0I/AAAAAAAAEbM/ufCUnSJ3OiE/s1600/dayjob-wont-make-you-rich-employer-not-scrooge-zuckerburg.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" src="http://3.bp.blogspot.com/-h_aQUEUWx2g/Vi-Dl0S2j0I/AAAAAAAAEbM/ufCUnSJ3OiE/s200/dayjob-wont-make-you-rich-employer-not-scrooge-zuckerburg.jpg" width="200" /></a><span style="font-size: 13.5pt;">If you do want to be the top earner at
your place of business, you have to be the creator, the deliverer, or the
innovator.<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-size: 13.5pt;">Without standing out and being the person
at your company who creates value, it's unlikely you'll ever be able to able to
experience true financial freedom. There will always be the requirement to be
at work for a certain number of hours, on certain days of the week, and for you
to complete a set number of tasks.<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-size: 13.5pt;">Then, there's always the fear that
someday, something adverse might happen in the economy which causes you to lose
that job--a debilitating situation, especially if you've invested years or
decades of your life in your company.<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-size: 13.5pt;">Working for someone else at your dayjob is not job
security, nor is it the definition of prosperity or independence.<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<h1>
<b><span style="font-size: 13.5pt;">3. No amount of wages can make you
wealthy if you haven't learned to thrive on what you have now, or how to
elevate yourself from your current station.</span></b><span style="font-size: 13.5pt;"><o:p></o:p></span></h1>
</div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-size: 13.5pt;">Those in our society publicly screaming
for higher wages think that making more money will somehow automatically
elevate them. They're looking for someone to come along and save them from
their "predicament."<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-size: 13.5pt;">If you haven't learned how to manage the
finances you have, how will having more of it automatically make things better
for you? Won't unearned wage increases just result in more lax financial
performance, as opposed to discipline, planning, and executing a tried-and-proven
financial strategy?<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-size: 13.5pt;">It's a well-known fact that high
wage-earners like doctors, lawyers, and professional athletes, not to mention
cash-windfall recipients like lottery winners, often find themselves in the
worst possible financial situations, with many ending up broke despite high
earning potential and above-average salaries.<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-size: 13.5pt;">Learning the skills of maximizing your income and managing what you get is what will lead you to financial stability and
independence. Not handouts or automatic periodic wage increases.<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<h1>
</h1>
</div>
<div style="margin: 0in 0in 0.0001pt;">
<h1>
<b><span style="font-size: 13.5pt;">4. Growing wealthy involves gaining
a skillset, getting paid to use it, and maximizing the income that comes from
it in whatever ways you can.</span></b><span style="font-size: 13.5pt;"><o:p></o:p></span></h1>
</div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-Bzc9TVhnqdw/Vi-DwjhCU5I/AAAAAAAAEbU/WdK0BjfHwx4/s1600/dayjob-wont-make-you-rich-employer-not-scrooge-student-debt.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" src="http://2.bp.blogspot.com/-Bzc9TVhnqdw/Vi-DwjhCU5I/AAAAAAAAEbU/WdK0BjfHwx4/s200/dayjob-wont-make-you-rich-employer-not-scrooge-student-debt.jpg" width="200" /></a></div>
<span style="font-size: 13.5pt;">Today's society, especially public school
systems, seems fixated on this idea that a traditional college experience is
the only way to truly make a living or to gain financial freedom and stability.<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-size: 13.5pt;">As it happens, people with even basic
skills like a trade (welding, contracting, etc), or technical skills, like
computer programming and web design, tend to experience tremendous earning
potential out of the gates of their training, with little initial investment of
time or money (i.e., without spending thousands of dollars and years of their
life in traditional college).<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-size: 13.5pt;">Our society needs to come to the
realization that small business owners are the majority of millionaires out
there... what's commonly referred to as "the millionaires next
door".... simply because these individuals gained a basic technical
skillset, then some business or financial savvy, synergized their skills into a
business, and hired someone else to run it for them, paving the way for a path of true freedom.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-size: 13.5pt;">Society rewards valuable skills and people. Too many pieces of paper are
often high-cost, low-return on investment debt traps and time-stealers.<o:p></o:p></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<h1>
<b><span style="font-size: 13.5pt;">5. If you aren't learning to
maximize your income by living below your means, avoiding "stupid"
debt like the plague, and learning to save and invest wisely, you've not
understood how 99% of people grow wealthy.</span></b><span style="font-size: 13.5pt;"><o:p></o:p></span></h1>
</div>
<div style="margin: 0in 0in 0.0001pt;">
<br /></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-size: 13.5pt;">Basic financial skills like managing a budget,
saving, and investing are a lost art today.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-size: 13.5pt;">This is especially true in this country and economy, where savers are
punished with low interest on their cash, debtors are rewarded with “nice” and
shiny possessions which make them appear rich, and gamblers in the stock market
are rewarded for taking uncalculated risks with the money they have managed to
scrape together.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-size: 13.5pt;">Unabashed debtors eventually go broke—whether the debtor be a
sovereign nation, or an individual. Risky gamblers eventually realize that the “house”
always wins. <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-size: 13.5pt;">But those who learn to live within their means, and to regularly save
and wisely invest substantial portions of their income (20+%), can achieve a great
degree of financial security and stability in a much shorter period of time
than most of society will have you believe.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-size: 13.5pt;">Retirement is not forty years away for a twenty-five year old who
is disciplined in learning to maximize savings and wages, minimize costs and outflows,
and is dedicated to pursuing the things in life which truly matter. <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-size: 13.5pt;">And I’m not talking about money. Money is only the means to an
end.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<h1>
<b><span style="font-size: 13.5pt;">Conclusion<o:p></o:p></span></b></h1>
</div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-size: 13.5pt;">It’s a startlingly fast-growing, obscene, and perverse philosophy which dictates
that individual prosperity is built without sacrifice, personal development,
and value creation. <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-size: 13.5pt;">The sooner we can get people to realize that personal prosperity is
gained through personal development, making wise personal and professional decisions,
providing value to society, innovating in the workplace, maximizing resources
(no matter how meager), gaining new skills, and mastering the art of finance
and investing, the better.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-size: 13.5pt;">These truths, understood, will change behavior. And improved
behavior and philosophy is the only thing which will improve the world of
business, politics, and the personal economy of individuals.<o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-size: 13.5pt;">Wage increases do little. <o:p></o:p></span></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<br />
<span style="font-size: 13.5pt;">Your dayjob won't make you rich, it will more than likely keep you poor.</span><br />
<br /></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-size: 13.5pt;">Forcing your mega-conglomerate employer to throw more money at a problem
which is rooted fundamentally within your own lack of personal initiative and
motivation, will not save you from the coming economic bloodbath which will
ensue when the world’s financial problems come home to roost.</span><br />
<span style="font-size: 13.5pt;"></span><br />
<span style="font-size: 13.5pt;"><o:p></o:p></span></div>
Live long and invest,<br />
<br />
Jeremiah<br />
<div class="MsoNormal" style="margin-bottom: 0.0001pt;">
<br /></div>
<br />Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-11321832328525551872015-08-28T09:06:00.002-07:002015-10-30T12:32:41.063-07:00How to Survive a $3 Trillion Crash Without Losing Your Lunch<span style="font-size: xx-small;">8/28/15</span><br />
<br />
<h1>
How Not to Lose Your Lunch Over the Markets </h1>
<br />
It's a beautiful Friday... despite the looming specter of the Stock-Pocalypse we saw this week.<br />
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Let me recap that for you. Things were downright FUGLY from last Thursday or so through Monday. Markets across the globe, especially emerging markets, like China, Brazil, Russia, etc, have literally crashed, with unaware and uneducated investors across the globe losing money, sleep, and sanity. The US experienced its first stock market correction (a fall of at least 10%) in over five years.<br />
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The US markets are down about 5.7% overall over the past ten days, and have, by and large, recovered their losses. Honestly, a correct like this is nothing to get too concerned about, in my opinion.<br />
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But still, people are even <a href="http://www.zerohedge.com/news/2015-08-27/chinese-man-jumps-17th-floor-first-stock-market-casualty">jumping off buildings again</a>. It's a sad sight to see, and I pity those who have played with fire, using their life savings as tinder.<br />
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I can't help but sit and feel bad about it... but the sad truth is, if you have a well-diversified and hedged ("protected") portfolio, you make money hand over fist, while those around you are getting margin calls and telling the hard truth to their loved ones about all the money they've lost.<br />
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I used to be that guy, but not anymore.<br />
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What happened, exactly? The market woke up!</h1>
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I'd like to answer the question that pundits across the globe are milking like a cow to get their ratings quotas for the week: "Why Did the Stock Market Correct?"<br />
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The answer is simple. As I've said before, the markets, in an ideal world, should function similar to how things in our natural world do, subject to things like gravity, inertia, and other laws of physics. In a healthy, natural market, there is no central bank intervention, no propping up the economy, no bailouts.<br />
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In an ideal world, if a business makes bad decisions, it should go bankrupt. If a country gets itself into debt up to its eyeballs, it should suffer the consequences. Clearing the market of bad businesses, via the process of insolvency, makes way for healthy and profitable businesses to thrive. Propping things up with government intervention only kicks the consequences down the road for someone else to deal with later.<br />
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The markets have been defying gravity for years now, without falling, because of unhealthy central bank intervention. Japan has been printing money. The US has been printing money. China has been printing money. Europe IS printing money... but they're all failing to produce anything that even resembles true economic growth.<br />
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The markets finally realized this, and they had enough. I speak of "the markets" as if it is a sentient being. And it almost is... it's made up of billions of tiny players, like you and me, who eventually come to a consensus on things. And when everyone is moving in one direction at one time, people get trampled.<br />
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That consensus this week was that, it's time for the long-awaited correction.... but not yet time to clear out all the crap in the markets and the economy... I believe that is still down the road a few months, at least.<br />
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I've heard the markets referred to as a "rubber band." When it stretches too far in one direction, it will eventually snap back, and things will <i>really hurt </i>when that happens. Alternatively, the rubber band breaks... and the system breaks down, like in 2007-2008. That's when all the crap in the economy truly gets purged, and things can start anew.<br />
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It's sad when that happens. Livelihoods are lost. Businesses go bust. Economies suffer--the poor are especially affected, because they haven't been trained on how to weather things out, or prepare for the worst.<br />
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Did I Lose My Lunch? Heck No.</h1>
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Let me tell you how it worked out for me. It's time to reconcile the trades I told you about last month, and a few I've closed since then, which have turned my portfolio around in ways I didn't envision.<br />
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Last month for my latest trading caper, I saw an opportunity in Intel Corp. I bought 100 shares at $29.28, and sold a call option on the shares, where I agreed to sell my 100 shares for $29.50 if they were trading above that level on 22 August.<br />
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I got paid $57, or 1.9% of the cost of my shares, in cash, to agree to sell my shares. Also, I collected $26.70 in dividends, for a total return of 2.85% in just thirty days.<br />
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I keep repeating trades like this every month for the rest of the year, I'll make an annualized return of well over 34% for the year. That's not to mention the other things I did over the past month.<br />
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I own some high-dividend stocks in safe, income-producing, business development and real estate companies, which pay me over 10% per year each in straight dividends, not to mention anything I make in capital gains. The BDC I own is up 15% in the last month, and I sold it for a solid 10% gain, in addition to the monthly dividend of .8%.<br />
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On Monday, when the rubber band was stretched pretty hard, I knew that things were getting irrational. I took advantage of everyone else's pandemonium to buy an out-of-the-money call option on my shares of Intel which, at the time, were down about 8% from what they are today (I'm down 3% on Intel, and not worried in the slightest, because of the dividends and option premiums I've made). Further, I've sold another option against my shares today.<br />
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An out-of-the-money call option, purchased at moments of irrationality, <a href="http://thevillageid-vestor.blogspot.com/2015/08/when-stock-market-lottery-during-crash.html">can soar hundreds of a percent when prices normalize</a>, as they have now. The price I bought at was a bit too high to take full advantage of moves like that, so I made only 44% on mine in the three days I held it, selling this morning. <i>44% in three days. </i> I won't complain.<br />
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I have some other holdings which mostly went unaffected during this "mini-crisis." That's because I own a variety of companies with rock-solid balance sheets, gushing cash flows, competitive advantage, and huge market share. When the economy tanks, they lose some value... but nothing like smaller companies do.<br />
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During crises like these, I mostly just sit back, watch the show, and snatch up good opportunities when I see them. But they key to making money in down markets, is to already have your ducks in a row before the crap hits the fan. That's what I did.<br />
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There's lots of talk out there about the Federal Reserve raising prime interest rates next month. The reason we've seen such a quick snap-back recovery after this week's pandemonium is because investors and speculators realize that it's unlikely the Fed will raise rates, due to this market action. You see, the Fed thinks that the US is experiencing real growth. <a href="http://thevillageid-vestor.blogspot.com/2014/11/how-know-fire-your-financial-adviser-stock-market-not-economy.html">The Fed also thinks that the stock market is the economy. It's wrong on both accounts.</a><br />
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Keep Doing What You're Doing, as Long as You're Doing the Right Thing</h1>
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I can tell you what I'm going to continue doing. It's the same thing I always do. I'm going to continue holding my industry-dominating businesses, selling options to generate regular income, and buying minuscule amounts of crisis insurance (less than 0.5-1% of my overall holdings), in the form of put options, until we see the next crisis.<br />
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I hope you'll do the same. You won't regret it, I promise. In the near future, I'll be delivering more to you in this regard, so you'll better understand what makes a company "super."<br />
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Live long and invest,<br />
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JeremiahUnknownnoreply@blogger.com0tag:blogger.com,1999:blog-6670567362421909511.post-46444929537024563692015-08-24T08:43:00.001-07:002015-10-30T12:32:32.197-07:00When the Stock Market Becomes the Lottery<div>
<span style="font-size: xx-small;">8/24/15</span><br />
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<a href="https://www.blogger.com/blogger.g?blogID=6670567362421909511" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"></a><span style="font-size: xx-small;"><span style="font-size: large;">Sometimes, I'll Admit, the Market is the Lottery</span></span> </h1>
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Given the crazy market action which occurred today, there's no better time to discuss why speculation should be a part of your investing strategy.</div>
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I've written elsewhere about the virtues of an investment strategy which <a href="http://thevillageid-vestor.blogspot.com/2014/09/wolves-sheep-and-fistfuls-of-dollars.html">"marries" the concepts of real investing and speculation.</a><br />
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"Investing" involves taking a good portion of your money and putting into safe, long-term investments.</div>
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"Speculation" is the process whereby you take small portions of your investment portfolio, and put that portion into trades or investment instruments which you plan to hold short-term. Doing so will amplify your annual gains, and speed up your financial freedom date by decades.</div>
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The reason you will hold these investments for the short-term is because you "speculate" or you "think" that the market is going to move quickly in one direction or another, and you will make large amounts of money in a short time period.</div>
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For the most part, speculation is best undertaken by buying stock options, because the prices on options can move hundreds or thousands of a percent in a single day.</div>
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That's exactly what happened today when the markets tanked.</div>
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How This Lottery Works</h2>
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To give you an example.... let's say I have been calling for market crash for a few months now (sound familiar), so I finally decided that last week, I was going to buy a put option, which is basically a bet that the stock market is going to take a turn for the worse.</div>
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The best way to play this would be to buy a put option on the S&P 500, since this index is a "proxy", or representation, of the market in general.</div>
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If I had bought a put option at the $191 range on Friday afternoon before close, today I would have roughly four and a half times the amount of money I invested initially on Friday. Here's a screenshot of how much money traders and speculators made today.</div>
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<a href="http://4.bp.blogspot.com/-Lu2qbKrz5j0/Vi7tFkqApLI/AAAAAAAAEac/P92BYLvOWXQ/s1600/stock-market-lottery-huge-gains-overnight.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="304" src="http://4.bp.blogspot.com/-Lu2qbKrz5j0/Vi7tFkqApLI/AAAAAAAAEac/P92BYLvOWXQ/s640/stock-market-lottery-huge-gains-overnight.png" width="640" /></a></div>
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What I've circled in red is a ONE-DAY CHANGE in the price of the option.</div>
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I won't go into the mechanics on why the prices behave this way... that's a topic for another day. Suffice it to say, that if you have good timing, if you understand technical analysis, and if you can handle the emotional toil that speculation takes on your life, the process of speculating can make you a lot of money.<br />
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Typically, you don't put any more than .5% or 1% of your overall portfolio into a speculation... because it's too easy for things to move against you. But here's why it is significant.</div>
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By investing just 1% of my total money in a speculative trade, when that one trade quadruples overnight, I've just made a total portfolio return of 4% in just <b><u>one day.</u></b></div>
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Mutual funds can't even touch these kinds of returns. I, for one, know that my employer-sponsored 401K is down 2% so far <b><u>this year</u></b>. If it weren't for the free money my company was giving me in that account, I wouldn't even consider putting my money there whatsoever.</div>
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Now, consider that there are even more volatile securities out there, like the VIX, or an index which measures the volatility of the overall market.</div>
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Here's a little screenshot which shows us that someone out there, some lucky trader, is going on a loooooonnnnggg vacation in a few weeks. In fact, depending on how speculative they are overall, we might even conjecture that someone out there will be retiring early.</div>
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<a href="http://4.bp.blogspot.com/-T4uOSJQUVzg/Vi7tQQtFD8I/AAAAAAAAEak/_wglBe5qoHM/s1600/stock-market-lottery-huge-gains-overnight-1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="432" src="http://4.bp.blogspot.com/-T4uOSJQUVzg/Vi7tQQtFD8I/AAAAAAAAEak/_wglBe5qoHM/s640/stock-market-lottery-huge-gains-overnight-1.png" width="640" /></a></div>
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The areas circled here in red are also ONE-DAY CHANGES in the price of these investments. Note the 11,150% gain someone made. That's 112 times their money. It turned $100 into $11,200. I can guarantee that really made their morning.</div>
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While everyone else is losing money hand over fist, this man or woman just found the down payment to their new home. All thanks to a healthy, controlled dose of speculation.</div>
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See you on the other side of this crazy correction.</div>
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Live long and invest,</div>
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Jeremiah</div>
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