Friday, October 30, 2009

Where Did You Get Your Financial Education?

Just as a guesstimate, I'd say 98% of us got our financial education from our parents, and not directly. It's more from their attitudes toward money, and what they want you to become. The other 2% are either lucky enough to have a Rich Dad (tm) like Mr. Kiyosaki or found a way to get financial education themselves. And I do NOT mean a degree in finance.

Your parents probably wished you to become the richest people they know personally. Very often, they'd be doctors, lawyers, engineers, and so on. The exact choice will depend on their profession, but the result is about the same: your parents wish you to become S-quadrant (self-employed or small-business owner) esp. if they were E-quadrant (employees) all their life. They don't really understand B (big business) or I (Investor) quadrants, so they would not recommend it to you. They are going by their own experience.

How many parents, besides Donald Trump's parents, and Donald Trump himself, tell their kid, "Son, I want you to become a big-deal real estate investor"?

I doubt Bill Gate's parents tell him when he was young, that "Son, get rich by starting a software company."

I know for sure that Michael Dell's parents told him to stop wasting time on computers and get good grades in school. (see "How Dell Does it" )

Tuesday, October 27, 2009

Professionals May Be Anything But...

Most people have the idea that professional investors, such as fund managers, really know what they are doing. Frankly, the truth is nowhere as pretty. And it is Peter Lynch, who blew the whistle, so to speak, in his book, "One Up on Wall Street".

Think about it... Professional investors are a tight-knit lot, read the same news, talk to the same people, no wonder they have the same mindset... pretty homogenous lot.

Also, the investor community in general are risk-averse. They want returns, but not the risk. Thus, if a fund manager picked a seemingly "safe" investment, and it lost money, the shareholders will not fault you for picking it. However, if the fund manager picked a risky startup as investment, and it lost money, the fund manager gets blamed. Thus leading to another famous Wall Street Myth: "You can't get fired for recommending IBM (even if it loses money)". Or put it another way: if you pick IBM and it lost money, people blame IBM. if you pick some noname dotcom and it lost money, people blame YOU.

Furthermore, people love to compare notes. If A invests in fund X and B invests in fund Y, then A and B talk and A found out fund X has underperformed fund Y by about 10% (even though X is doing 20% and Y is doing 30%, both are darn good yields), A will likely do either of two things: 1) yell at the fund X manager for NOT investing wise enough, and how he could have done better with fund Y. (very powerful if A is a large investor in fund X) or 2) simply pull his money out of fund X and put it into fund Y.

The net effect is fund managers are given an "approved list" to invest from, supposedly safe investments, usually big caps, and as a result, they will give similar yields... LOW yields.

Friday, October 23, 2009

Investment Styles

The cover of Benjamin Graham: The Memoirs of t...Image via Wikipedia

There are a variety of investment styles. Some of which is not good for you. We will discuss several here, and hopefully help you spot some bad habits and fix them.

Growth oriented vs. value oriented

Growth-oriented investors go after companies that are growing rapidly. Tech, bio-tech, pharmaceuticals, etc are recent favorites. They are going for "potential", "future growth". As a result, they tend to concentrate on small caps and mid caps.

Value-oriented investors go after companies that are underappreciated, or just suffered some bad news, and their stocks are low, but the fundamentals are sound, just temporarily out of favor. They are after "bargain". As a result, they go after mid cap and large cap companies.

The two are not mutually exclusive, but they are two fundamentally different philosophies.

Tuesday, October 20, 2009

Mind Over Money

Prescription placebos used in research and pra...Image via Wikipedia

We said it time and time again... Your mind is your most powerful tool. Many of my observations are on this very topic, and here is one more... The power of the mind over money, and many other things.

Any one have arthritis, bad knee, that sort of thing? Any one know how much the knee surgery, irrigation, removal of some bad cartiledge, that sort of thing? A lot. Right.

Any one heard of the placebo effect? Right. If you believe it's medicine, then the sugar pill is almost as effective as real medicine? Right.

But did you know placebo effect applies to surgery as well?

In "Biology of the Mind" by Dr. Bruce Lipton, he discussed a study. Three groups of patients needing knee surgery were selected. One group got the full treatment, one group got the minimal treatment, and the third group got PLACEBO treatment (complete with water slushing sound to simulate irrigating the knee). To everybody's surprise, the placebo treatment did nearly as well as the other two groups. In other words, the surgery itself is NOT a factor. At least one patient, who had to use crutches before the "surgery", was able to play basketball after rehab. And to prevent skewing the results, the placebo group were not told they actually received NO treatment until two years later.

In other words, it really is like psychic surgery.  Except, this is real.  This is the power of the mind over body.

Friday, October 16, 2009

Paradigm Shift

I've talked about paradigm shift before. This is about WHY you need a paradigm shift.

So what is paradigm shift? Paradigm shift is best described as when you suddenly get a whole new perspective on the entire situation, that completely shifts your world view.

Steven Covey, in his book "7 Habits of Highly Effective People", gave the following example:
In a New York subway car, one man is sitting, his elbows on his knees, his head held up by his hands. His eyes are blank, as if starring a thousand yards away, in his own world. Around him, several children are running around, wild, screaming, pushing each other, generally behaving badly. The other passengers gave them a wide berth, many with disapproving glares. Finally, one of them approached the man and spoke up.

'Sir, are these your kids? They are absolutely out of control! Don't you think you should do something?'

The man blinked, and took him several seconds to refocus his eyes on the disapproving passenger... Then he replied slowly...

'Oh, yeah... right. Sorry. I guess I should. We just came from the hospital... Their mother just died...'

By this time the disapproving passenger is hoping for a hole to crawl into.

That is a paradigm shift: one piece of information was gained, and sudden the perspective on the entire situation changed.

Tuesday, October 13, 2009

You in the Mirror

Spherical mirror (actually a cinema) in :en:Mi...Image via Wikipedia

Consider the following question: who is easier to change, you or your best friend / wife / partner? I think we would agree that it would be YOU. If you answer the other one, you may need your head examined, unless your best friend is a dog. (Cats are impossible to change)

Think about it, you know yourself best, so anything you do to yourself would be more effective than being done to someone else, no matter how close you are to them.

The only thing getting in the way is your ego.

Why would your ego resist change? Here are the basic reasons:

* I don't NEED to change (I'm fine the way I am)
also goes by: I don't see any benefit in change

* I don't WANT to change (I fear change)

* Change takes too much effort (I am TOO LAZY to change)

* I don' thave the ______ needed to change  (so I will do nothing)

* It goes against my principles

I am NOT here to be a lifecoach. I consider most of that . There is no technique that will suddenly turn you rich with no work on your part. THERE IS NO SHORTCUT. I cannot fix your ego by waving a magic wand or offer you a magic pill. I will just point out a few things that may be painfully obvious to some of you.  Let's examine these reasons one by one

Friday, October 9, 2009

Know Your Investment

NEW YORK - JUNE 26:  Billionaire financier War...Warren Buffet Image by Getty Images via Daylife

Rich Dad's advice regarding investment is know how to run a business, so that you know what works in a business, and is that business you want to invest in actually doing it (and is it avoidng the bad things).

If you think this is too hard, consider that this is what Warren Buffet does. That's right, Warren Buffet of Berkshire Hathaway. He doesn't invest in things he does not understand. And Warren Buffet have invested for a LONG time, ran many businesses, including Berkshire and Hathaway. Where did you think he got the name for his investment firm? Not all of his investments was successful, but he's good enough that he picked the right businesses to invest in by going after those companies with a lot of value, and now he's the most famous investor in the world.

Remember what Rich Dad said... Profit when you buy, not when you sell. He meant real estate, but it applies to stocks as well, but the point is you have to know your investment to know how much it is really worth, and thus, when to buy it cheap.

Tuesday, October 6, 2009

Know vs. should-know

Robert T. KiyosakiRobert T. Kiyosaki via

Chinese has an expression, "If you live near red ink factory, you'll be red. If you live near black ink factory you'll be black." What it actually means is you hang with people similar to you. If you hang out with lambs, you'll be a lamb. If you hang out with wolfs, you'll be a wolf.

Or as Rich Dad would have put it, "Average people hang out with average people, and average people aren't rich."

Mr. Kiyosaki, in one of the seminars in Canada via telephone, said something similar: "One way for an average woman to appear beautiful is to hang out with three ugly women. Most people hang out with people equal or worse than they are. To become rich, you need to hang out with people who are BETTER than you."

In other words, you need to raise your standards. If you hang out with "losers", you sink to their level, and your intellect will NOT be challenged much. If you hang out with "winners", you will eventually RISE to their level, and you will learn many things.

This has far more implications than you think, as are most "simple but profound" truths.

Friday, October 2, 2009

Memes and Excuses

Richard Dawkins' The Selfish Gene first public...

Just the other day PBS airred a special by Dr. Wayne W. Dyer, called Excuses Begone! There's a seminar, the DVD of the program, or the book. In that, he discusses two other books, "Biology of Belief" and "Virus of the Mind". It is the latter that is of particular interest, as it is VERY relevant here.

Remember we mentioned before a lot about you must alter your reality in order to be rich? Dr. Dyer goes into WHY you have problems altering your reality. It's all due to something called a meme (pronounced "meem").

Meme can be thought of as a thought virus. A meme is basically an idea / belief. If it gets to you, it will infiltrate and influence your thoughts, then you start repeating the meme and pass it onto others, and if you had the meme long enough, you can no longer distinguish it from your own thoughts without a long examination.

In other words, everything you were TAUGHT are memes. As are anything you pick up or learn. For example, my grandma is a packrat. She lived through the Japanese invasion of China and World War II. As a result, she refuses to throw things away. She buys things, then packs them away. Then she forgot where they are, so when something's needed, she need to buy them AGAIN. She grew up in despearate times, and she had retained the desperation hoarding "meme" even now. Even now, I can count over a dozen glass jars, all washed and sealed. I ask her what are those for, she said it's for Chinese soup she plan to cook. I said but we have pots and such for those, and do we really need a dozen when only four or five will do? Then she gets defensive and things get downhill from there. :D