Those of you who read this blog regularly have probably noticed that I haven’t been making nw posts very regularly lately. The reason is that I have been working furiously on my new book, Investing to Win! This is the book on stock picking that I have been meaning to write for a long time. More than that, however, it will also cover the whole strategy that I have been using over the last several years for investing. It could be useful to the seasoned trader who wants to do better, but I also define all of the terms and provide all of the background that you would need to start investing even if you know nothing at all about the stock market.
The forward and Table of Contents is below. If you don’t want to miss out, be sure to follow the blog by email so that you’ll get all of the updates. I’m writing Chapter 6 as we speak and am really happy about how it is coming out. Look for the book in a few months.
Investing to Win
This investing methodology presented in this book is the result of lessons learned after a long journey involving some wins, some losses, and a lot of wasted time. Over the 35+ years that I have been investing, I have tried numerous strategies with varying degrees of success. Early on, in my preteen and teenage years, I bought small quantities of shares in different companies. The very first company I purchased, Tucson Electric Power, shot up to the moon, going from $15 per share to over $80 per share before falling back to earth by the time I reached college. Other companies, like Stop and Shop, never really went anywhere. I also bought individual bonds, seeing some do well and others disappear as the company issuing the bonds went bankrupt.
During college I read a book or two about options, where you can make huge amounts of money in a few weeks or lose everything you put in within a month or two. I chose a specified amount of money to put at risk and decided to give it a shot with both index and equity options. I would watch CNBC during the day when I didn’t have class, trying to figure out when to buy and sell. I remember one time falling asleep and waking up an hour or two later having made a thousand dollars. But while when I started I had set aside an amount I had planned to risk, I actually ended up losing about five times as much before all was said and done! When you lose money but learn something, it’s called “paying tuition to the markets.” I paid a lot in tuition that summer. I learned not to play with options.
It isn’t that I lost money during all of those early years while I was learning, but I didn’t make as much money as I could have. For example, some years I may have made 5% when I could have made 10%. Sometimes I may have sold a stock, feeling good with a $1000 profit when I could have made $5000 or $10,000. Many years my broker ended up making more in commissions than I made in profits. If a money manager had been trading for me and generating all those fees for himself, it would have been called “churning,” which is considered a disreputable practice. As it was, I was hurting myself.
But over time, I learned what works and what doesn’t, changing and honing my strategy. I also did a lot of reading. Books like Burton Malkiel’s A Random Walk Down Wall Street taught me that watching CNBC was useless when it came to improving investment returns. Do You Want to Make Money, or Would You Rather Just Fool Around by J.D. Spooner taught me that I wasn’t making anywhere close to as much as I should have been making on my individual stock trades. For fun I read books like Rogue Trader: How I Brought Down Baring’s Bank and Shook the Financial World which details Nick Leeson’s attempts to trade his way out of a hole created by an associate in the world of arbitrage (where is supposed to be a no risk way to basically print money) which resulted in him destroying one of the world’s oldest banks in a few months. (You can watch the 1999 film Rogue Trader for a fictionalized account of the story if you aren’t into reading.)
If you can start from my ending point, you can avoid all of the wandering I did and start right out with what really works. And the best news is that the best strategies are fairly easy, not taking a huge amount of knowledge or a lot of time to implement. If you can learn from my experience and not make my mistakes, you can press fast forward on your financial path and start from the place it took me 25 years to reach. Since returns grow exponentially, not linearly, this will mean the difference in returns of millions, not thousands, of dollars over your lifetime.
But I won’t ask you to simply accept the methods I prescribe. You need to know not just what to do, but why it works, so we’ll start with a discussion of what investing is and how it works. Once you understand this, it will be obvious why the strategies prescribed are the best path to maximize your returns.