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The Investor's Survival Guide
Basic Training for All Investors With additional chapter on "HOW TO GET OUT OF DEBT"
By Joseph A. Castelluccio Jr.
AuthorHouse LLCCopyright © 2014 Joseph A. Castelluccio, Jr.
All rights reserved.
You Have the Skills, Use Them
Think back to the subtitle of this book: Basic Training for All Investors. What is the intention of basic training in the military? Basic training is designed to give you the knowledge and to fine-tune the instincts that will prepare you for combat with an unknown foe. In the military, these skills will help save your life. Similarly, the intention of getting the proper basic training as an investor is to give you the knowledge and to fine-tune the instincts that will prepare you for combat with an unknown marketplace. As an investor, these skills will help save your money.
The purpose of this book is not to rewrite economic theories or to give historic background. Aside from possibly being academically stimulating, such publications frequently leave the readers more confused than ever about investing. It would be intellectually dishonest to assume that after you read those texts you will be any more able to invest your money than before you read them. Why? Simply because they assume that you understand the language of the markets.
To clarify this idea, if I read a book in a foreign language, would I understand what the book is about? Of course not! I would need to have someone interpret it. The world of investing has its own type of language, so if you read a book that doesn't interpret the terminology and show you how to use it, much if not all of the information is lost in the translation.
Let me give you an example. Recently, several so-called market timers, meaning the people who claim to know the right time to buy and sell, were explaining the current overall economic situation and attempting to give guidance and shed wisdom to those who were assembled. It went something like this. The conventional wisdom is that the market will rally when the war begins. Given that, the smart money will bet that the consensus has already been discounted in the market, so the contrary is more likely to occur. Therefore, stock prices will more likely decline, not rally. However, as everyone knows, the consensus is always wrong, so we could see a rally anyway. Does that clarify the situation for you? I don't know how much you got out of that, but my brain hurts each time I read things like that. Don't give me timing, give me time.
Knowledge is great; however, knowing how to use it is another thing entirely. Some teachers are bright and extremely knowledgeable, but they don't know how to convey the message clearly. Many other publications focus on what I call "glossary knowledge." They provide definitions, historical information, charts, and ratios. All that data does is show you the past. It does not tell you what will happen in the future. This is the information age and we're on the information highway. The trick is to get the information you need and want on the information highway while avoiding becoming roadkill along the way.
Getting too much data can be as bad as not getting enough. The difference between enough and not enough is simple. Can you make a decision on the data you just received, or was too much extraneous information included?
Think about your local weather report as one example. You get the barometric pressure, several satellite shots of the weather patterns, Fahrenheit and Celsius temperatures, as well as information about low-pressure and high-pressure systems in the area. You also get all that same information for the entire country. And then, of course, who could go to bed without knowing the historic temperatures and precipitation for that date. Although all of that information might be interesting to some, all you really need to know is the temperature and whether it is going to rain or snow. When you get dressed in the morning you just want to know how to dress for today's weather. When investing, most people want to know what, where, when, and most important how to invest. Instead, they get a lot of information that in most cases belongs only in the "nice-to-know" category. When you ask someone for the time, you don't want to hear how to build a watch. In this book, I simply give you what you need—the time.
Most people read various publications and books and come away feeling "financially challenged." Many of these individuals have college degrees and think they should understand what to do. Instead, they become so intimidated and overwhelmed that they become frustrated, hence they seek outside help. This doesn't mean that if you read a book on brain surgery and feel equally frustrated and confused that you should still attempt to try the at-home method in your living room. No pun intended. You don't have to be a brain surgeon to understand my method of investing.
If you think that reading those other texts can teach you what you need to know, try buying an unassembled swing set. Then attempt to assemble it just by reading the directions (no pictures). Even those of you who are successful will admit that perhaps this positive result was a one-time event. The knowledge one gained from that exercise could easily be the knowledge that you should never try such an exercise again.
In addition, financial books typically have disclaimers indicating that the information might not be accurate and that past performance doesn't guarantee future results. With such a disclaimer, why did the author bother writing it and why did you bother reading it in the first place? This could be the reason why so many people seek so-called professional advice.
Just use some common sense and this book will do the rest. What I want to do is take the average person, professional, brain surgeon, rocket scientist, or even the so-called seasoned investor and show them the commonsense approach to successful investing. I'll show you how to take your everyday innate skills of prudence, intellect, and perceptiveness and apply them so you can understand how to reach your financial goals.
These are the same skills that you use each day whether you are shopping for clothing or food, and the same skills that you use when you are preparing to take a trip. It is not an exaggeration to say that some people spend more time shopping for a pen than they do shopping for the right investment. I want to give you the right mindset to break things down to their basic common denominator so you can feel as comfortable investing as you do shopping for your favorite item.
It often amazes me how most people will put enormous preparation into a shopping extravaganza at a mall, or some mundane food shopping at the supermarket. The detail that they put into it is incredible and often can be amusing.
Let's illustrate a couple of typical shopping outings and see if you can identify with some or all of the examples. Let's begin with a trip to the mall. What outfit should you wear? After all you have to have the right look or you won't look like you belong there. You know what I mean, right! My mom always said, "If you want to get where you want to be, you have to look like you're already there." Next, what are the mall hours? Time is critical ... especially if try-ons are required.
Time is also needed for browsing. Browsing gives shoppers the opportunity to "save" money. During browse time, shoppers decide to buy things they didn't come for but couldn't pass up because they were on sale; hence, they save money by spending more on the things that cost less. Does this sound familiar?
The next phrase is borrowed from the real estate industry: "location, location, and location." Shoppers take location seriously, too. What mall has the right stores for the merchandise they seek? Which store should they go to first and what sequence should they then follow? What level do they want to begin on, and where do they want to finish? The last store location should be coordinated with the closing of the mall and the proper exit door so shoppers can end up where their car is located. As you can see, mall shopping requires a great deal of strategic planning.
Next, let's consider the food shoppers. They have a different approach, but the basic concept is the same. Food shoppers come armed with sale bulletins and coupons that were clipped and sorted in anticipation of the trip. They know that certain weekdays bring special bargains.
Next of course is location ... to food shoppers, location also is critical as they first plan the right aisle to start the assault.
Will you need one cart or two—that of course depends on how many bulky items you are getting. Next, give some thought to the weight and size of the items you are planning to acquire, heavy items of course first, lighter ones on top. A slip-up here and your white bread looks deformed. It's no fun trying to put mutilated white bread into those perfect slots in the toaster.
Then, as you move up and down the aisles you must remember not to forget to separate the food items from the detergents. It's a rude awakening when you forgot to do that and the next morning you find that your cereal tastes like lemon bleach. Now the most critical part of your mission, leave the "cold and frozen" items for last for obvious reasons. Less time out of the fridge makes the difference in whether you eat or drink your ice cream. Last, but certainly not least, give careful consideration to the time of day to prevent long delays on checkout lines. A swift departure is always an important part of a successful execution.
And of course let's not forget the creative shoppers—you know, the 50/12 club. Very often shoppers get pretty creative trying to rationalize how their 50 items really are only 12 items so they can get on the express lane. Once again, I'm sure you can relate to some or all of what I've described. Equally certain am I that there may have been several military operations that had less thought and preparation than these two previous examples. My goal here is to give you the right mind-set and break things down to their basic common denominator so you can feel as comfortable investing as you do shopping for your favorite item.
Now let's look at the "business professional"—you know, the very intense, critical thinkers. Well, as the old song line goes, "It ain't necessarily so." As long as they're in their everyday world, perhaps, "all systems are a go." However when it comes to investing, in most cases "Houston, we have a problem." They might as well be in a foreign country.
They also tend to be intimidated, or overwhelmed, and feel more comfortable handing off their money to someone else they hope is more qualified than they are to place those investment dollars successfully. They also feel if things go wrong, and they often do, they will have someone to blame. Unfortunately, in most cases investors don't even take the time to find an investment adviser who is well qualified to do the job. Therefore the only person they should be blaming is themselves. Here again, don't let those shopping skills go to waste.CHAPTER 2
Don't Fall Victim to the "Sugar Rush"
"What is the sugar rush?" you ask! This brief true story about a friend of mine should illustrate my answer. Let's call him Mr. W. He's a successful restaurant owner who recently told me his tale of woe.
Mr. W was concerned about a recent stock market decline. His paper losses were mounting, the stock market scenario looked bleak, and his frustration and deep concern were apparent. He was coming to me for some hand-holding but more important for some real advice on a repair strategy. I first asked him how his restaurant business was doing. He told me business was great and that it was proceeding according to his plans. In fact, the first three years had been superb, with each year surpassing the previous one. Business had actually exceeded his greatest expectations.
Then I asked him to tell me what he did before he bought the restaurant and how he knew he should attempt to go forward. What insight did he have that told him this venture had the potential to be successful? He quickly replied that he first checked out the location, the potential competition, the initial cost and upkeep, and of course his potential for revenue to cover his expenses and provide a profit. O.K. That sounded pretty good, he apparently had done his homework.
He had a starting point; he then developed a blueprint, a design, and a sketch of how to reach the goal of having a successful, thriving restaurant. Then he executed his plan. Suffice it to say he made some good decisions or he wouldn't be where he is now. I then asked him to tell me what preparations he had carried out before he made his investments in the stock market.
His answers were not too startling. I had heard them many times before from others. He had selected a good stock that his wealthy boss owned, one his broker thought was going to triple, and one he had heard would be the next tech giant. In addition, the other stocks he purchased were also chosen based on suggestions from individuals with little or no knowledge of what the companies did or whether they were even profitable. Clearly, he hadn't done his homework. What happened to that element of critical thinking? The prudence, intellect, and perceptiveness he used to buy his restaurant were not utilized in his investing. It's not hard to see why one investment was successful and one failed miserably. He was a victim of the "sugar rush." This refers to the need for a quick start, or the sugar high you get when you want things to happen quickly. It is the need for fast results. But sugar highs come fast and leave fast, and invariably you are left with no nutritional value, or in this case no money. Acting on something without thinking it through is unwise. Put your brain in gear before you put your mouth in motion.
Unfortunately, Mr. W is not alone. Most investors jump into investing their hard-earned dollars or inheritance with a lottery mentality. Mr. W's situation is not an aberration. I know too many individuals who not only lost all of the gains they had accumulated in the "roaring 90s" tech rally but sadly much of their original principal, as well. Why? Simply stated, they did not have a game plan, and they wanted the quick fix. Another problem was that they didn't diversify. They most likely didn't know the best-kept secret I spoke of earlier, and quite frankly they were not really interested in even finding out about it.
Those investors jumped into the markets with the lottery mentality. Remember this, betting that markets will go up is gambling, not investing. Consider the following.
FOOD FOR THOUGHT
—If you "bet" on a horse at the track—we call it gambling.
—If you "bet" that you can pull a rabbit out of a hat—we call it entertainment.
—If you "bet" that a stock will go up—we call it investing.
DO YOU SEE A DIFFERENCE???—I HOPE SO!
The word "BET" is not a word that implies you are making a sound investment decision for you and your family. For instance do you invest money for your childs education or bet it? Do you invest money for your retirement or bet it? I think enough said, you get it by now.
Learn from Other People's Mistakes, It's a Lot Less Painful
When people are surveyed about investing, they invariably respond that they don't think they are capable of investing on their own or they don't have the time. They're capable; they're just not knowledgeable because nothing like this book has ever been written before. They think the professionals have all the answers and all the time to watch their investments. But most investment advisors have hundreds of accounts. How can they possibly devote enough time to all your personal needs? Don't underestimate yourself. Everyone has what it takes if they use the commonsense approach. Next to your house and your children's education, your investment dollars rank pretty high, I'm sure. Think about the time you will spend choosing the right house and/or college. Don't rush your investment dollars off too quickly. Give those dollars the right amount of time and thought.
Every profession has jokes and riddles written about it, and Wall Street is no exception. One such riddle is, Why did we create analysts? Answer: To make meteorologists look good. Another saying is that the same people who laugh at the thought of using fortune-tellers consistently listen to analysts.
And my personal favorite is that economists have predicted eight of the last four recessions.
Am I being too harsh? No, it comes with the territory. Let's just call them some interesting observations. In addition, there are a few more observations we should all make note of. First, no one has all the answers all the time. Second, we can agree that over time, markets will rise and fall as economic, political, and financial events interact. Therefore, we can surmise that if you agree on points one and two, no one could possibly predict when or how much the markets will move with any consistency because of all the variables. Why then should we put our trust and our money into someone's guess? Hence we must know how to prepare and plan not guess and bet.
Excerpted from The Investor's Survival Guide by Joseph A. Castelluccio Jr.. Copyright © 2014 Joseph A. Castelluccio, Jr.. Excerpted by permission of AuthorHouse LLC.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
Chapter 1 You Have the Skills, Use Them, 1,
Chapter 2 Don't Fall Victim to the "Sugar Rush", 9,
Chapter 3 Get on the Bondwagon, 17,
Chapter 4 Choosing Stocks: As Easy as 1, 2, 3, 25,
Chapter 5 Balance Risk, 33,
Chapter 6 Certificates of Deposit a.k.a CDs, 41,
Chapter 7 How Much Should My Initial Investment Be?, 45,
Chapter 8 Kids Can Have Fun Investing, Too, 53,
Chapter 9 The Generic Person, 59,
Chapter 10 How To Get Out Of Debt, 63,