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Friday, December 12, 2008

TIPs to Protect Yourself from Future Inflation

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This article is another in my series of articles about common mistakes that the average individual investor makes in their overall portfolio allocation. For these articles, I drew from the 20 years of experience I had at Charles Schwab in dealing with clients face-to-face and helping them meet their financial goals.

In previous articles, I wrote about two areas which were dramatically under-represented in most clients portfolios – commodities and international securities. There is a third area which I found to also be under-represented and that is fixed income investments. Many clients had little or no exposure to fixed income investments.

The most difficult task I believe for allocating funds to fixed income investments is to choose what type of bonds an investor should buy from the myriad of choices available. Obviously, an investor’s specific financial circumstances will dictate the final choices. In this article, I will choose an area of the fixed income world that I believe most investors should currently allocate funds toward.


Right now the Treasury market is enjoying its own titillating little fantasy. It is the ultimate dream of everyone in the bond world. It is nirvana for bond market junkies. It is the D-word – deflation.

The media and financial authorities have fallen in love with the word deflation. The dim bulbs that appear on CNBC air are constantly talking about deflation. This fact alone sets off alarm bells in my head. When is the last time that the conventional wisdom as presented on CNBC ever came true? In fact, when is the first time?

I believe that all of this deflation talk is simply a way for the financial authorities to prepare the public for incredibly massive government spending over the next several years. It simply helps to justify even more massive government bailouts and spending programs. Look at the amount already spent on the “bailout” - nearly $8 trillion. I fully expect that figure to rise by tenfold or more.

I notice that CNBC conveniently seems to have forgotten about how the Treasury market crazies got it wrong in 2003. There was a huge deflation scare at that time too, although on a smaller scale than the current nuttiness. What followed that deflation scare? One of the most massive upward moves in history of the price of many commodities.

Right now, the Treasury market crazies have priced in massive deflation that will occur in the United States for the next decade or longer. They have also priced in corporate default rates of 21%! And this is in the face of massive printing of money and multi-trillion dollar annual deficits.

There is a major headwind that the Treasury market crazies will soon be facing. Over the next four years, 66% of America’s current $5.2 trillion of debt has to be rolled over. Who is going to buy all of this Monopoly paper?

Wall Street is expecting the suckers (foreigners) to buy it all. They seem to have forgotten that, thanks to Wall Street, these foreigners have major financial problems of their own. I strongly believe that most foreign investors’ funds will be spent in their home markets, buying their own bonds, and funding their own governments’ fiscal needs.

When this happens, the Federal Reserve will have to resort to cranking up the printing press to warp speed so that there is enough Monopoly money available to purchase the massive amount of Treasuries which will be issued. Can you say inflation?


In all of the Treasury market nuttiness, there are Treasury securities which have been completely mis-priced. These securities are Treasury Inflation Protected Securities or TIPS. The interest and principal on these securities are indexed to the U.S. Consumer Price Index or CPI.

TIPS have become mis-priced because liquidity has fled the TIPS market, just as liquidity has fled from the equity markets. After all, why would anyone want to own TIPS when everyone “knows” that deflation is here to stay and inflation is dead forever, right?

Wrong! For reasons stated earlier, I believe we will see a mass conflagration of the funds that are currently rushing into Treasury securities at zero or one per cent because of liquidity concerns. And once again, we will see that the conventional Wall Street wisdom will be proven incorrect.

I don’t believe we will ever see massive deflation in this country. I believe that the only possibility of deflation in the US would be if we truly see 1930s conditions – where the US GDP collapsed by 50% in nominal terms and unemployment rates were at 25% and corporate defaults were in the 15% range. Sorry, that scenario is not in the cards. What is much more likely is a return of inflation.


An investor can buy an individual TIPS bond, but with the current lack of liquidity the spread between the bid and asked of such securities is unusually large. A better choice may be an ETF which invests in TIPS securities.

Currently, investors have two choices for TIPS ETFs. They are SPDR Barclays Capital TIPS ETF with the symbol IPE and the iShares Lehman TIPS Bond Fund with the symbol TIP.

Both ETFs have many similarities – both ETFs have very low expense fees, both ETFs are down between 7% and 8% for the year, and both ETFs also have a similar average duration of the TIPS bonds that they hold of approximately 7 ½ years.

The only difference seems to be that TIP trades with a higher daily average volume than does IPE and is therefore a bit more of a liquid security.

Due to the current mis-pricing I believe is occurring in the US Treasury market, both TIP and IPE are currently yielding in the 8% range. Keep in mind – this is an 8% yield that investors are receiving on a US Treasury security!

Investors are urged to jump on the bargains occurring currently with regard to the TIPS market. I believe that an immediate purchase of either IPE or TIP will be a wise choice.


Tony D’Altorio
Analyst, Oxbury Research

The DOW Crashes?

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The DOW Proves It's Over Unitil It's Over - Watch the Video here. You may enter your e-mail address to receive an alert for a new post or video

How did a dead mathematician pinpoint the downturn in the market?
In my new video, I will show you how a mathematician who has been dead for
several hundred years, pinpointed today's downturn in the market (12/1/08).
I think that you'll find this short video informative, educational and above
all practical.

With the 2008 trading year rapidly coming to an end, we think it's diligent
to look forward at what and how you're going to approach the markets in

As I've said before in our blog, there is going to be some fabulous
opportunities to make money in the New Year. However, it's going to take
discipline and a structured approach to take advantage of those

Using Option Spread to Reduce Risk

Visit the new Investor's Money Journal extension website and feel the difference... just click Investors Money Journal . See, watch, and listen to the market strategies, tips, and advices of different investment and financial experts.

Many market participants are conditioned to think of options as instruments of gambling and undue risk. In my opinion options should be regarded as what they really are: instruments of market participation. Like any other tool, it is the way we use them that can make them help, or harm us.

I sometimes use options instead of buying or shorting the underlying securities. As we know, options come with an expiry date, and a time premium that shrinks ever so faster as we get closer to expiration. So, timing is important. Also, it is important that one chooses an expiry date that would give enough time for the trade to play out.

Following is a trade I did a while back using put spreads to short the Biotech Holders ETF (BBH). I will use a hypothetical position size of 10 contract for simplicity of calculations but that is not the size of the actual position that I had.

On August 14, 2008, a TV commentator’s remark on the biotech sector being hot and attracting funds caught my attention. I am a strong believer that when I hear something on TV, the story has already run its course. Not that financial pundits mean to deceive us, just that they, or at least most of them, pay attention to things like most of the rest of us - well past the half way mark if they are half good at what they do, right at the end if they are not.

A look at the BBH chart got me interested on the short side.

I noticed a few things
1. Price had a huge gap up in mid July
2. It followed through by another, smaller gap up, which was quickly reversed by a gap down, forming an Island Reversal.
3. The island reversal was ignored by bulls and price rose, but in a very tight slanted channel
4. The latest rise on the chart was accompanied by diminishing momentum, and volume
I liked what I saw for a short and decided to keep an eye on it.

My first thought was to see if I could find a leveraged short ETF on the Biotech sector. I could not find any. I am a member of a very active community of traders. I posted a question to see if anyone would aware of a Biotech short ETF. Instead of a simple Yes/No answer, I received detailed dissertations why it would be a bad idea to short Biotechs. This was my second contrary confirmation that I had a good shot on the short side. Not having been able to find an ETF to do the short, I decided to use put options.

A few days later, I got what I wanted

1. The rising channel broke
2. Stochastics gave a sell signal
3. Negative momentum divergences in place
4. Longer term momentum, at the top of the chart, showed signs of rolling over
Things are seldom perfect
1. Volume was lacking
2. price was on a first run out of a long term base indicating possibility of a mere pullback and not a total breakdown
3. Longer term MAs were pointing up
I decided to go on with the trade and buy some puts on BBH. But what puts? To decide on a strike, I first tried to come up with some target areas if the short would actually work.
1. There was the huge gap in 183-190 area
2. There was the top of rectangular base at 180 (that base had been 2+ years in the making)
3. 50% retracement of the up move sat right on the resistance line at 180
4. 32% retracement of the up move was somewhere in the 183-190 gap
I thought if I could get lucky, 180-185 area might define a drop target.

What option duration? Trying to give the trade a bit of time, I decided to buy Oct 185 puts. Before placing an order I defined on my exit rules:
1. Buy, sell, stop decisions were to be primarily taken based on price action of the underlying security and not the option price
2. If options were more than 1/3 in loss, the position would be closed.
For 10 Oct 185 puts at 1.25, I would have to pay 125 dollars a contract or 1250 dollars total. That would be all I could ever lose; if I could get to exercise my rules, I would actually lose 1/3 of that.

It so happened that the channel break signal that I took was a good one, and BBH started on its merry way down, all the way to this chart of Sep 4, 2008

The puts that I had could now be sold for 2.20 for a net profit of 220 - 125 = 95 dollars a contract or 95 / 125 = 76%.

But, conservative and risk averse as I am, I still am a greedy trader. This chart looked like it was rolling over on a weekly basis. So I decided to do something different.
1. I would sell 30% of the position and take some profit
2. I would lay a spread against the remaining 70%
I could sell 3 of my puts for 3 * 2.20 = 660 dollars, bringing my cost down to 1250 - 660 = 590 dollars for remaining 7 contracts = 90.7 dollars per contract.

I could now sell 7 Oct 180 puts for 1.25 or 125 dollars a contract = 7 * 1.25 = 875 dollars.
So I would be out 1250 - 660 = 590 dollars on 7 Oct 185 puts

I would get 7 * 125 = 875 dollars from the sell of the Oct 180 puts.

That would give me a net profit of 875 - 590 = 285 dollars, or 285 / 1250 (original investment) = 22%

Not as good as 70% but still decent, and I was still in the game, free of cost.

So what could happen from then till Oct expiration day if I did nothing?
1. BBH could stay above 185, and all puts would expire useless. Then I would make 22%
2. BBH could drop below 180, then I would be put BBH shares at 180, which I would sell at 185 using my higher puts and would make 500 dollars a contract on top of what I had already made (best possible outcome)
3. BBH could stay between 180 and 185 at price x, then 180 puts would expire, and my 185 puts would be worth (185 – x) * 100 dollars per contract + what I had already made
4. A disaster could happen and all contracts could be declared void, I would still make 22%, that is, if the disaster did not adversely affect my bank.
This is a recent chart of BBH showing what would happen if I had, against all technical signs, followed the pundit on TV, or the traders on the board I mentioned above.

A combination of basic chart reading techniques, decent timing, and risk management using options can produce good returns against well-defined, limited risk.

Tuesday, December 9, 2008

Traders Toolbox: Candlestick Formations

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Japanese candlesticks, which have been enjoying the spotlight in recent years, are difficult to explain in one broad brush. Candlesticks draw on the same open-high-low-close data as do bars. Here the length of the bar, or “candle,” is determined by the high and low, but the area between the open and close is considered the most important.

This area, the “body” of the candle, is filled with blue (or white for most charting programs) for closes higher than open, and is filled with red (or black from most charting programs) for down days. The wicks above and below constitute the “shadow” of the candle, or high or low.

No pattern is 100% correct, but these formations are often time incorporated into many mechanical systems and can provide as great information source for the naked eye.

Doji - When the open and close price is almost the exact same value and the tails are not excessively long. This formation can alert investors of a possible indecision and during oversold or overbought conditions can possibly signal for reversal. The bulls and bears are equally pushing the price.

Long-Legged Doji - You can recognize this formation by one or two long tails (shadows). This formation will sometimes alert that we have reached the top of the market or warn that the trend has lost sense of direction.

Gravestone Doji - This formation occurs when the open and close price is the same or near the low of the bar (period). Although this can be found at the bottom of a trend, this formation can be used to pick out market tops.

Hanging Man - This formation looks like a body with feet dangling… or a hanging man. This is a short body with a tail that is twice the body’s length. This formation can alert of a reversal and is typically found at the top of an up-trend. The longer the shadow, the greater the change is for a reversal.

Hammer - This formation is a short body with a tail that is twice the body’s length. This formation can alert of a reversal and is typically found at the bottom of a downtrend. The longer the shadow, the greater the changes are of reversal.

Spinning Top - This short body has sizable tables both on the top and bottom of the bar. This formation often times represents indecision and a standoff among the bears and bulls. There is little movement between the open and close, but both the bears and the bulls were active that trading day. After a long blue candlestick, a spinning top suggests weakness among the bulls. After a long red candlestick, a spinning top suggests weakness among the bears.

Bearish Engulfing Pattern - This formation is a major reversal pattern after the completion of an uptrend. After a blue candlestick, the next day will open above the previous day’s positive close, throughout the trading day it will blow past the previous days open completely engulfing the previous day’s movement.

Bullish Engulfing Pattern - This formation is a major reversal pattern after the completion of a downtrend. After a red candlestick, the next day will open below the previous day’s negative close, throughout the trading day it will blow past the previous days open completely engulfing the previous day’s movement.

Evening Star - This is a top reversal signal suggesting that prices will go lower. It is formed after an obvious uptrend. The 1st candlestick is a long blue box (usually when the confidence had peaked). This stick is followed by a small blue body, when the trading range for the day has remained small. The third bar (red) plows down at least 50% past the 1st day’s bar signifying that the bears have taken control.

Morning Star - This is a bottom reversal signal suggesting that prices will go higher. It is formed after an obvious downtrend. The 1st candlestick is a long red box followed by a small blue box, when the trading range for the day has remained small. The third bar (blue) shoots up at least 50% over the 1st day’s bar signifying that the bulls have taken control.

Dark Cloud Cover - This is a two bar formation that is found at the end of an upturn or at a congested trading area. The first bar is a blue (positive movement) bar followed by a red bar which reaches over the open of the previous days close and closes at least 50% down the previous days bar.

Piercing Pattern - This is a two bar formation that is found at the end of a declining market. The first bar is a red (declining movement) bar followed by a blue bar which opens (often gaps) below the previous days close and reaches at least 50% of the previous days bar.

Sunday, December 7, 2008

The MLM puzzle (2)

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This is the continued part of The MLM puzzle. MLM is just like a puzzle and there are different parts of it. The more you know, the more parts you get and you can develop your business using it. Now lets see what are these parts and how to get these,

Follow ups
It is essential in MLM to do follow ups. Without this, your prospects will become negative and will never buy your products. Follow up is needed to keep in touch with him and to provide him informations. You can read more about this topic here, Prospect follow up

Team meeting
To have a great successful and active team, you must organize team meeting. This way you can provide informations to your team mates and can motivate them. If you manage to keep up team meetings, your distributors will become leader. Read more about this topic here, 20 reasons why you must have team meetings , 20 ways to make your team mates attend team meetings

Presentation skill
Present and describe your business concept by your self to the prospects. This is also called the official meeting with prospects. A sales or a joining depends on this skill. Practise it ith your team mates and with uplines. There are was to improve this skill, read these articles for more info, A good presentation , Presentation Book

Have big dream
Dream is the biggest part of MLM success. See more dreams to achieve more. Think big and want more from life. Tell your team mates to dream too. Whenever you see a dream, believe it and your mind will set you to work more and to achieve it. Click to read Part 1

To all readers of Investor's Money Journal (IMJ) Networking Page, visit the The Marketeers site for MLM motivational articles and videos.

Friday, December 5, 2008

Traders Toolbox: Money Management Part 3 of 4

Visit the new Investor's Money Journal extension website and feel the difference... just click here Investors Money Journal . See, watch, and listen to the market strategies, tips, and advices of different investment and financial experts.

Crucial but often overlooked, money management practices can mean the difference between winning and losing in the market.

-Placing Stop Order- It’s helpful to think of these by their more formal name, stop-loss orders, because that is what they are designed to do – stop the loss of money. Stop orders are offsetting orders placed away from the market to liquidate losing positions before they become unsustainable.

Placing stop orders is more of an art than a science, but adhering to money management rules can optimize their effectiveness. Stops can be placed using a number of different approaches; by determining the exact dollar amount a trader wishes to risk on a single trade; as a percentage of total equity; or by applying technical indicators.

Realistically, methods may overlap, and you’ll have a certain amount of leeway in deciding where to put a stop, but always be wary of straying too far from the basic asset allocation parameters established earlier. For example, if a trader is long one S&P 500 future at 450.00, a based on his total equity he has a $2,500 to risk on the position, he might place a sell stop at 445.00, which would take him out of the market with a $2,500 loss ($500 per full index point, per contract). Buss after consulting his charts, he discovers strong support at the 444.55, a level he believes if broken will trigger a major break. If this level is not broken, the trader believes, that rally will continue. So he might consider putting a stop at 444.55 to avoid being stopped out prematurely. Although he’s risking an extra $225, he’s staying close to his money allocation percentages and modifying his system to take advantage of additional market information.

Of course, the size of a position will affect the placement of stops. The larger the position, the loser the stop has to be to keep the loss within the established risk level. Also consider market volatility. You run a greater risk of getting stopped out in choppy, “noisy” markets, depending on how far away stops are placed. This can cause unwanted liquidation when the market is actually moving your direction.

Now suppose our hypothetical trader, who started with $50,000, is now looking at a $10,000 gain (which happened to be his goal for this trade) on a long position. What should he do? That depends entirely on his trading goals. He can take the $10,000 profit and, assuming he leaves the money in his trading account, turn to other trading opportunities. If he desires, he can increase the size of his trades proportionally to his increase in trading equity. This would give him the potential to earn greater profits, with the accompanying risk of greater losses.

He also could choose to keep the size of his trades identical to what they were before he made his initial profit, thus minimizing his risk (as he would be committing a smaller percentage of his total equity to his trades) but at the same time bypassing the chance for larger profits. If his winning positions had consisted of more than one contract and he believed the market was still in an uptrend, he could opt to take his profits immediately on some of the trades, while leaving the other positions open to gain even more. He then could limit his risk on these remaining trades by entering a stop order at a level that would keep him within his determined level of risk, as well as protect his profits. He does run the risk of giving back some of his money if he is stopped out, but counters that with the potential for even larger gains if the market continues in his direction.

Good money management practices dictate stop orders be placed at levels that minimize loss; they should never be moved farther away form the original position. You should accept small losses, understanding that preservation of capital will in the long run keep you in the market long enough to profit from the wining trades that make up for the losers.

Trading in the real world almost never seems to go as smoothly as it does on paper, mainly because paper trading typically never figures in such real world factors as commission, fees and slippage. “Slippage” refers to unanticipated loss of equity does to poor fills (especially on stops) that can result from extreme market conditions or human error. Factoring these elements into your overall money management program can help create a more realistic trading scenario, and reduce stress and disappointment when gains do not seem to be as large as they should be.

-One Final Note- Do your money management homework before you start trading. This helps you decide what to trade and how to trade it. On paper, money management sounds so obvious and based on common sense that its significantly overlooked. The challenge is to apply its principles in practice. Without money management, even the most astute market prognosticator may find himself caught in a downward trading spiral, right on the trend, but wrong on the money. Read part 1 and 2 here

To all readers of Investor's Money Journal (IMJ), I want to ask your opinion about this blog if you want an articles purely about stock market or mix of articles about investment vehicles like real estate, networking, etc. Pls. comment.

Determine the Trend in Any Market by Connecting the Dots

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Connecting The Dots.
One of the easiest ways to determine the trend in any market is simply to connect the dot's. In this five minute video, I explain how you can connect the dots in any market to determine its trend. I will show you three examples of connecting the dots...

1. How to determine a downtrend.
2. How to determine an uptrend.
3. How to determine when a market is making a change of direction.

One of the key components I look for is how a market closes on a Friday or the last trading day of the week. This is when traders have to decide what they want to do with their positions. It also tells you with a high degree of probability which way the market is headed for the upcoming week. I learned this trading secret on the floor of the exchange in Chicago and it is one I would like to share with you today. I feel that this technique has a lot of validity, particularly in light of today's volatile markets.

Enjoy the video.

To all readers of Investor's Money Journal (IMJ), pls. leave a comment if we should stick on the articles that are related to the stock markets or you still want to read about other investment vehicle like real estate, networking, etc.

Tuesday, December 2, 2008

Traders Toolbox: Money Management - Part 1 of 4

Investors Money Journal

Crucial but often overlooked, money management practices can mean the difference between winning and losing in the markets.

Plenty of books, manuals, and software packages will help you form and opinion of a market, but not many will tell you how to trade once you have decided to get long or short. The goal of money management is to increase the odds of high quality trades. And as we’ll see, leaving the money management variable out of your trading equation can lead to ruin, even if you’re correct about the market direction.

In a broad sense, money management can encompass those elements of trading outside the initial decision to get long or short in a given market or markets – that is, how many positions to put on, when to get out, where to place protective stops. More specifically, it refers to the strategic allocation of capital to limit risk and optimize trading performance in the long run. Allocation of capital can refer to how much money to put into any one market or how much money to risk on any one trade. These decision directly affect how many positions to put on and where to place stop orders.

Given the negative odds inherent in trading (a successful trader can expect to lose money on 60% of his trades), how do you go about maximizing the profit potential of the few winning trades you can expect to have? The answers vary with the disposition and trading style of the individual trader. There exist, however, basic concepts that can be successfully adapted and modified to individual needs, and when the followed in spirit, can boost the promise of long-term trading profits and take some of the stress and uncertainty out of trading.

-Establish A Goal- Having a clear idea of what you want to accomplish by trading, whether it is a short-term profit on a single trade or the desire for a long-term trading career, can go a long way toward building successful trading habits. Regardless of whether or not the goals are set on a per trade, daily or long-term basis, establishing from the outset basic levels of acceptable risk and financial reward will help curtail avoidable risk and extreme losses. Also, determine a specific time frame in which to trade: Will a position have to be liquidated by a certain time for tax purposes or for same other reason?

-Diversification- Just as in the stock market, a portfolio of different instruments can be one of the best hedges against several and unsustainable losses; a loss in one market will hopefully be offset by gains in others. Traders must take caution, though, to truly diversify their portfolios with contracts that are price independent. Spreading your trading among three or four different interest rate contracts that move in a similar fashion is not a good example of diversification, because a loss in one contract is likely to be mirrored by losses in the others. But over-diversification is dangerous, too. A trader can spread his money over too many markets, and not have enough capital in any one of them to weather even small adverse price swings.

A good rule of thumb is to stick with what you are comfortable; do not venture blindly into unknown markets just for the sake of diversification. A balance must be stuck between available resources and a manageable trading scenario. Capital constraints will, of course limit the choices traders can make, forcing those with smaller trading accounts to bypass or minimize diversification. click to Part 2

To all readers of Investor's Money Journal (IMJ), I want to ask your opinion about this blog if you want an articles purely about stock market or mix of articles about investment vehicles like real estate, networking, etc. Pls. leave a comment.

Thursday, November 27, 2008

A Personal Message From T. HARV EKER

Visit the new Investor's Money Journal extension website and feel the difference... just click here Investors Money Journal . See, watch, and listen to the market strategies, tips, and advices of different investment and financial experts.

So what do you do now?

Take ACTION! If you're already "expert" in business and earning at least $250,000 per year then use "SPEEDWEALTH book" and "Rich Life Club" as a template to enhance the speed of your success. If you're not in this income bracket yet, the best thing you can do is...

Learn! Learn! Learn! Remember, success is a learnable skill. If you truly want to succeed you must work on yourself, study business and become a speedwealth master. The wonderful thing about becoming an expert in this game is when you win, you get rich!

Above all, get the knowledge you need, BEFORE you step into the arena. Think about it: if you were going to play Andre Agassi, the great tennis champion, for money, wouldn't start learning the game and practicing BEFORE you stepped on the court to play him? It amazes me that so many people get into the game of business without acquiring the specific knowledge necessary to win. Then they wonder why they're struggling.

If you're not in your own business yet, this is the time to learn and prepare so when you do "go for it," you'll know what you're doing. If you're already in business and haven't been creating wealth, there's obviously something missing; there's something you don't know. Get the knowledge. Learn the ropes. Apply the SpeedWealth strategies in your business and watch your income skyrocket. That's what I did and it made me a fortune. As you can see, I'm a big believer in education. I love the saying " If you think education is expensive, try ignorance."

There are three types of education you are going to need if you want to succeed to your fullest potential. One is "general business" knowledge. This would include marketing, negotiations, finance, etc. The next is "business specific" knowledge. This entails learning the "ins and outs" of your particular business. The third and most important is "personal development" knowledge. This allows you to fully utilize the first two types of education. Yhe fact is you can have the greatest "tools" in the world, but if you have a leak in your "toolbox" you're going to have a problem. In short, who are you, how do you think, what are your beliefs, what are your habits, characteristics and traits, how confident are you in yourself? In my experience, all these elements have a dramatic effect on both your success and your happiness. I have a motto that "your income can only grow to the extent that you do." The idea is to grow "yourself" and your success will grow naturally and automatically.

To this end, I have created a series of live seminars and tape products designed to help you succeed more quickly, more easily and more happily. Join RICH LIFE CLUB.
The 11 SECRET Millionaire Mindsets For QUICKLY Creating Financial Freedom...
Revealed: Secret Tips The Ultra-Wealthy Don\'t Want You To Know...

T. Harv Eker

Wednesday, November 26, 2008

Traders Toolbox: Money Management Part 2 of 4

Visit the new Investor's Money Journal extension website and feel the difference... just click here Investors Money Journal . See, watch, and listen to the market strategies, tips, and advices of different investment and financial experts.

Crucial but often overlooked, money management practices can mean the difference between winning and losing in the markets.

-Amount Of Money To Risk- It’s difficult to come up with hard and fast money to risk on different markets and trades. For our purpose, though, it’s best to think conservatively. Although some studies suggest initially allocating equity in broad terms of original margin (40% to 50% of total equity committed to the markets at a given time in the form of original margin, 15% to a particular market, 5% to a single trade, etc.), many traders consider these percentages too high, and do not consider the market to be a accurate measure of risk or a sound basis on which to allocate funds, because a trader can always, technically, lose more than the margin amount. These traders find it more beneficial to think in terms of the actual money amount they are willing to lose on any particular trade or trades, determined by their stop level or through some other calculation.

Although in specific circumstances professional traders may actually risk comparable or even greater percentages of total equity than those listed previously, on average they risk much less-perhaps 12% to 20% of total capital at a time, and 2% - 4% per trade. Depending on the size of your trading account, these levels might seem overly strict, but again, the idea is to conserve money for the long haul.

In developing your trading goal, determine how much you could accept losing on a trade, both financially and psychologically. Based on total capital and the number of markets in which you are active, allocate your equity proportionally between individual trade, market group and total trading activity levels.

These guidelines protect you from dangers of extreme leverage in the futures markets. Though it may seen attractive to have the change to make big money on a small initial investment, the risk of loss is just as great.

-Determining Reward/Risk Ratios- Another common rule in trading is never to put on a position unless your possible profits outweigh your possible losses by a ratio of 3 to 1, or at the very least 2 to 1. So, if a particular trade has the potential of losing $100, the profit potential should be at least $200 to $300. This is not a bad rule, but like so many aspects of trading, it is somewhat intangible. Once you have formed an opinion of a market, determined your entry point and calculated the maximum amounts you could win or lose on a trade, you still are left with the uncertainty of the probability of your trade winning or losing, and unfortunately there is not secret formula for removing this uncertainty.

Some traders don’t consider probabilities valid at all. The most any trader can do is perform his or her best analysis of the market, and, along with experience and intuition, come up with some rough idea of the probability of success for a given trade. This probability can then be weighed against the reward / risk ratio in selecting trades. For example, would it be better to put on a trade where the reward / risk ratio is four to one and the probability of success is 30%, or would it be advisable to put on a trade where the reward / risk ratio is only two to one but the probability of success is 75%? Using this rule, you’ll be ahead of the game by directing resources to the trades with the greatest chance of success.

To all readers of Investor's Money Journal (IMJ), I want to ask your opinion about this blog if you want an articles purely about stock market or mix of articles about investment vehicles like real estate, networking, etc. Pls. comment.

The MLM Puzzle

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May be your upline always says that you have a lot to know about MLM. Yes, they are right and you have to know a lot about this topic, but it doesn't means that you know nothing about MLM. MLM is a huge industry and no one can know everything about it. The best part of MLM is that you can earn as much from MLM as much you know more about it. MLM is just like a puzzle and there are different parts of it. The more you know, the more parts you get and you can develop your business using it. Now lets see what are these parts and how to get these,

It is most important in MLM life and you could practice it forever to improve your skills. If you want to know more about this then read this article, Aqcuire knowledge before starting MLM. Take part in workshops, seminars, meetings. Read books, visit websites talk with MLM leaders to enrich your knowledge.

Talking skill
This business is all about talking with people. The more you talk the more you can learn from people and know them. Take part in meeting and discussions. Talk with your upline, downline and friends. Talk positive and think positive. Read this article on how to Think positive. Try to talk with many peoples and motivate them. You need to talk much if you want to motivate people.

Invite skill
There is a big role of invites in MLM. A good invite makes a successful sales or joining. MLM is a word of mouth business and the invite works as a ad in MLM. Talk with people and invite them who need great products and opportunities. Read this post for more details: Inviting prospects.

Team management
MLM is a team work and you have to manage your team to ensure a great business. Team management includes helping others, counseling, team meetings and communication. A great team does a great sales and you can achieve the goals very fast with your team.

MLM is a duplicating business. Be a leader and make leaders from your team too. Make them to copy you. This is the way why people earn from MLM without doing any works. People love to follow you if you become a great motivator. Before this you must have great skills and positive attitude. This is MLM's great part which everyone cannot achieve it, very few people get this and they become great legends. Click here to read Part 2

Monday, November 24, 2008

Is Gold the Last Store of Value?

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It has been a difficult time for gold bugs for the past two months as gold has been trapped in a broad trading range which made it seem insulated and immune to all of the financial chaos around it. Today's action on Friday the 21st, put all of that in action to rest as gold soared to trade over the $800 in a matter of hours. This may be the move we've been looking for and coming from a two-month base, it seems large enough to propel this market higher.

I have just finished a new video on gold that goes into some depth and shows you potential upside targets for this market. The video can be played on any computer and does not need any special plug-in. It is available free of charge from MarketClub as part of our ongoing educational outreach program. Our goal is to help traders improved the timing and trade selection in a scientific way using tools that are real world tested and have stood the test of time. click to watch the video - Market Club

Friday, November 21, 2008

How low can the DOW go?

Investors Money Journal

How low can the DOW go? - click here to watch the video

Make no mistake about it, the market action on Wednesday (November 19th) was extremely negative for all of the indices that we track. The close below 8,000 on the DOW can only be described as negative, indicating further weakness to the downside. I am looking for this index to trade down to around the 6600-6700 level.

Looking at the charts using our "Trade Triangle" technology, it is clear that the Dow has been under pressure since our first major sell signal at 11,290. I see no reason to alter this stand, as I believe the trend will continue to be on the downside. I expect to see further weakness in the weeks and months to come.
What's an investor to do? As a trader or investor there are three choices you have as an investor:

1. You can go long a market.
2. You can go short a market.
3. You can move into cash.

I'm often amused when I see people buying "defensive stocks." Why not get out of the market entirely when it's going down. Doesn't that make common sense to everyone?

However, most brokers want you to stay in the market at all times fearing that they will miss a bottom. Truth is, most investors (including brokers) missed the top, so what makes anyone so sure that they'll catch the bottom?
The key in trading is not to get out at the top, or in at the bottom. Anyone who tells you to do that isn't playing smart in the markets, and most likely claims that they are holding the "holy grail" of trading.

An investor's goal should be to capture 70% of a move. The middle is the sweet spot, and if you make enough in the middle then who cares about the tops and bottoms. Forget picking up the 15% on the top and 15% on the bottom, it doesn't work consistently to use it as a trading strategy.

The Art of Contrarian Investing: Going Against the Crowd for Profit

Investors Money Journal

A contrarian believes that certain crowd behavior among investors can lead to exploitable mispricings in securities markets. For example, widespread pessimism about a stock can drive a price so low that it overstates the company’s risks, and understates its prospects for returning to profitability. Identifying and purchasing such distressed stocks, and selling them after the company recovers, can lead to above-average gains. Conversely, widespread optimism can result in unjustifiably high valuations that will eventually lead to drops, when those high expectations don’t pan out. Avoiding investments in over-hyped investments reduces the risk of such drops. – Wikipedia

Professionals vs. Non-professionals

“Whenever you find yourself on the side of the majority, it’s time to pause and reflect.”
– Mark Twain

What is the “Crowd”? They are the group of non-performing institutions, individual investors, traders, speculators, and other players in any market that form a collective opinion that is expressed in the terms of a degree of optimism or pessimism. We will call them the non-professionals.

The professionals are the “smart money”. These are the very few that are aware of crowd behavior and are able to adjust their strategies (long and short) to profit from extreme sentiment. Note: professional does not mean institution by definition. Most institutions are part of the crowd.

The key point to make is that when non-professionals display an excessive amount of optimism or pessimism, the professionals enter into the market and drive prices in the opposite position. Any truly non-professional, one-sided opinion or expectation of a market will be unable to anticipate a movement created by the professionals in the opposite direction that is anticipated by the group of non-professionals. This is contrarian investing, going against the masses that believe in only one direction of a market and taking advantage of their unanimous opinion by crushing them on the other side.

Here’s a diagram I created to illustrate the above point:

How does this work? Some might argue that if everyone’s buying and extremely positive, then why would the market crash? The answer: as more and more investors buy, the market will become fully invested. The last ones buying are the ones that bought into the market when the professionals were selling and will be stuck because of this overhead limit. After everyone’s bought, there won’t be anyone left to sustain the buying. Therefore, a fearful panic ensues and the masses start to sell, most of the times much later than they should have done.

A recent example of massive cash inflow (totaling hundreds of billions of dollars) is shown below. Note that the peak of the NASDAQ was on March 10, 2000 at 5,132.52 at nearly the same time when the largest monthly in flow occurred. Clearly, everyone was invested at the full limit.

The Media’s Portrayal of “Professionals”: An Observation in Barron’s April 28th Issue

This is the “Back in the Pool” issue with the funny-looking bull cartoon testing out the pool’s temperature. Barron’s surveyed “professional” investors and here were some “crowd-like” results:

1) Describe your investment outlook through December 2008:
• Very Bullish: 7%
• Bullish: 43%
• Neutral: 38%
• Bearish: 12%
• Very Bearish: 0%!!!

2) Is the U.S. stock market overvalued, undervalued, or fairly valued at current levels?
• Overvalued: 10%
• Undervalued: 55%!!!
• Fairly valued: 35%

These questions were the biggest eye-poppers:

3) Are you beating the S&P this year professionally?
• Yes: 74%!!!
• No: 22%

4) Personally?
• Yes: 72%!!!
• No: 19%

Here’s the most recent chart of the S&P 500:

The media’s definition of “professional” is not always correct so please be aware of the difference. The market is down over 40% year-to-date, so obviously the results have now changed dramatically.

Contrarian Strategies

“The fastest way to succeed is to look as if you’re playing by somebody else’s rules, while quietly playing by your own.” – Michael Konda

• Buy when media headlines read the absolute worst and there is no sentiment divide among investors. Once sentiment becomes entirely pessimistic, buy. Also look out for a bottoming of new capital in flows into stocks. Historically, the good time to buy was when capital in flows were between 10 -15%.
• Sell when everyone is overly bullish and capital in flows into common stock & mutual funds reach a high. (In 1960 the market declined 18%, in 1962 -29%, in 1966 -27%, and in 1968 -37%, while stock ownership levels were between 32- 34%, the highest ever. In 1999-2000, stock ownership levels were at 31-33%, near an all time-high)
• Don’t fight the trend. If the primary trend is down, go short. If the primary trend is up, go long. Why fight the long-term direction of the market?
• Watch financial networks and read newspapers and magazines to get an idea of where sentiment levels are. Magazine covers are my favorite.


“Follow the path of the unsafe, independent thinker. Expose your ideas to the dangers of controversy. Speak your mind and fear less the label of ‘crackpot’ than the stigma of conformity. And on issues that seem important to you, stand up and be counted at any cost.” – Thomas Watson

It’s safe to say that following the real professionals is the way to go. In order to do that, you have to know how they play. There are three points that I stress: 1) there is tremendous pressure and influence to join the crowd and gain easy acceptance, 2) the crowd is wrong the majority of the time, 3) under duress, psychologically, our emotions and objectivity can become distorted and cause us to rationalize (a dominant coping mechanism) or deny (a dominant defensive mechanism) even the basic realities of truth.

Investors will be able to join the crowd when appropriate, but remain flexible to leave the crowd at times when the market warns us. I encourage each investor to respect the nature of human weakness and to become a free-spirited independent thinker.

Thursday, November 20, 2008

Getting Started As a Real Estate Investor

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Whether you are new to real estate investing, or you have just reached a "plateau" and need some ideas, these reminders will help "jump-start" your real estate investing career and get you back on track.

Surround yourself with like-minded people
"Creative" real estate is non-traditional, which means that most people don't do it this way. Thus, most people you speak with will tell you it won't work. If you tell them you heard it in a seminar or a course you bought from a late-night television "guru," they will laugh and call you "gullible."

Attorneys and other professionals will denounce it because it sounds unusual. Keep in mind that these people are either threatened by their own lack of success or are looking to protect their own butts.

The first thing you should do is join a local real estate investment club. These associations will help you keep your thoughts in the right place and prove to your subconscious that it really does work.

If you cannot find a group, form a "mastermind" group that meets for breakfast once a week. If you don't know what a mastermind group is, you should read Think and Grow Rich by Napoleon Hill. If you have read it already--read it again, again and again.

Have a team
Don't wait until you have a deal brewing to find the players. You need to find the following players on your team right now:

Preferably one who does real estate deals for himself as well as others.

*Title or Escrow Company
Stay away from the big name companies, and find one that caters to investors. Make sure they understand double closings, land contracts etc.

*Insurance Agent
Find one who understands land contracts, landlords, etc.

Find one who is aggressive and owns real estate.

One who will give you free estimates and knows how to "cut corners" in the right places.

*Mortgage Broker
One who is savvy, creative, and experienced with investors.

In case you need one for money or experience.

Someone you can call to smooth out the rough spots.

Don't talk to unmotivated sellers
This is the biggest mistake I see beginning investors make. They waste time talking to sellers who are marginally motivated. Even worse, they drive by the house and look for comps without even talking to the seller first! Never visit a house before speaking with the seller over the phone.

I love Ray Como's Mastermind Script Book. It has hundreds of questions designed to extract the seller's motivation over the phone. Heck, the course will save you enough gas money to pay for itself! [For more ideas read: How to Make Sure the Seller is Really Motivated]

Be persistent
Anyone who has ever been in sales will tell you that few deals are ever made on the first try. In fact, most deals are made after contacting a prospect for the fourth or fifth time.

Let me give you an example. I contacted a guy who had a junker house he was thinking of selling. I met with him once and made him an offer. He didn't like it. Did I stop there? No way! I called him twice a month for a year. I mailed him two more offers that he rejected. We finally came to an accord and closed this month.

Have a follow up system like a salesman. I use a program that allows me to schedule follow ups and keep a running history of calls and conversations.

Keep educated
"If you think education is expensive, try ignorance."
I am not sure who first said it, but I give him credit. You can lose more money with a mistake than you can learning how to avoid one. Even if you have been at this business for years, you need to keep up with current trends and laws.

As an attorney, I have to go to seminars every year. Some are boring, but I always learn something that either makes me more income or prevents a lawsuit.

Have a plan
Don't just wander around looking for deals. Have a plan. Make X number of phone calls a week. Spend $X per month on advertising. Make X number of offers per week. Pass out X number of business cards each day.

Eventually, you start to get lucky. I mean that facetiously because luck always happens to those who are at the right place at the right time. If you plan and persist--you get lucky.

Treat this as a business
People are lured to investing in real estate because of the quick buck they are promised. Don't hold your breath; you won't get rich quick. An "overnight sensation" usually takes about five years.

I would guess that 90% of the people who take a seminar quit after three months. This is a business like any other. It takes months, even years to cultivate customers and have a life of its own.

You need to treat it like any other business. Give it time, effort, attention, and professionalism, and it will flourish before you know it.

by William Bronchick, JD

How to Make Sure the Seller is Really Motivated

One of the common complaints investors across the country share with me is that they talk with a seller who sounds motivated on the phone but turns out to be a dud when they go meet with this seller.

Let's look at the ways you can make sure the sellers you meet are the best use of your time.

Screen, but don't over-screen

First, understand that you will never GUARANTEE yourself that you will only meet with motivated sellers unless you are willing to make a whole lot LESS money. Does this seem contradictory to all the strong pushes I have made in the past to only work with motivated sellers?

Here is what I mean. You will always be more effective negotiating deals face to face than you will be over the telephone. In person you have the ability to create rapport and an emotional connection with the seller which is a hundred times harder when talking over the phone.

I sincerely believe that you must qualify sellers carefully, but not so carefully that you screen out everyone who isn't an ABSOLUTE deal. It's because 50-70% of the people you talk with that might be ready to sell to you at very good price and/or terms WON'T be 100% visible to you over the phone.

For example, in a moment I will share with you a script for qualifying sellers over the phone. One of the questions will be, "What is it that you owe against the property?"

Usually if the sellers are motivated they will be more than willing to share the answer with you. If they are unwilling to open up and answer, this often indicates that they aren't as motivated. BUT this is NOT a hard and fast rule.

On one rental property I called the seller and (from a "for rent" ad the seller had placed in the paper) I asked this question. The seller said he didn't feel comfortable telling me that on the phone.

I could have taken this to mean I should cancel my appointment with him. I am glad I didn't. I ended up with a ten-year lease option on the condo for a price of $110,000. Three years later that same condo is worth $165,000 and climbing!

The bottom line is that you should screen, but not so harshly that you screen out all of your possible deals. It is a fantasy to believe that in a ten-minute phone conversation you can ever KNOW with absolute certainty who is ready to sell at the right price and terms and who isn't. My belief is that you would do well to error on the side of seeing more sellers than fewer.

All that said here is exactly how I re-qualify sellers I plan on meeting with to make sure they really are ripe for me to meet with them...

I like to re-qualify on a second phone call versus completely qualify on the first phone call.

I typically do a quick sort of people who have properties for sale or rent working through them quickly to set several appointments for later in the week. Then, in a second phone call, I spend focused time with the few sellers I have appointments with doing my final screening.

I like doing it this way because on OUTBOUND calls I make to people with for sale or for rent properties I work VERY quick to do my initial sort. It slows me down too much to try to do this initial sort AND to catch myself to slow down and do a deeper qualification with the 5-10% that merit a closer look.

Two quick points

ONE: My partner, Peter, prefers to do everything I do in one phone call. He feels comfortable BOTH quickly sorting through sellers/landlords and then taking the time to go deeper with the ones he sees as worthy of spending time with.

If this is how you prefer doing things, then you should use the ideas I will share on re-qualifying sellers at the end of your first call with the seller rather on a separate second call. Both work fine, I am merely sharing with you how I like to do it.

TWO: On calls I make to sellers who have called me off of my ads and other marketing campaigns, I almost always do my deeper qualification on my first call to them.

I use the re-qualifying call idea when working with sellers/landlords I am calling straight from THEIR ads they have in the paper or signs they have around the neighborhood.

Sample re-qualifying call script
[Note: This script assumes that you already have spoken to the sellers on an earlier phone call, talked with them for at least three to five minutes, and set up an appointment to meet with them.]

Ring, ring...


Hi, this is ____, I was just calling back to double-check my directions to meeting with you tomorrow. It sounds like I caught you in the middle of something?

Oh, okay, well if you can just give me the zip code of the property I am sure I'll be able to look it up in my map book.

While I have you on the phone may I ask you a couple of questions?

What's the square footage of the house [or some other harmless question that gets the seller comfortable answering questions and warmed up to talking with you about the house.] How many bathrooms did it have again?

And what was it that you owed against the house, roughly?

And your payments are? Best guess?

Does that include the real estate taxes and insurance?

Now I know you told me on the phone before, but why was it again that you were selling the property? [scrunching up your face over your brow and under the inside corner under your eyes to get the right tonality-called "scrunchy face"]

And when did you want the property handled, six months? Twelve months? Ideally when did you want the property handled?

Oh Okay, that makes sense. A question for you [scrunchy face and softer voice] what were you planning to do if you didn't sell the house right away? What was your back-up plan?

Had you ever thought about just renting it out?

If they answer yes--

What do you think it would rent for?

If they answer no--

I know you don't plan on renting it out, but if you did rent it what do you think it would rent for? This just gives me a better idea of the value of the property.

At this point go back and make sure you build some more rapport with the sellers. Ask them about their families or hobbies or anything else you can get them to talk about that they genuinely enjoy and you can sincerely be interested in them for.]

Now go back and ask the following questions:

Now who else besides you is on title to the property?

If they are the only ones skip the next questions about getting all the legal decision-makers to the property for the appointment.]

Obviously we'll need to have ALL of us meeting ___[day you have appointment]___ at the property just in case we find it's a fit and I decide I want it. I just want to make absolutely certain that you and ___[other people on title] are all going to be there. Are you all?

Ask a few rapport questions again, even trying to include the other owners, so you can gather some information about them that will help you connect faster when you meet with them at the property.]

Great I'll see you (and ___[other people on title]___) on _____ at _____am/pm. Have a great day.

Is it time to meet the sellers face-to-face?
From the answers to these questions you should be able to determine whether or not the seller is BOTH motivated and has the right situation where you can help them and make a profit.

Motivation means two things:
1. A compelling reason to sell
2. Time pressure to do it fast (usually 60 days or less)

Situation means one of two things:
1. Enough equity for you to get a great cash price
2. Seller NOT needing their equity (or at least all their equity) out when you buy it from them. This means they could be flexible on the TERMS of the sale

If the seller shows both a fit in motivation and situation, I would recommend that you meet with them. If you are left with a sense that they really aren't motivated, then either cancel or delay your appointment OR throw them a trial offer right there over the phone to gauge their reaction.

For example say:

Mr. Seller, I don't know if I could do this, but what if I was able to cover your $1,400 per month payment for a while and down the road the road I cashed you out of the house at say, $177,000-178,000 is that something that we should even talk over when I come out to meet with you and see the house, or maybe not?

If the sellers say yes, follow up that question with:

I'm curious. What about me covering your payment of $1,400 per month and cashing you out at the $177,000-178,000. Would that even be a fit for you?

By this point you should know if they are worth investing your time to go and meet with them.

I hope this game plan for re-qualifying sellers helps you best use your time and close more deals.

by: David Finkel is an ex-Olympic level athlete turned real estate millionaire and one of the leading investing experts in the nation. He is a Wall Street Journal and Business Week best-selling author of over 40 business and investing books and courses, including the wildly successful, Real Estate Fast-Track and The Maui Millionaires.

Times Like These, Ask Yourself: What Would Warren Do?

“Be fearful when others are greedy and greedy when others are fearful.” How’s that for a classic Buffett quote. Look- whether your like the guy or not, he’s a financial genius; so in times like these, who do I watch? None other than good ol’ Mr. Buffett himself.

There’s no question what Buffett is doing right now. If you’ve followed some of his latest moves, he’s taking an extremely aggressive approach to an injured economy. Just ask him! Recently, he was caught saying that he’s “been buying American stocks” with his personal money. Interesting… American stocks? Well wait a minute! Maybe Warren is just getting so old, he can’t manage to make it over to the remote to turn on the TV to see what’s happening right now to American stocks.

Or maybe he’s just a genius, and you and I should do what he does.

So what’s he doing right now? Well, for starters, he picked up Berkshire Hathaway in the latter part of September. He also saw an opportunity with Constellation Energy and picked them up for $4.7 billion. Viewing Goldman Sachs as real steal, he picked up another $5 billion there; not to mention his $3 billion of preferred shares from GE, which is supposed to end up yielding somewhere in the neighborhood of 10%.

If the point isn’t clear enough, if you’re fortunate to have some spare funds lying around the house (right, as if anybody really has that!), go out and buy! There’s no time to wait! Well, according to Mr. Buffett there’s not time to waste.

I don’t necessarily think that he’s saying to go out and pick up stock from these particular companies, but the message should be clear- in a falling, injured US economy, rather than taking your losses and selling, why not hold on to what you have, and take any extra money and throw it in while stocks are on sale!

What are you doing? Waiting? Have you sold a lot of yours? Holding… ?


Monday, November 17, 2008

Can Real Estate Still Be a Good Investment?

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That's a question we are all asking today. Why? Because of the many stock market investors who speculated in real estate, the problems surrounding sub-prime loans with the resulting foreclosures and bank failures, and falling home prices.

If the late Dr. David Schumacher, my mentor for the past 10 years and author of the now-famous book, The Buy and Hold Strategies of Real Estate, were still around, I know what he would say because he said it during the last downturn in 1990-1995. He would tell us not to worry. This is only temporary and part of the normal cycle of real estate.

It creates bargains that can benefit you. This cycle has been happening since Montgomery Ward began offering homes for $1,500 through its catalogs. As sure as the sun rises and the seasons come and go, real estate will make those who own it rich over a period of time. He would add that now is the best time to get great deals in real estate.

The Real Estate Cycle

Real estate is still the best investment possible. It always has and always will do well in the long run. This is the fourth real estate cycle I have been through and none of the downturns were fun. However, if you have patience and look at the long term, your real estate will go up in value more than any other investment. Do not treat real estate as you might treat the stock market, worrying about the ups and down.

Since 1929, real estate has gone up an average of five percent a year; if you stay away from the obvious non-appreciating areas like Detroit, it is more like seven percent a year. At that rate, properties will double in value over 10 years with compounding. Add a federal tax benefit of 28 percent plus state tax deductions, the depreciation write-off for rental property, and the eventual pay-down of the loan and you have a strategy rich people have always used to accumulate wealth.


Over the past 30 years I have watched many flippers who buy, fix up, and sell. I do not know many who have much net worth or are wealthy because of flipping. It is simply a very risky way to make money.

Those who have prospered are the ones who are in it for the long haul and patiently watch their properties increase in value over time. This past downturn was created by speculators who all flipped at the same time, putting too many properties on the market for sale and rental. I guarantee that over the long haul, you will always regret selling any property you have every owned.

Buy and Hold

Since time passes by anyway, the buy-and-hold strategy is a great way to become rich. Dr. Schumacher experienced at least five real estate cycles and did extremely well, acquiring an eventual net worth of over $50 million.

You just can't go wrong in purchasing an inexpensive condo, townhouse, or single-family home in a good location where there are jobs. Make sure you have a fixed-rate loan, make sure it cash flows, hold on to it for 10 to 20 years, and you have a property that has doubled or even quadrupled in value. When you need to retire, simply do a cash-out refinance to live on or to supplement your retirement pension.

For example, the first property I purchased for $75,000, a townhome in Lake Arrowhead, CA, is now worth $650,000. My first oceanfront condo, which I purchased in Long Beach, CA, in 1982 for $112,000 and used as my residence, is now worth $500,000. One-bedroom condos I purchased in Maui, HI, in the late 1990s for $80,000 are now worth $400,000. Homes I bought around the same time in Phoenix, AZ, for $75,000 are now worth twice that. I could go on and on and on.

What are your Options?

What are your options to building wealth today? The options are to buy real estate and build wealth or to not purchase property at all, to struggle a lot and have nothing to show for it.

1. You could do nothing. The 25 percent who do not own a home end up with no assets when they retire. They have a car loan and owe an average of $9,000 on their credit cards. Those who do not purchase rental property may be forced to work past age 65 to supplement their meager retirement income.

2. You can try to depend upon your retirement. The above chart shows that you should not depend on your retirement income alone to support you, because it won't. Those on Social Security or most retirement programs end up living below the poverty line and are forced to work until they drop, so that is not a solution. Other investment options are not doing so well, either.

3. Invest in the stock market. We are definitely in a slowdown (I refuse to believe we will have a recession), so the stock market is not going to do well for several more years.

4. Invest in gold and silver. They have already made their run; it is doubtful they will do much better. Gold and silver are used as a hedge against inflation and a weak dollar. It looks like oil prices are headed down and the dollar is strengthening.

5. Invest in real estate. Those who invest in real estate almost always do well. The following graph shows how the top one percent in income have acquired their wealth. As you can see, the vast majority have invested in real estate.

Don't Think Short-Term

Real estate is not designed to be considered short-term. Right now, real estate is going down in value in many cities, but it is going up in many others. It is a terrible time to sell and pull out any equity. Only about five percent of the properties are for sale. Most homeowners and investors are simply holding on to their real estate and are waiting for the next upward appreciation cycle.

The Four Greatest MISTAKES People Make in Real Estate

Real estate always does well when purchased correctly. It is people's choices and sometimes greed that mess up an almost perfect investment.

MISTAKE #1. Purchasing Property That is More Than One Can Afford

Often individuals are attracted to and purchase a home they cannot afford. They struggle their entire lives just to make the payments. Then if they have an illness, job loss, or divorce, they are in big trouble.

MISTAKE #2. Buying Properties That Don't have Cash Flow

When rental properties are going up rapidly, everything seems desirable and people purchase rental properties that don't cash flow. Often that can lead to disaster with large, negative cash flows when the market softens. Properties that cash flow are a no-brainer. They are great no matter what happens. These are the ones you want to buy and hold. Eventually they will be paid off.

MISTAKE #3. Refying Too Much Out

When prices are going up, one is tempted to take out the maximum amount allowed on an equity line on one,s home or do a cash-out refi on a rental property. That is dangerous if one cannot make the payments or support the negative. It is like abusing one's credit cards, which often ends in bankruptcy. It is especially discouraging when values drop below the loan amount, as is happening with many homeowners right now. One should not get discouraged, they will eventually return to their original value and then surpass that, usually within 2½ to 4 years.

MISTAKE #4. Getting the Wrong Loans

We have all seen the problems with sub prime loans. Those with low incomes were not the only parties using these loans. Some bought million-dollar homes in a gamble that they would up in value. Five-year Option ARMS also became popular, but they caused major problems to the investor when they reset. Loans like these should be refinanced as soon as possible. The same is true for adjustable-rate mortgages. Fixed-rate loans are the only suitable loan type for anyone who plans to hold on to his properties.


It is never fun to be in a down cycle and see the equity in your home and rental property slip away. However, do not be discouraged, this is just part of the cycle of real estate.These down cycles are always good times to pick up more property at great prices, but be sure you keep a reserve for unforeseen problems (such as illness or job loss) so you can still make your payments. Make sure you purchase good properties in good locations, priced below the median price for the area, in markets that have good job growth.Properties will return to their 7-plus percent appreciation and then you can watch your wealth build once again. So, don't worry. Real Estate is still the best long-term investment.

Run Your Investment Like a Business

I have found that people who have made money consistently through their investments are able to do so because they treat it with same seriousness as they would in building a business or a second career.

If you treat investing as just a "by-the-way" activity that you spend time on now and then, you will never be able to succeed. So, how can you run your investing activity professionally like a home business?

Just as an entrepreneur has to decide on the mix of products that his business will sell, you have to decide on the type of investment strategies you will use to generate the profits that you aim for. You also have to decide how you are going to allocate your investment funds between them.

There are whole ranges of investing strategies to make money. Some of them are short-term and some of them are long-term. Some of them require daily monitoring while others require monthly monitoring.

The kind of strategies you should employ depends on your targeted rate of return as well as the amount of time you have to spend. For example, being a full time trader who is able to monitor the markets for 5-6 hours a day.

My fellow investor Conrad focuses 100% of his money into very short-term momentum trades that make him quick gains within a few days. Because of his smaller investment capital (which he first started with), he solely uses Call & Put Options that give him the highest possible return of 100%-200% on his money. His strength in Technical analysis gives him an advantage in picking the best momentum trades.

As a person who has full time businesses to run and relatively less time to trade on a daily basis, I allocate 80% of my money into medium-term value stocks as well as buying ETFs that track the overall market and its sectors. My strength in fundamental analysis and business strategy also gives me an advantage as a value investor. I would only focus the remaining 20% of my funds into short-term momentum trades to give my returns an added boost.

Whatever investment you decide to use, always remember that you need to diversify your money adequately into at least 8-10 different stocks or options at any one time. No matter how much research you do and no matter how good a company's stock can look, things can turn against you with a single piece of negative financial news. Be prepared to make losses on a few trades, it is only natural.

However, if you stick to the rules and cut your losses, the profits you make on your winning trades would be enough to build a small fortune.

Secrets Of Millionaire Investors by Adam Khoo

Sunday, November 16, 2008

Create Passive Income - Power of Duplication (Leverage)

Not all business are created equal.

Some business are just glorified jobs.

Let me tell the story of Maria.

Maria was an accountant in a huge company. She had so much work, she worked until late into the evening every single night. Obviously, she hated her job. She felt trapped in her 8 a.m. to 10 p.m. prison everyday.

One day, she walked into a bookstore. On impulse, she bought a book on how to start a business. She read it in one sitting and got all revved up. Maria begun to dream of having her own carinderia (simple mini-eatery).

You see, Maria loved to cook. As a child,Maria was a helper in grandmas canteen. Through her mentor, she learned how to market, how to create delicious meals, how to run a kitchen like a battleship and how to make customers happy.

Maria resigned from her jo and jumped headlong into her new business.

And people loved her food. And because her house was on a busy street, sales were brisk and profits were good.

Maria was having a time of her life. She was doing what she loved and was earning more than her accountant's salary.

There was just one problem: One year into the business, Maria realized she was working harder and longer than when she was an accountant. Yes, she still worked until 10 in the evening. But this time, she didn't start at 8 a.m. but at 4 a.m., because she had to do the marketing early in the morning. I was an 18-hour job.Sure, she loved what she was doing. it was clearly her core gift and passion. But would she be able to continue with this backbreaking schedule?

From my point of view, Maria replaced one job with another job. Yes, the second job is now her own, but unless she trains others to do her work and duplicate herself, its just a glorified job. Unless she changes her approach, she will suffer from two things:

1. Entreprenur's Burnout

Maria is a perfectionist and cant delegate. She can't see someone else in front of her stove (she calls it her throne). She believed she has to be the one who does the cooking or the food wouldn't taste the same. When a business owner is like Maria, burnout is not far away. Stress will build up until Maria gets sick physically or emotionally - and may be forced to give up the business.

2. Dead-End Profits

Maria can never expand her business and increase her profit exponentially. Her earnings will remain stuck. Or if ever it will increase, it will increase via addition, not multiplication.

Remember that one of your goals is passive income.

You need to set-up a business in such a way that, one day, it can run without you. Or at least, with minimal supervision. Your goal is that while you sleep, your business earns for you.

When Maria can train cooks to duplicate her culinary skills and managers to duplicate her managing skills, she can exponentially expand her income by doing any of the following: offer catering services for parties, or start a new branch in another part of the city, or sell her sauce in bottles, or write cookbooks, or start her own cooking show on TV!

That's why every time I enter into any project, I always do it with a team around me. Never alone.

And together we crate a system for a project that's replicable and duplicable.

In other words, it's got to run on autopilot without my direct supervision.

Here's my ideal leader: If I appoint someone to be project head (or business manager). ater six months, I dont want her bothering me anymore except for major directional issues. If she/he still bothers me for tiny matters, I've chosen the wrong leader - or I trained her wrongly.

Excerpt from the Book of 8 Secrets of the Truly Rich by Bro. Bo Sanchez

Process Flow of Registering A Business

Step 1:
Seek approval / clearance from the Barangay.

Step 2:
Secure Tax Identification Number (TIN) from the Bureau of Internal Revenue (BIR) District Office where the office is to be located.

Step 3:
Apply for business permit and license from the City / Municipality where the business is to be located.Get sector specific clearances, or example:
* Travel Agency - Departmet of Tourism (DOT)
* Food and Cosmetics - Bureau of Foods and Drugs (BFAD)
* Pawnshop - Banko Sentral ng Pilipinas (BSP)
* Learning Centers - Department of Education (DepEd)
* etc..

Step 4:
Register with Bureau of Internal Revenue (BIR) District Office where the business is to be located for Authority to Print Invoice and Book of Journal

Step 5:
Register your business for compliance to good employer-employee relationships, incentives and benefits, social, community and environmental responsibilities:
* Social Security System (SSS)
* Department of Labor and Employment (DOLE)
* PhilHealth* Pag-ibig
* Department of Environment and Natural Resources (DENR)

If Sole Proprietorship:
* Register with the Depatment of Trade and Industry(DTI) for Business Name Certificate

If Partnership / Corporation
* Register with Securities and Exchange Commision (SEC)

If Cooperative:
* Register with the Cooperative Development Authority (CDA)