The Stock Market Cash Flow Read online

  Statements like “I hope the market improves” imply that investors have been placed in a position in which that investor has no control. Wise investors position themselves where they can act—and not just be acted upon.

  4.Risk is related to control.

  Lots of control means less risk. Less control means more risk. No control is equivalent to gambling.

  5.It is vital to know the maximum risk of any investment.

  6.Consider investing in pairs.

  When investors take a position in a primary investment, they often take a small but leveraged position in a secondary investment as a hedge.

  7.Risk can be described in terms of the vehicle or in terms of the investor.

  Many traditional financial advisors will do a risk profile based on the client’s tolerance for risk and then translate that into investments in cash, mutual funds, and bonds. This is an investment-centered approach. We can also look at investment risk as a function of the education level of the investor and the likelihood that the investor can make mistakes or position themselves wisely.

  Chapter Eight

  Your Next Steps

  As you come to the final chapter of this book, I hope you realize just how much potential you have to become a proficient investor. The systemic problems that loom over the average worker trying to invest for retirement today are like severe storm clouds that are getting darker by the hour. Investing for the future would be a very sad proposition indeed if individuals didn’t have the opportunities to learn and take action, take steps to take control of their financial future.

  The good news is there’s so much that you can do and so much you can learn. It’s my hope that the many concepts, techniques, vocabulary words, and principles in this book can act as a foundation you can build upon in moving forward as you take the next steps.

  The First Step: Goals

  Way back at the beginning of this book, I asked you to write down your goals.

  Lifestyle goals lead to financial goals or money goals, and money goals lead to education goals. It’s an exciting feeling to realize that you and I can have whatever we want if we learn certain truths, then demonstrate the discipline and tenacity to bring our behavior into harmony with what we have learned.

  The first important step you can take as you come to the final chapter of this book is to review your lifestyle goals, your money goals, and your education goals.

  Develop the Habit of Personal Fundamental Analysis

  You now know that fundamental analysis grows out of the information on a financial statement and that it gives you a clear picture of the strength of an entity. Remember that the financial statement is a result of policy. To create major changes to a financial statement requires major changes in policy.

  In my life I strive to develop routines and policies that will bring good results. Like you, I sometimes stumble and make mistakes. I’m far from perfect, so when I make mistakes I often find I must renew my effort, make adjustments, and apply myself in new ways.

  One of the routines and policies that you can start right away is to conduct a weekly personal fundamental analysis and use your financial statement as a guide. As you do so, you will begin to better understand how fundamental analysis works on all levels and begin to develop better personal policies that bring you the results want.

  I also highly recommend that you have some fun while you learn by playing the board game CASHFLOW® 101. It’s an incredible simulation and teaches personal fundamental analysis better than any book you can read.

  Keep Moving Along the Education Continuum

  Now that you have become familiar with all 4 Pillars of Investing, it’s a great time to revisit the Education Continuum™ to see where you have progressed along the continuum and also how far you want to go. Take a moment and consider some of the things you’ve learned about each pillar, one at a time, and ask yourself where you are on the continuum.

  For example, when it comes to basic sovereign fundamental analysis, where would you place yourself on the continuum? While there are surely still some things you don’t know, hopefully when it comes to fundamentals, you have become very much aware of many important lessons. At the sovereign level, you should have a better grasp of things like monetary and fiscal policies and debt/GDP ratios.

  When it comes to technical analysis I hope you feel you’ve become much more aware of the power that comes from being able to read a stock chart and have a better understanding of trends in the supply-and-demand story as it unfolds each day.

  You now know that success has much more to do with how you position yourself as opposed to what happens in the markets or economy. You should have a greater awareness of leverage by debt, contract, time decay, and more.

  You have become aware that risk is related to control. You now understand the difference between non-systemic risk and systemic risk…and how option contracts can offer a hedge.

  But is there more we can learn? Absolutely. Always. One of the challenges to writing a book is to determine the ideal scope. Thousands upon thousands of pages could be (and have been) filled with strategies, techniques, and risks related to paper assets. I believe, however, that the most effective way to help someone transform into an investor is to give him or her a strong foundation on which to build. Remember the lessons of context and content from the beginning of the book.

  Content and context depend upon each other. But they do come in a defined order. You have to change your context before you can effectively increase your content. As you continue along the Education Continuum™, always remember to expand and improve your context as you seek to gain more content.

  Practice Paper Trading in a Virtual Account

  Let’s take a moment to revisit the Cone of Learning. Notice that the more active the learning, the more effective it is for the student.

  Source: Cone of Learning adapted from (Dale, 1969)

  Reading has always been a large part of the traditional education experience. There is great value in building your own library of important wealth books. I have to confess that I agree with the Cone of Learning in that I don’t remember much of what I read, but what I do remember is valuable. For me, books are most effective in helping me develop my context and introducing me to new concepts.

  And while books are a very valuable tool in introducing topics, a much more effective way to move toward proficiency along the Education Continuum™ is to do the real thing with the guidance of a mentor.

  Paper trading, or virtual trading, is the practice of watching real stocks or options by using real fundamental and technical analysis and then placing imaginary positions for cash flow and risk management and then seeing how things play out. Most brokerages today offer their customers a service which enables them to open “virtual accounts” to simulate the real experience of trading.

  This is a great experience designed to get you familiar with how to enter orders and test your skills—without taking any risk. If someone places an order incorrectly or makes a mistake on the order form, that type of mistake in the investing world is known as pilot error. Paper trading helps you cut down on your pilot errors as you become more familiar with the brokerage website or software.

  Begin Building Your Investing Team

  Me, my wife, and my two sons make up our family. This is my most important team. Life’s challenges are much easier to tackle if it’s done with a team rather than as individuals. As a family, we live our lives together and we help each other become successful, rather than trying to do everything on our own.

  I’ve learned that teams are incredibly powerful. They allow for synergy. They offer a greater degree of safety than operating as an individual. Nearly any goal you set is more likely to be achieved if it’s worked on by an entire team rather than a single individual.

  I’m humbled and blessed to have been part of some incredible teams throughout my life. As a kid I was part of a Boy Scout troop. In college I was fortunate to be a part a very successful basketball te
am. When I was diagnosed with cancer I was treated by an entire medical team. Certainly, there were certain things that only I could do, as an individual. But I’m humbly grateful to acknowledge that success in my life has comes as the result of my team much more than anything I could have done alone.

  Today I’m similarly humbled to be a small part of an education team. Robert and Kim Kiyosaki, along with the other Rich Dad Advisors, are part of a team with a common mission: to transform people’s lives by giving them opportunities for financial education. The Rich Dad mission is to improve the financial wellbeing of humanity through financial education.

  As you develop your team, consider your mission and the type of people you want around you. Being part of a team is a two-fold experience: to help and be helped. I’ve heard Robert say countless times that “investing is a team sport.” Most people try to go through life on their own without a team of attorneys and accountants and advisers to help along the way. I think that’s a mistake. Having a team of advisers does not mean that we try to compensate for our own ignorance by pawning off finance responsibilities and decisions to other people. On the contrary, I learn from my advisers and am very much involved and aware of what’s going on—and why it’s happening.

  As a basketball player I understood my role on the team. I could not just coast along and expect everyone else to score all the points, play the entire defense, and do all the work. The other team members were not there because I didn’t know how to play basketball. They were there to help us attain our common goal.

  In addition to the attorneys and accountants as your financial advisers, consider finding effective teachers to place on your team. I can genuinely say that so much of what being a Rich Dad Advisor is all about for me is the incredible learning experience I gain from the other people on the team. It also provides the opportunity to learn more about being a teacher.

  I have repeated time and again that the strength of the financial statement grows out of policy. Some people have a policy of working as a team and some people have a policy of doing things alone. Some people have an education policy and some people have a policy of ignorance. Some people have a policy of using mentors and teachers. Others have an education policy of reading books alone, instead of including practice by simulating the real experience through paper trading and playing CASHFLOW 101. Seeking out additional teachers and mentors is another way of practicing the real thing.

  Decide Now to Overcome Obstacles

  We know that we can have anything we want in life. We know that it’s just a matter of completing certain tasks each day and getting the proper education. We also know that invariably there will be things that get in our way. There will be times when we are tempted to quit…due to fatigue, failure, mistakes, frustration, input from others, or whatever. What will give you the strength to continue in the face of adversity?

  I love the movie Apollo 13. It tells the story of United States astronauts who suffered severe damage to their spacecraft while attempting to go to the moon. These three astronauts were part of a huge NASA team on the ground. Each member of the team, whether in the space capsule or on the ground in Mission Control, faced extreme adversity, huge obstacles, and problems that were seemingly unsolvable. There’s a very poignant part in the movie where members of the team approach the flight director and suggest that the problems are unsolvable. He responds with five powerful words: failure is not an option.

  If your experience moving forward is anything like mine, you will sometimes face adversity. As much as you try to keep mistakes at a minimum, remember that mistakes are part of the education process. When you encounter adversity or obstacles, it’s a good idea to go back and review your goals. That’s when you will rediscover what you truly want. When you become passionate about your life and your goals, you too can say “failure is not an option.”

  In order to be really successful, you have to have a second gear—that reserve of energy you can go to when things get tough. Mine is my family. There will definitely be days when you and I might not want to get up and get moving in the morning. But we do not have that option. For me, I look at my wife and kids, and I find second gear pretty fast.

  Your Future Is Bright

  There’s a lot of doom and gloom in the world. The truth is that there are some very large and difficult problems in many parts of the world. But that doesn’t mean you will become a casualty of these problems. The good news is that you can always control your position. You control your own education. You can choose to act…and not just be acted upon.

  When your passive income surpasses your expenses, you’re out of the Rat Race. What a place for us to be! You can get there, but you have to stop the monthly income-from-a-job circle of the Rat Race.

  I hope that one of the messages you take from this book is that you can make your own personal financial statement reflect the life you choose to create. You don’t need to fall victim to the problems of the world. You always control your policies.

  As you move along the Education Continuum, you will begin to see more success as your efforts begin to bear fruit. You will begin to feel the satisfaction that comes from realizing what you can become and how to make it happen. Most of all, I hope you’ve enjoyed learning more about how paper assets can fit into your overall investing plan and how the 4 Pillars of Investing can make you a better investor, regardless of what kind of assets you plan to acquire. If you’ve found value in the insights in this book, I would like to continue being a member of your education team.

  I know I will always keep learning and I will always keep teaching. So if you’d like to stay in touch you can do so by following me on my Facebook page, or you can drop by my website at www.stockmarketcashflow.com where you can receive regular updates on the world of paper assets as the world economy continues to change.

  I wish you all the best.

  About the Author

  Andy Tanner is a renowned paper assets expert and successful business owner and investor known for his ability to teach key techniques for stock options investing. He serves as a coach to Rich Dad’s Stock Success System trainers and as the Rich Dad Advisor for Paper Assets.

  As a highly sought after educator, Andy has taught tens of thousands of investors and entrepreneurs around the world. He often speaks to students at the request of Robert Kiyosaki, showing how paper assets can fit into the Rich Dad system of investing. In 2008, Andy played a key role in developing and launching Rich Dad’s Stock Success System, a program created to teach investors advanced technical trading techniques for profiting in both bull and bear markets.

  He is the author of two books: 401(k)aos and Stock Market Cash Flow, a Rich Dad Advisor series book on paper asset investing.

  Andy has also created an online investing course called The 4 Pillars of Investing. You can find out more about it at www.4pillarsofinvesting.com.

  The Rich Dad Advisors series of books was created to deliver the how-to content to support Robert Kiyosaki’s series of international bestsellers: Rich Dad Poor Dad and the Rich Dad series of books. In Rich Dad Poor Dad—the #1 Personal Finance Book of all Time—Robert presented the foundation for the Rich Dad principles and philosophies and set the stage for his context-changing messages that have changed the way the world thinks about money, business and investing.

  The Rich Dad Advisors series of books has sold more than 2 million copies worldwide and RDA Press, exclusive publisher of the Rich Dad Advisor series and the licensor of International Rights for the series, will be releasing several new titles that will expand both the scope and depth of the series.

  Rich Dad Poor Dad represents the most successful book on personal finance in our generation. Over the last 15 years, its messages have inspired millions of people and impacted tens of millions of lives in over 100 countries around the world. The Rich Dad books have continued to international bestseller lists because their messages continue to resonate with readers of all ages. Rich Dad Poor Dad has succeeded in lifting the veil of confusio
n, fear, and frustration around money and replacing it with clarity, truth, and hope for every person who is willing to commit to the process of coming financially educated.

  In order to make good on the promise of financial literacy and ultimate freedom, Robert Kiyosaki assembled his own team of personal and trusted advisors, proven experts in their respective fields, to deliver the only complete ‘how-to’ series of books and programs that takes the messages of Rich Dad to the streets of the world and gives each reader the step-by-step processes to achieve wealth and income in business, investing, and entrepreneurship.

  RDA Press is driven by several of Kiyosaki’s actual Advisors who have committed to take the messages of Rich Dad, convert them to practical applications and make sure those processes are put in the hands of those who seek financial literacy and financial freedom around the world. The series gives practical, proven processes to succeed in the areas of finance, tax, entrepreneurship, investing, property, debt, sales, wealth management and both business and personal development. Three of these trusted and accomplished Advisors—Blair Singer, Garrett Sutton, and Ken McElroy—are the driving forces behind RDA Press.

  RDA Press is proud to assume the role of publisher of the Rich Dad Advisor series and perpetuate a series of books that has sold millions of copies worldwide and, more importantly, supported tens of millions in their journey toward financial freedom.