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Investing to One Million Dollars or Bust!

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A couple months ago I got a phone call from somebody from my credit card company offering me a protection service for my credit card. If I signed up the first month or two would be free, but after that I would charged a month fee. If I signed up, I would recieve a free $25 gas card. I asked a few questions, and promptly signed up. Within a week, I recieved a letter confirming that I had signed up. I immediately called them and cancelled! Within another week, I received a form in the mail to get the free gas card. I filled out the form, and mailed it in. In another month or so, I recieved another form that I needed to fill out for the gas card. Mostly this second form was to select which gas station I wanted the card for. I chose Exxon as there is one not too far from my house, and they generally have good prices. Finally, last week my $25 Exxon free gas card came. I filled my tak over the weekend, and by coincidence, it took exactly $25 worth of gas to fill it! Way cool!
I generally avoid signing up for the credit card services, or anything where there will be something free, then you will be billed. They seem like a great deal because you are getting something free. But then you forget to cancel, or procrastinate, or whatever. Pretty soon that free gas card, or free whatever isn’t free anymore. If you sign up for this stuff, and you really don’t want the service, make sure you cancel it right away! Don’t put it off. If you have any doubts that you forget to cancel, don’t sign up to begin with!

I was watching the movie Fun With Dick And Jane. Not the original, but the remake with Jim Carrey and Tea Leoni. I like the original with George Segal and Jane Fonda much better. The main premise of the movie is a Dick (Jim Carrey) get screwed over by the heads of the corporation he works for. The company goes broke amid an accounting scandal. Dick and Jane spiral down until they turn to robbery. They find out that the CEO was behind the whole scandal, and they end up robbing him, and giving the money to the pension fund in his name.

But at the beginning of the credits they had a little sense of humor in their acknowledegments:

Special thanks to:
Ken Lay-Enron
Bernard Ebbers-WorldCom
David Myers-WorldCom
Dennis Kozlowski-Tyco
Mark H. Swartz-Tyco
John Rigas-Adelphia
Timothy Rigas-Adelphia
Scott Sullivan-WorldCom
Bufford Yates-WorldCom
Jeffrey Skilling-Enron
Andrew Fastow-Enron
Lea Fastow-Enron
Samuel D. Waksal-ImClone Systems
David Duncan-Arthur Andersen
E. Kirk Shelton-Cendant
Ben Glisan Jr.-Enron
Dan Boyle-Enron
Weston Smith-HealthSouth
Aaron Beam-HealthSouth
Arthur Andersen
Enron
Adelphia
Cendant
HealthSound
WorldCom

Now that was hilarious! :)

One of the speaker’s mannerisms was to have the audience complete his sentences. He would say the whole sentence except for the last word which would be obvious, and pause to let the audience complete it. Basically a tactic to bring the audience into it.
He then started talking about ETF’s (Exchange Traded Funds) and how they have advantages over funds because they can be traded like stocks. He mention covered calls at this point saying it was like insurance. You have insurance for your car and house, but not your money? The problem with covered calls is that they are relatively expensive. Yes, you can use them as insurance, they don’t last long, You would have to keep buying them over and over which would lower your return on investment of the stock you are protecting. Better to buy stocks that are solid and that you are willing to ride through any short term drops. Yes, some investors do use covered calls as insurance, but only to protect themselves against a known uncertainty that might cause the stock to drop. But not as a day-to-day thing. That would be stupid.
Then he showed us a stock chart. The problem with stock charts like this is you can see the past with 20/20 vision. Yes, you could buy low here, and sell high here, etc. But in real life, you don’t know if you are at a low point or a high point.
He went on to trash Dollar Cost Averaging. And there were more horror stories about people who lost everything because a financial advisor put them in tech stocks in 2001. And then there was a short video clip about people having to work into old age because they didn’t have enough money. There were the references to older people working at McDonalds, and as Wal-Mart greeters.
He brought up a list of their competitors (Investools, WizeTrade, Optionetics, BetterTrades), and the prices they charged between $2995, and $3995.
He talked about the mentalities of Shopping versus Investing. Shoppers look for price, and Investors look for return on investment. This kind of segued into how much is education worth. He quoted the book The Millionaire Next Door (excellent book), that most of the millionaires made their own investment decisions…he didn’t mention that the book also says that most millionaires don’t trade stocks!
Then he started talking about the RECIPE. The ingredients to the recipe seem to be their Trade Center software, a 3 day investing workshop, and then the tool free support. The workshop cost $199, and included the Trade Center software. The data feed for the software was free for the first month, and then cost $39.93 per month afterward. He showed a long list of things cover at the workshop including research, timing, assessment, position sizing, exit strategy, allocation, Trade Center, trading accounts, order entry, reading charts, shorting, options, cash flow, hedging, bidirectional trades, candlesticks, etc.
The directions for the recipe were to start off with fundamental analysis. The software would do most of this it seemed like. Then check the chart. He talked a lot about MACD (moving average convergence divergence) which could be used to time your buying and selling. This wasn’t as he said day trading, but was swing trading. He showed one example where you could buy and sell a stock and make money on most trades racking up a gain of 13%. He didn’t include into the calculations brokerage fees, or short term capital gains taxes.
About this time a fire alarm sounded. He said lets wait to hear what they have to say. Well, the announcement came over the speakers to leave the building. He said he was going to stay, but if we felt the need to leave, we could go. Personally, I had been dying to go to the bathroom as there hadn’t been a single break! Also, I have had it ingrained to leave the building immediately when there is a fire alarm. You don’t know when it will be real. I took the opportunity and left. I may have been the only one to leave, not sure. I thought about it later that it was kind of funny that he was teaching to follow the chart as to when to decide to leave, and not to try second guess it. Yet he was ignoring the fire alarm a a sign to leave the building. There was a fire truck out in front of the building when I left. I don’t think it turned out to be anything serious as I didn’t see anything on the news. But why take chances?

About a week ago I saw a infomercial for a free seminar entitled Teach Me To Trade. I went to their website, and signed up. I love these free seminars. Last night I went to the seminar which started at 6pm at a local hotel. Knowing I might not have a chance to eat for a while, I stopped at McDonalds, and grabbed a quick burger. The hotel had parking, but it cost $7. The heck with that. I parked at the parking lot near the library which would cost a maximum of $4, and was only a couple block walk.
I arrived at about 5:40pm, but the doors were open. There was a registration table, but the only people there were attendees. There was a sign on the table saying that audio or video recording was not allowed (supposedly due to copyright). But that always make me think that they don’t want people to have evidence that might be presented in court about promises or representations that had been made before people plunked down their money. There was a sign by the door that said the room was reserved for “Whitney Education Seminar 11am-11pm”. Whitney Education? Was this seminar tied to Russ Whitney who puts on real estate seminars?
Once inside, the Teach Me To Trade “training” began. Actually there was very little “training”…more of a sales pitch. The main speaker Andy Tanner was introduced. He was a tall friendly kind of guy. An out-of-shape ex-basketball player who apparently now owns some snowmobile dealerships.
He started off talking about goals, and risk, and quickly moved into talking about retirement. He talked about problems with social security, and pension plans. SCARE TACTICS! He told us about his own start in investing buying mutual funds. He bought different funds including the New Perspective Fund, and the Janus Mercury Fund. He later found they were basically the same as the S&P 500, and NASDAQ index funds, except more expensive. Interesting the graphs he showed of various funds were from around 2001-2002 showing the values go up, and then back down, maybe trying to plant a subliminal suggestion that you will not make any money in funds. He pointed out that investment companies are looking out for themselves and not for their investors. He suggested that if you are paying investment companies to pick stocks for funds, that they should pick stocks that wont go down. [Ummmm…almost all stocks went down around 2001-2002…it happens.]
He trashed on 401k plans, and returned to the fact that pension plans are going away. He spent a significant amount of time trashing institutions, suggesting that individual investors can do better.
He showed so more graphs of individual companies (including Enron) from around 2001-2002 showing the stocks tanking, and questioning why the institutions would have bought such companies. He then brought the fact that most funds don’t even beat the market.
There were some quotes from Peter Lynch, and Warren Buffet suggesting individuals can do better than the big funds. He doesn’t mention that neither of these guys advocates STOCK TRADING! Both of these guys advocate buying stocks in solid companies and HOLDING them!
Then he showed some example where someone invests $1000 into a fund at a young age, and holds it for 65 years. The fund supposedly returns 8% (kind of low since the market has averaged about 10% in the long run). He ends up making a lot of money. But the fund company charges him 2.5% for expenses. (2.5%? Who charges that much? Why not buy an index fund that returns 10%, and charges around .25%?) Anyway, supposedly that drops his earnings to 5.5%. But somehow the investment company manages to make more money with their 2.5% fees, than he does with his 5.5% returns. I never figured out the math behind that.

Continued in part 2

I was watching tv ther other morning while getting ready for work, and saw an infomercial for a free Teach Me To Trade seminar this coming Thursday. I love free seminars for get rich quick stuff like these. I am always facinated by the sales pitches. And I enjoy watching the other people who go to them. Anyway, the Teach Me To Trade commercial showed a bunch of people who supposedly made money using the system. A few of them had only been using the system for a couple weeks I think. If you took a few hundred people, gave them basic investing information to where they think they know what they are doing (even if they dont), and then set them loose investing, some are bound to make money in the short run, some are bound to lose money, and some are bound to break even. I could buy $100 worth of a 100 random stocks, and in the short term, a few are likey to do very well. But can I point to these few stocks, and say I am great investor? No, you have to look at the whole picture. Over longer periods of time, those who are better investors will rise to the top, and those who are not will be at the bottom. But anyone can make money in a bull market! And of course, the infomercial quoted Peter Lynch out of context. And the audience int he commercial was funny, always clapping as if on que like trained seals. And then they of course have to throw in buzz words like extra income stream.
Anyway, I signed up for the free seminar, and will check it out. I am sure it will be amusing. At the very least, it will give me something to write about.

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