just isn’t true!Successful gamblers have honed their skills to a virtual science.They put hours of work into their craft. And, there are good129
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gamblers and bad gamblers, just as there are good investors andbad investors. You must decide whether you want to be an investor or a gambler. Once you have made that decision, decidewhether you want to be a good gambler or a good investor as opposed to a bad gambler or a bad investor.Because it takes just as much effort to be a good investor asit does to be a good gambler, you might as well be a good investor. However, if you decide to gamble, you don’t need thisbook and can stop reading now. This chapter will educate youin the finer details of investing and will also give you some details on what will work and what is not likely to work for you asan investor.Now that you have learned how to implement the GIM andSTF models, let’s look at several very important issues that tendto undermine our goals and success. After doing so, I will tellyou about the six major investment categories that can take youto your goals—while you maintain your regular job.Today’s investment world is highly competitive and very risky.The waters are often difficult to navigate. The amount of information that can be obtained on virtually any investment is oftenoverwhelming. The decision-making process is, for many investors, difficult and confusing. Opinions abound. Will we have inflation or deflation? Will we suffer an economic meltdown? Willthe U.S. dollar be massacred in the world markets? Will there bea war, and if so, what will its effect be on the U.S. economy? Willthe Social Security fund go broke? Will the price of oil go to $100per barrel? Will the Republicans raise or lower taxes? Will moreairlines go broke? What will happen to the stock market in theevent of another terrorist attack on the United States? Where ismy money safe? The list goes on and on.It seems that the more you read, the more confused you get.Some experts tell us that everything will be fine. Other expertscry wolf repeatedly. Some radical thinkers want us to believe that
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an economic collapse will bring anarchy. They tell us to head forthe hills with ammunition, guns, medical supplies, gas masks,antibiotics, and a year’s supply of food. Yes, it’s all very confusing. As I mentioned before, some of the experts who may havebeen highly regarded in the past have shown themselves to befrauds and flimflams. To make matters worse, we have been ledto believe that the investment game can only be won by professionals who have an edge on the average person. After all, professionals have inside information. They have a pipeline to thosein the know and connections in Washington. They have the kindof financial power that moves markets. Furthermore, they don’tmake mistakes, always seem to be in on the big moves, and alwaysseem to make big money at the expense of those who are at thebottom of the investment food chain.Adding to this bleak picture is the fact that the average person can’t afford to hire an expensive financial advisor or accomplished money manager with a record of profits and consistency.More and more, investment success seems downright impossible for the average individual. In an atmosphere of frustration,we feel why even try because we won’t succeed at this highly competitive game. And this, in turn, fosters the feeling that we mightas well gamble rather than invest.The gambling business has mushroomed in recent years, duein part to the frustration that has besieged the average investor.All too often, we feel that gambling is the way to go. And the incentives are many. In many states, it’s only a 45-minute drive orless to a gambling spot, whether a casino in a gambling town, ariverboat casino, an offtrack betting parlor, or a lottery ticketoutlet. The idea that a one dollar lotto ticket can yield $100 million or more is certainly an alluring one. And the lure of becoming a multimillionaire easily overcomes the odds for manyof us. The burgeoning of lottery ticket sales reflects, in part, thefinancial crisis so many states have been having since the late
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1980s. Although the purported reason for beginning state lotteries was to fund a cash-hungry educational system, many statesmerely used it as an excuse to raise revenues to cover wastefulspending, favoritism, graft, and self-serving politicians. Clearly,this also has added to the anger and frustration of investors. It’senough to make one want to give up altogether on investing.
THE INSTANT AGEThe piling on of frustrations in virtually all aspects of modern life has encouraged individuals to seek immediate gratification instead of focusing on long-range goals. The reasoning issimple and logical: Why wait until tomorrow if the world is soriddled with problems today? Our “age of instantism” may causeus to avoid investing, to spend rather than save, and to gamblerather than invest. We want it fast or faster, and we want it bigand often—instant access to the Internet, faster cars, fasterboats, faster planes, and higher speed limits. We want instantmashed potatoes, instant relief from pain, fast service at thedrive-through, speedy hospital stays, instant pictures via our cellphones, and fast executions of stock purchases and sales. Theage of instantism has also undermined and dissuaded the investor. We want success and we want it now.
CONTRADICTIONS, CONFLICTS,AND CONSISTENCYWe are torn between going for the fast buck with high riskor seeking the slow and steady path to financial success. Theseeming contradictions of modern society help contribute toconflict and inconsistent behaviors. Hopefully, by the time you
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have finished reading this book, you will have developed a longrange view. You will have a clear sense of the big picture, whileunderstanding the small picture. And better yet, if you are indeedstill tempted by short-term profits, you will find several resourcesand rules by which you can satisfy this need as well. But remember, do so only after you have mastered the big picture. Don’t belured into playing the fast game without a proper foundation, oryou’ll see your money disappear right before your eyes.
NARROWING THE FIELD OF CHOICESVirtually any area of investment can allow you the opportunity to make big bucks. You can make your fortune methodically, or you can try to gamble your way to wealth. There’s nodoubt that every investment involves a degree of risk, but there’sa difference between a calculated risk and an outright gamble.Within the framework of the MOM, GIM, and STF models Ihave given you, let’s look at some specifics.
Ten Surefire Ways to Lose Your MoneyAny tool, no matter how good or how safe, can becomelethal in the hands of a fool. The investment tools I have givenyou in this book have the power to create wealth as well as thepower to take it away. Here are some things to remember if youwant to avoid the traps that investors fall into, even with powerful tools like the MOM method:
You will lose your money if you act impulsively before thesetup in the STF model is triggered. You must wait for thetrigger.
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You will become frustrated and lose money if you are inconsistent in the application of my rules. Patience andpersistence are necessary if the method is to work for you.

You will lose money if you are too anxious to exit an investment if it moves against you. Make certain that yougive your investments time and flexibility to work.

You will lose most of your money, sooner rather than later,if you attempt to second-guess the method or attempt tocombine too many other ingredients (i.e., information)into the recipe.

You will lose money if you try to take on too many sharesof a stock before you have sufficient experience and capital to do so. Be conservative until you have the money andthe practice to be a more aggressive investor.

You will lose money if you take your profit too quickly. Remember the examples I gave in Chapter 7? One loss couldwipe out all your profit from the last seven investmentsyou made.

You will lose money and time and patience if you do notexit a losing investment when the time is right. Lossestend to become worse over time if you hold on to a losingposition.

You will lose money if you listen to too many people. Listen only to your own good advice based on a solid methodof analysis, even if it isn’t the MOM I taught you in thisbook.

You will lose money if you try to make your work too complicated by combining options and other vehicles withyour investments before you know how to do it.
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You will lose money if you fall behind in your homework.Once you have entered an investment position, you must“baby-sit” that position until it has been closed out orexited.
The Odds of Winning versus the Odds of LosingRegardless of the methods you are using, it’s reasonable toask about the odds of success. Here are some of my thoughts regarding this important question. As you know, investing is not asurefire, foolproof proposition. There is always a risk of loss. Infact, the odds of losing on any one investment may be greaterthan the odds of winning on any one investment. But that’s notimportant in the scheme of things. What’s important is the bottom line, or end result. However, the process of getting to thebottom line profitably is an important one. I would estimate thatif you can follow a solid method or stock selection, such as theMOM, combining it with the principles of the GIM and STFmethods I taught you earlier, your odds of making money shouldbe over 60 percent. Remember, this estimate assumes that youhave followed the rules and requirements outlined in previouschapters. I do not expect you to be perfect; however, I do remindyou that your overall success is very much dependent on consistency. You can work very hard to double your money only towatch all of your profit disappear because of one mistake thatcould have been avoided.
The Six Major Vehicles to Financial FreedomThere are six vehicles that you can use, either individually orin combination, to take you to your goal using the MOM method
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described in this book. When combined with the rules of theGIM and the STF techniques, these vehicles can help you makeconsistent profits on your investments, even if you begin with asmall amount of money. These six vehicles are:1. Stocks. By stocks, I mean the good old-fashioned stockmarket. I am not suggesting any sophisticated strategies,options programs, or highly speculative undertakings.2. Stock options. This more specialized field is also capable ofbeing your vehicle to success; however, the game is a muchmore difficult one and requires considerably more expertise. Many brokers will tell you that if you have limitedcapital, stock options can be your best bet. I disagree. Inreality, too many investors lose money with stock options,and I therefore suggest if you are a beginner that you steerclear. See the Resources at the back of the book for someinformation sources that might assist you in learningmore about the stock options market.3. Mutual funds. Mutual funds are truly a wonderful area forthe small investor; however, not all mutual funds are created equal. I will discuss this in Chapters 9 and 10.4. Single stock futures. This is a new area of investment, butone that is highly speculative. Instead of putting up 100percent of your money to buy stocks, you put up 20 percent of the money. This is called leverage. It can work foryou or it can work against you. If you’re a new investor, Isuggest steering clear of single stock futures (SSFs) untilyou have gained some experience. SSFs should be tradedonly by experienced investors. Read my book, How to Tradethe New Single Stock Futures (Dearborn Trade, 2002).
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5. and 6. Futures and Futures options. Futures and futures options are the single most risky investments and definitelynot recommended for the newcomer. In fact, even experienced investors should stay away from this market, unless or until they have accumulated healthy nest eggs intheir accounts. Futures trading can be a highly effectiveaddition to a stock portfolio; however, it is risky, volatile,and only appropriate for higher-risk investors. Those whowant to learn about futures trading are advised to getmy book, Profit in the Futures Markets! (Bloomberg Press,2002).The seasoned investor may consider all of the above eitherindividually or in combination as part of an overall investmentprogram. But remember that when it comes to investing, learning how to “walk” before you “run” is paramount to your financial well-being. You don’t want to take your hard-earned moneyand throw it away by playing a game that is dominated by professionals whose only goal is to take your money.
HOW THE STOCK MARKETCAN BE A GAMBLEIf you want to gamble with your money, there are many waysin which the stock market will gladly accommodate you. Just ignore the rules in this book, take tips from friends, pick stockshaphazardly, and buy and sell stocks based on your intuition,and you’ll be gambling rather than investing. It’s easy to be agambler in stocks rather than an investor. But remember thatcompeting with the experts will give you the same result you’dget by playing poker with card sharks. You’ll be grist for the mill.
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In short, they’ll take your money, beat you up, and send youhome with your tail between your legs. So don’t be a fool. Don’tgamble in the markets; follow solid strategies.
HOW THE STOCK MARKETCAN BE AN INVESTMENTConversely, the stock market can be your vehicle to successif you plan ahead and act with more intelligence than emotion.The GIM and STF rules are simple, the approach is practical,the strategy is easily implemented, it takes very little money toget started, and the results can be very favorable. Consider thefact that you can double your money every seven to ten years justby investing conservatively. By being a little more aggressive andstarting with more money, you can accumulate a very largeamount of money over the span of 25 to 30 years. If you’re between 15 and 25, your potential to retire at an early age with alarge sum of money is quite good, if you follow the rules.
HOW THE STOCK MARKETCAN BE USED FOR TRADINGWhen you have made some important inroads on your wayto success, you can expand your base of operations into trading.There are many things you can do as a trader, but unless youhave first mastered investing, trading may not be the thing foryou. There are many different techniques you can use for trading, and there are many different types of trading. The MOMmethod combined with the GIM and the STF rules discussed inthis book can easily be used for short-term trading and even day
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trading. As I said earlier, don’t go there unless you have sufficient risk capital and unless you have learned the rules of investing first.
REAL ESTATE ANDTHE GENERAL INVESTMENT MODELHere are some of my thoughts on real estate. They mayanger some people, but I’m here to tell you what I have learnedin my 35 years or more as a trader, investor, educator, and market analyst:
Some of my best investments have been in real estate. I have rarelylost money in residential real estate, and the homes I haveowned have been fantastic investments. I believe that realestate can be a fantastic investment for anyone who hasthe patience to buy when prices are lower and hold onuntil prices rise.

If you plan on investing in real estate, take your time and buy inyour comfort zone. By this I mean buy properties in areasthat you are familiar with. Usually, they will be close towhere you live. You have to know the market and understand the history of the market, and the easiest way to dothis is by investing in your own area. My best profits havecome from buying and selling in my own neighborhood.

You can use the GIM and the STF models to time your entry andexit in the real estate market. Real estate in the United Stateshas shown a pattern of about 18.3 years from one low pointto the next. The years 2002–2003 mark the top of the realestate cycle. This means that major buying opportunities
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in real estate may not come until 2010. Remember thatthe real estate market is selective, so much depends on location and the local market.
In a rising real estate market, you can make good money by buying run-down residential properties, fixing them up, and sellingthem for a good profit rather quickly. However, this processtakes work and careful attention to expenses.

Although there may be money to be made in the zero-down realestate game, I believe your odds of success in this game are slimindeed.
THE GOOD NEWS AND THE BAD NEWSIN FUTURES TRADINGThe good news about futures trading is twofold: The markethas excellent leverage, and there is considerable volatility. Thismeans that you can buy and sell futures contracts for as little as1 percent down or as much as 20 percent down in single stockfutures. The bad news is that leverage and volatility also can workagainst you. As I stated earlier in this chapter, avoid these markets until you have some experience and success under your belt.
Fast or Slow? How to DecideEach of the vehicles discussed in this chapter has its assetsand liabilities. I have discussed these in considerable detail, sothat you can decide which is best for you based on your skill,financial ability, personality, and available time. Some investorsare very impatient. If they have to be in a stock for more than afew weeks to make a few hundred dollars, they are likely to be
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unhappy and lose their discipline. Other individuals are slowand methodical and can be in the same stocks for years and behappy. Remember the simple rule that big money is made in bigmoves. If you are in a stock for only a brief period of time, oddsare you’ll miss the big moves. But remember that you can be successful hitting many base hits instead of bases-loaded homeruns. Only you can decide. Also, it may not be possible for youto make a decision until you have experienced other facets ofinvesting. In so doing, you may incur losses.In this chapter I have attempted to give you an overview ofthe many different vehicles you can select as your ticket to financial freedom. I have discussed the good and bad points as wellas the limitations and possibilities of each approach. In closing,let me reiterate that slow is better and usually more profitable.There are many directions you can take on the road to financialfreedom. Too many of them are dead ends. Although you will feelthe urge to make money quickly, the consequences of attemptingto do so are often devastating. If you seek to make quick profits,you must remember that the other side of the coin is quicklosses. Now let’s take a look at some possible investment alternatives and strategies based on your available investment capital.
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C H A P T E R
N I N E
STRATEGIES FORA SHOESTRING BUDGET
The old adage “You have to have money to make money” ismore true in the stock market than in virtually any other area ofinvesting. In fact, the expression might better be stated as “Themore money you have in the stock market, the more money youcan make.” This, of course, depends on how you handle your finances and how disciplined you are in cutting your losses short.Most of us do not have the kind of money that allows us toinvest in anything we want, at any time we want. The juxtaposition of the haves and the have-nots in American society is at timesglaring. Witness the recent television documentary about popular performer Michael Jackson. The camera crew accompaniedhim on a Las Vegas buying spree. In ten minutes, he spent morethan $1 million on vases, tables, and paintings. He nonchalantlystrolled through the high-priced shop and pointed to the itemshe wanted. “I’ll take this one and this one and this one.” “Mr. Jackson, this one is $80,000,” the store owner reminded him. Jackson143
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ignored him as he continued pointing to item after item untilhis spending spree came to an end.In contrast, working-class Americans struggle, often ten hoursdaily, to make ends meet. The vast differences in work and paycan provoke anger or it can motivate us. When we consider thefact that some actors on popular situation comedies are paid $1million per episode, we may feel like throwing in the towel, giving up, refusing to even try to achieve such fabulous wealth.However, rather than focus on the negative, we can choose tochannel our feelings in a positive and productive direction.This chapter is written for the millions of people throughoutthe world who have very little to invest but who, due to their motivation and vision of the future, want to make their money workfor them. They know that every lofty goal must begin with thefirst small step. In the 1980s, I had the good fortune to interviewW. Clement Stone, the fabulously wealthy insurance tycoon, aspart of a series of interviews with successful men and women fora book I was writing. I met with Mr. Stone in his private office atone of his companies, the Combined Insurance Company ofAmerica, which is located in Chicago. Stone was a dapper gentleman, dressed in an exquisite black suit, wearing his trademark bow tie. As he shook my hand firmly, I felt as though hewas looking right through me. We sat and talked. “How did youbecome interested in business?” I asked.He replied, “When I was 7 years old, I had a newspaper route.When I was 11 years old, I owned my own newsstand. When I was17 years old, I started selling insurance. I walked into the biggestbank in town and asked to see the president. I introduced myself to him and asked ‘May I have a moment of your time, sir?’‘Son,’ he replied, ‘are you here to sell me something?’ ‘Yes, sir,I am.’ ‘Then son, don’t ask for a minute of my time, just take it!’”The moral of this true little story is that you must “take thebull by the horns.” Don’t accept any excuses or let a lack of big
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money stop you. Don’t allow a lack of education to limit you anddon’t let friends, relatives, or coworkers dissuade you or influenceyou with their negative attitudes. You need to begin somewhere,even if it’s with the mere sum of several hundred dollars.Yes, you can start with a very small amount of money, butwhat can you do with a few hundred bucks? This chapter examines strategies and techniques you can use to parlay your meager starting amount into a good sum. If you have more than afew hundred bucks but less than the big bucks, this chapter willalso tell you how to invest larger sums.
THE THREE SHOESTRING-BUDGETSTARTING LEVELSDepending on your initial investment, I will begin by examining different plans. I will assume that the lowest starting amountfor an investment plan is $500, but you can begin with less. Remember that the smaller your starting amount, the longer youwill have to wait before you can realize good profits. As you willsee, based on these starting amounts you will be adding to youraccount, preferably weekly from your available capital or, at theminimum, monthly.The three levels are as follows:1. $5,000 available starting capital2. Less than $5,000 but more than $2,500 starting capital3. Less than $2,500 starting capitalAlthough the overall strategies are similar on a smaller scale,the higher starting amount ($5,000) will allow you certain flexibilities that are not practical with smaller starting amounts. I want
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to stress that you can begin with amounts considerably less than$2,500, but the less you begin with, the longer it will take to reach the critical mass that will facilitate more rapid profit growth.
$5,000 AVAILABLE STARTING CAPITALIf you begin on a shoestring budget, your choices will be significantly limited. My definition of a shoestring budget is anyamount less than $5,000 as an initial investment amount. Bysome standards, $5,000 is a good sum of money. I don’t disagree.However, in the marketplace your choices are severely limited.One of the simplest things you can do is to begin a regularinvestment program in mutual funds. Mutual funds are investment companies that pool money from thousands of investorsand make the decisions for you. There are many different typesof mutual funds. Chapter 11 discusses some of the coming investment areas that could prove very profitable for mutual fundinvestors. If you invest in mutual funds, I suggest that you dollarcost-average your investments. By this I mean simply that youbuy a certain amount of the mutual fund every month or everyweek no matter what. In so doing, you will be forced to save, andyour average cost for the mutual fund will decline if you restrictyour buying only to times when the fund is lower than the average price of the shares you own.
HOW DOLLAR COST AVERAGING WORKSThe dollar cost averaging method (DCA) is a very simple buthighly effective approach, particularly for the new investor orthe young investor. If you would like your children to have a substantial nest egg when they get older, then DCA is the simplest
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and easiest way to go. You can invest the DCA way in stocks, mutual funds, or even in dividend reinvestment programs (DRIPs)as discussed later in this chapter. Your goal is to accumulate,over time, an investment position at an average price that will,eventually, be well below the price that the given stock or mutual fund is selling at today. You can use DCA in terms of price,time, or both. Here is a description of each approach.
Dollar Cost Averaging by PriceIn this approach, you buy given stocks or mutual funds everytime they decline to a certain price. This method is also called“scale investing” or “scale trading.”For example, you have reason to believe that the stock of theFord Motor Company will be a good long-term investment. Youreason that if Ford goes broke, the whole country is in trouble.After all, the automobile business is the backbone of the American economy. You look at a price chart for Ford and notice thatsince the 1970s, every time the price of Ford has been $10 orunder, the stock has made a recovery and gone much higher. Soyou decide that $10 will be your “buy level” (BL) for Ford. Youwait and watch and one day Ford drops to $10. You make yourinitial investment, perhaps even 100 shares (total cost not including commission is $1,000). Ford moves up thereafter to $12.You take no action. A few months later, it falls to $9 and you buyanother 100 shares, at a total cost not including commission of$900. Your total investment is now $1,900 with an average costof $9.50 per share.The stock remains under $10 and, in fact, drops to $8.75.You have about $900 to invest, so you buy another 100 shares at$8.75. Your total cost is $875 not including commission, and younow own 300 shares. Your total investment is $1,000, plus $900,
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plus $875, at an average price per share of $9.25. Time passesand Ford hovers between $8.12 per share and $12 per share.The economy remains weak, and Ford can’t sell as many cars as ithad in a booming economy. The stock remains low for 18 months.During this period, you continue to DCA or scale-invest. Eventually, you accumulate 1,300 shares of Ford at an average cost of$8.87 per share.Three years pass. The economy improves, and Ford sharesrise to $16. Your 1,300 shares that cost you a total of $11,531 arenow worth $20,800. If Ford returns to the previous price levelsof good economic times, you could easily triple your investmentover time.The good news about this approach is that you will accumulate a good number of shares in quality companies at a relativelylow price. The bad news is that such opportunities do not present themselves very often, and when they do, the economic outlook is often bleak, so much so that the average investor is afraidto begin an investment program. Yet, experience has shown thatthis is often the best time to begin investing. Furthermore, notall quality stocks will give you an opportunity to buy at such lowprices. You must, therefore, have a portfolio of stocks you aremonitoring for your DCA program.What do I mean by quality stocks? The early 2000s tested virtually everyone’s idea of what constitutes a quality stock. A simplerule of thumb is to select stocks that have the longest and mostconsistent earnings history. Among these are the 30 Dow JonesIndustrial stocks and the top 25 stocks in the Standard and Poor’s500 index. I’m talking about traditional stocks like General Electric, Ford, General Motors, IBM, U.S. Steel, Archer Daniels Midland, Heinz Foods, Campbell Foods, Procter and Gamble, Pfizer,and others. The easiest way to find these stocks is to do a little investigative work, all of which can be done at no charge on the Internet or in your public library. Look for stocks that pay dividends,
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have paid uninterrupted dividends for many years, do not havehuge debt, and have a conservative management. You’ll have todo a little legwork in order to become a successful investor. Thekey to this approach is that it is long term and conservative.
Dollar Cost Averaging by TimeThis method is also simple. In fact, it’s more simple than DCAby price. First, you select your stocks or mutual funds, and thenyou buy a given amount every month, every three months, everysix months, whatever interval you decide. You do so regardlessof price, but you are far better off beginning your program whenstocks are generally low; that is, when stocks have declined atleast 20 percent from their most recent peaks. Another, moretechnical approach is to begin your program when a stock hasbeen below its 200-day moving average for three months or longer.You can get a stock chart with a 200-day moving average onlineat <www.bigcharts.com> or <www.stockcharts.com>. Figure 9.1shows a 200-day moving average for Ford.This chart shows two time frames during which the price ofFord fell below its 200-day moving average. The line that runsclose to the price is the 200-day moving average. As you can see,there were ample opportunities to begin a DCA program or tocontinue such a program. The investor who invested during thistime frame would have considerably lowered the average cost ofthe investment by maintaining the DCA approach according tothe rules.As an example of how DCA investing can be highly profitable over time, consider the following hypothetical transactions based on quarterly purchases of GE. Assume that youstarted a monthly program when the stock fell below its 200-daymoving average. As Figure 9.2 shows