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This publication is designed to provide accurate and authoritative information inregard to the subject matter covered. It is sold with the understanding that thepublisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.Vice President and Publisher: Cynthia A. ZigmundSenior Managing Editor: Jack KiburzInterior Design: Lucy JenkinsCover Design: Design Alliance, Inc.Typesetting: the dotted i
© 2003 by Jacob BernsteinPublished by Dearborn Trade PublishingA Kaplan Professional CompanyAll rights reserved. The text of this publication, or any part thereof, may notbe reproduced in any manner whatsoever without written permission from thepublisher.Printed in the United States of America03
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Library of Congress Cataloging-in-Publication DataBernstein, Jacob, 1946No bull investing : straightforward advice to maximize your returns inany market, with any amount of money / Jake Bernstein.p.cm.Includes index.ISBN 0-7931-6274-2 (6x9 paperback)1. Investments. 2. Finance, Personal. I. Title.HG4521.B4443 2003332.6—dc212003001186
Dearborn Trade books are available at special quantity discounts to use for salespromotions, employee premiums, or educational purposes. Please call our SpecialSales Department to order or for more information, at 800-621-9621, ext. 4404, ore-mail trade@dearborn.com.
C O N T E N T S
AcknowledgmentsIntroduction viiPA R T O N E
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PREPARATIONS
1. WANT TO MAKE MORE MONEY? DO THESE THINGS FIRST
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Who Am I? 4A Few of the Things I Learned and Why I Want to Share Them with You2. BEGINNINGS, DANGERS, AND DIRECTIONSOf Course You Want to Take Immediate Action!The Dangers of Moving Too Slowly 21Do It Alone or Get a Partner? 22A Checklist for Successful Preparation 233. MARRIAGE, MONEY, AND FAMILY
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Investing and Marriage Issues 33Harnessing the Synergism of a Two-Income Family 34Life Insurance on Both Partners: Term, Convertible Term, or OtherTax Considerations and Strategies 37Planning for the Financial Burden of Having Children 38Protecting Your Assets from Legal Ramifications 40You and Your Spouse as Investment Partners 424. SELF-KNOWLEDGE: Your Practical and Emotional Selves
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Investor Behavior 46Mastering the Psychological Aspects of Investing 50The Majority Is Usually Wrong—Don’t Forget That! 535. SETTING FINANCIAL GOALS
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Many Investors Have Been Losers
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CONTENTS
Victims of the System 63A Few General Rules to Get You Started 64The “Boring” Part of Setting Financial Goals 73PA R T T W O
STRATEGIES AND ALTERNATIVES
6. THE GENERAL INVESTMENT MODEL
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An Overview of the General Investment Model (GIM) 81The Setup, Trigger, and Follow-Through Method (STF) 92The STF in Detail 96Summary 997. THE METHOD
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Selection and Timing of Investments 102Introducing the Method 106Introducing Momentum 109How to Calculate Momentum 111What Does Momentum Tell Us about a Market?Divergence and Changes in Trend 113Timing, Timing, Timing 117Where Do I Get the MOM? 120Practice, Practice, Practice! 120
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8. GAMBLE OR INVEST YOUR WAY TO WEALTH?
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The Instant Age 132Contradictions, Conflicts, and Consistency 132Narrowing the Field of Choices 133How the Stock Market Can Be a Gamble 137How the Stock Market Can Be an Investment 138How the Stock Market Can Be Used for Trading 138Real Estate and the General Investment Model 139The Good News and the Bad News in Futures Trading9. STRATEGIES FOR A SHOESTRING BUDGET
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The Three Shoestring-Budget Starting Levels$5,000 Available Starting Capital 146How Dollar Cost Averaging Works 146Drip Your Way to Success 151
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Less Than $2,500 Available Starting Capital 151A Few Portfolio Suggestions for Beginners and Small Investors
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10. GETTING SERIOUS: Strategies Beyond the Shoestring BudgetFrom $5,000 to $20,000 157More Than $10,000 but Less Than $25,000 158More Than $25,000 but Less Than $50,000 159More Than $50,000 159Investing in Precious Metals and Coins 159Protecting Yourself with Investments in Rare Coins 162Numismatics and Numismatic Coin Investment ProgramsGuidelines for Investing in Coins 170Fast and Furious—The Hottest Games in Town 172PA R T T H R E E
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LOOKING AHEAD
11. STAYING AHEAD OF THE CURVE: Emerging OpportunitiesWhat’s Ahead in the Area of Technological Breakthroughs?12. SUMMARY AND FINAL THOUGHTS
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A Perspective on Investor Psychology 181Economic Yin and Yang: Cycles of Boom and BustMarkets Have a Life of Their Own 191Yesterday, Today, and Tomorrow 192Summing Up the Lessons Learned 194Keep in Touch 194Appendix: Practice Charts and AnalysesOnline Resources 207Index 209
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A C K N O W L E D G M E N T S
I wish to thank the following individuals and organizationswhose assistance was instrumental in the preparation of this book:• Don Hull, former editorial director at Dearborn Trade Publishing, who had the faith and foresight to take me on asan author and who displayed remarkable restraint in spiteof my tardiness.• Jack Kiburz, senior managing editor, who did a magnificent job with my manuscript, turning a rough and disorganized effort into a book that expresses my ideas clearlyand correctly.• My family, in particular my wife Linda, without whose tolerance and support I would not have been able to completethis work.• Mark Shriver and Glen Larson at Genesis Financial Datafor permission to use their charts and indicators.• CQG Inc. for permission to use their charts and indicators.• My office staff, in particular my associate Marilyn Kinney,who has for more than 27 years with me developed a uniqueand effective understanding of my needs, quirks, and temperament as an author.• And finally, Judith Marie Richards, who spent many hoursediting my work before I ventured to send it off to Dearborn for editing and input.vi
I N T R O D U C T I O N
Congratulations! I commend you for buying this book. If youhave borrowed this book from a library or a friend, then I commend you for being frugal. Saving money is a good thing to do.Perhaps, after you read this book and realize that it offers youmany important tips, tools, strategies, and directions for financial success and survival, you may want to buy a copy for yourselfand make it a permanent part of your investment resources.I congratulate you, simply because there are few individualswho are willing to take the time and effort to become financiallyindependent. Most people today are looking for easy answers,easy success, instant success, get-rich-quick schemes, the lottery, and that windfall inheritance from Uncle Louie. The factthat you have taken the time and the trouble to seek out thisbook—and hopefully to learn from it and use it—sets you apartimmediately from the millions who dream of success but whodon’t have the self-control or discipline to do anything butdream.The fact that you actively explore your possibilities is a verypositive feature of your personality—and therefore I commendyou. But what’s next? Now that you’ve decided to read this book,what can you expect? What will this book do for you? Here aresome things to consider. If you’re in a bookstore as you readthese words, then don’t even think about buying this book unless you are willing to take the following three steps:
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1. Read and study this book. Underlining or highlighting theimportant points that I have made will help you with thenext step.2. Make a commitment. Even if it’s a small one, commit to putinto action one or more of the ideas in this book, if theyappeal to you. Remember that book learning is one thing,and action is yet another thing. Learning for the sake oflearning is fine if you’re interested only in academics;however, action is what separates those who succeed fromthose who only dream of success. And finally . . .3. Be consistent. If you’re the kind of person who reads a fewpages of a book and then puts the book away, promisingto come back to it later, then do yourself a favor and either promise yourself to read this book from cover tocover or put this book down and don’t waste your timeand money. This book is all about ACTION. If you’rePROACTIVE, or want to be, then this is THE BOOK foryou. If you’re inconsistent, unmotivated, or erroneouslybelieve that success will come to you automatically, forgetabout this book.Yes, my opening statements may seem somewhat harsh anddirect. But my aim is not to alienate you—not at all. I’m only interested in reaching people who have a burning desire for success. These are the people who will most benefit from this book.And hopefully, their success will prove to be an inspiration tothose who presently may be only dreamers.So, read my book, take my advice seriously, test the waters,and don’t let yet another opportunity pass you by. If you do,you’ll be old and gray, wondering why you failed to take actionwhen you had so many opportunities. Seize the moment, learnyour lessons, and go forward with success!
C H A P T E R
O N E
WANT TO MAKEMORE MONEY?DO THESE THINGS FIRST
Are you tired of seeing your hard-earned dollars buy you lessand less? Are you tired of scrimping and saving to make endsmeet? Does your paycheck disappear the minute it goes into thebank? Do you want to make more money? Are you envious ofothers who ARE making good money in their investments? Areyou frustrated because you feel that you don’t have the tools tomake money? Do you believe that in order to make money as aninvestor, you will need special skills that can only be acquired incollege or through a long course of study? Do you believe thatyou need a “good broker” in order to make money in the stockmarket? Do you believe that you need a good real estate brokerto make money in real estate? The response to most of thesequestions is “No.” The facts are simple:
You don’t need to be like the millions of people whomerely get by, living from paycheck to paycheck.1
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You don’t need a college degree in finance in order tomake money in the stock market; in fact, having such a degree might be detrimental to your success.

You don’t need a good real estate broker in order to makemoney in the real estate market.

You don’t need to spend hours of research in order tomake money in stocks.

You CAN get the tools you need to become a successfulinvestor.
This book will give you almost everything you need to be asuccessful investor. All you have to do is to make the commitment and follow through on it. You bought this book in orderto make money. So use this book and follow through, or you willhave wasted your hard-earned money. Begin on the right footing, be consistent, and you will be more likely to succeed.This chapter will tear down many of the misconceptions youmay have about investing as a way to become financially independent. I will replace any distorted ideas you may have withones that have not been “polluted” by traditional investment advisors who seek to make you dependent on their advice. You willbecome your own expert, if you so desire. Will the process bepainless? Will success just fall into your lap? Will you merelywake up one morning with newfound wealth? The answer tothese questions is “No.” However, if you make the effort, you willincrease your chances of success, and you will learn skills toserve you well for a lifetime.The American dream of going from rags to riches has beenmore than just a dream to hundreds of thousands of people during the 20th century. Today, in spite of the economic slowdownand stock market decline that started in late 1999 and 2000,
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there are more wealthy people in the United States than everbefore. It is a simple fact that our economic system rewards hardwork, creativity, motivation, entrepreneurship, self-sufficiency,and ingenuity. In spite of a tax structure that often limits the attainment of wealth and the operation of a successful business,millions of Americans are able to achieve high levels of success.The doors to success are open to everyone, no matter whattheir educational level, race, creed, color, or religion may be.While it is sadly true that minorities and women are still discriminated against, it is also true that they have more opportunitiesfor success than ever before. Whether you are a Harvard LawSchool graduate from a wealthy family or an individual who wasraised in the inner city without access to quality education, youcan achieve wealth. Although success does indeed depend somewhat on social status, education, political connections, and family wealth, these are not always prerequisites.Many self-made millionaires have started with virtually no education, no money, no family influence, no political connections,and no assistance. These individuals have made their fortunesbased on an idea, on talent, on motivation, on hard work, onpersistence, and on the burning desire to rise above their status.The good news is that there are many ways in which wealthcan be achieved in America. The bad news is that the individualwho is not blessed with talent to sing or act or play professionalsports, or who possesses superb intelligence and a college education in medicine, engineering, law, or science, is often at a distinct disadvantage. There are few vehicles they can use to takethem to their goals. This book is about those vehicles. It will helpyou find the means to achieve your goal of wealth if you are oneof the millions who were not blessed with unique skills or talents, family money, or political connections.Finally, even though there are many avenues for success in afree economy, some methods are more easily implemented than
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others. Some require less work, and some require less start-upcapital. Although I will introduce you to a number of ways inwhich you can achieve success and financial independence, I willnot leave you guessing as to which ones give you the best odds.
WHO AM I?By now you may be thinking, Who is this guy and why shouldI listen to him? These are reasonable questions, so let me giveyou a few reasonable answers. Without going into agonizing detail, suffice it to say that I was raised in a very poor family. I wasborn in Europe to parents who had been in Nazi concentrationcamps. My family came to Montreal, Canada, with literally nothing but the clothes on our backs and a few suitcases of personalitems. We were taken in by a family who rented us one room intheir house. My mother, father, sister, and I shared that oneroom. My parents worked many hours a day just to pay the rentand put food on the table.The neighborhood in which I was raised was populated byFrench Canadian street gangs, ethnic minorities of various types,crime, filth, and failure. My performance in school was pathetic;I barely made passing grades. My father was a piecework tailorworking in a clothing factory for many years, and my mother wasa seamstress. Getting to and from school each day was like passing through a combat zone. I was often chased and taunted orbeaten by gang members. Stealing, fighting, drugs, and othertypes of crime were rampant. If you were big and strong, mean,and a good fighter, then you were “successful.” If you were shortand meek, underweight, and undernourished, like I was, thenyou were a “failure.”Clearly, the law of the jungle ruled on the mean streets ofMontreal. Education was frowned on by the gangs and by my
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peers. School was an evil necessity. The educational system didlittle to encourage creativity or achievement. School was dull,and the teachers were generally frustrated, underpaid, boring,and punitive. Corporal punishment was condoned, indeed encouraged, and enforced. Minor violations of the rules wereoften responded to with beatings by the school principal as wellas by parents. What was standard procedure then is today considered child abuse.By law, students who failed to achieve passing grades by thefirst few terms in high school were sent to vocational schools tolearn carpentry, automotive repair, electrical work, construction, or other trades. The system did not reward effort; it merelyperpetuated the success of those who were innately intelligentand beat down those who were either unmotivated but intelligent or who were average or below average in intelligence. Inshort, the system was an abysmal failure.Understandably, I struggled and suffered, and by age 13, Iwas told I had no future other than to be a shoemaker or a ditchdigger. The fate of many of my friends would be similar to mine,unless of course they chose crime as a means to achieve success.Some of them did exactly that. Some became street bums, andothers died violent deaths at the hands of street gangs. Fortunately, I escaped just in the nick of time.Through a fortunate twist of fate, my family was given theopportunity to move to the Chicago area. We left the slums andstarted a new life. My father opened a tailor shop, and my mother,whose skills as a seamstress and dress designer in Canada wereonly minimally rewarded, did much better in the United States.Although we were not wealthy by any stretch of the imagination, we did manage to buy a home, a car, and other “creaturecomforts” that made life more livable. Getting enough food andclothing was no longer an issue for me. And I was no longer afraidof being beaten, tortured, or killed by street gangs. I could walk
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to school without looking over my shoulder to see if I was aboutto be attacked. Life was better in many ways, but I quickly discovered the myriad social games that children and adults play inupper-middle-class America.These games were totally new to me; I knew nothing aboutthe rules of engagement. All I knew was that I was surrounded bywealth and game players, and although the wealth impressed me,the social games sickened me. I had few friends. After all, what person of high class would want to associate with the son of a meretailor and a seamstress? Still, I managed to make a few friends. Inso doing, I discovered that most of the people living in Chicago’snorthern suburbs had either inherited their money or had madeit in the stock market. I discovered that there were opportunitiesin this country that far surpassed anything I could have achievedin the Montreal ghetto. I learned that even those of average orbelow-average intelligence had a fighting chance in America. Ibegan to realize that the American dream could be my reality.I watched my parents work 12 to 14 hours a day, seven daysa week in order to make ends meet. They supported my sisterand me through college and eventually retired to Florida, wherethey lived out their remaining days before they both died fairlyyoung. By then I was married, had several children, as well as ahome, several cars, and many of the things I did not have as achild. I was bound and determined not to follow in my parents’footsteps. Yet, by education I was limited in how much I couldearn. In college, I studied clinical psychology. Figuring how muchI could earn when I became a full-fledged psychologist, I realizedthat my potential was limited by the number of patients I couldsee in one day. Yet, it wasn’t a purely moneymaking propositionfor me; I had the true and sincere desire to help people.Not blessed with a wealthy family or a business I could takeover from my father or mother, I had to strike out in a new anduncharted direction. Seeking to make my fortune and my mark
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in an area that was completely different from clinical psychology, I turned to the financial markets because of the limited exposure I had to stock trading in college.My roommate John at the University of Illinois was an avidstock market investor. Although he was still very young, he hadlearned the basics of investing and trading from his father, a survivor of the Great Depression and the stock market crash of1929, as well as many up and down markets since.John was a very intelligent young man and took to the stockmarket with all of his energy. He researched stocks, studied market trends, charts, earnings, new products, and stock market behavior. He read the Wall Street Journal, Barron’s Financial Weekly, theWall Street Transcript, the Journal of Commerce, and many other publications that provided in-depth information about the financialmarkets. In short, he was a true market scholar with a thirst notonly for profits but also for the knowledge that could be acquired.He approached the markets as a challenge and sought to solve thedeep mystery of market behavior. But there was a problem: he wastoo young to open a trading account. And that’s where I came in.I was two years older than John, so he convinced me I oughtto open an account at the local Hayden-Stone brokerage officein Champaign, Illinois. He offered to fund the account and teachme about the markets, if I made trades for him. As I recall, wealso agreed to split the profits, if any, from our venture.Our first foray into the market was a low-priced Canadiangold mining stock, Wright-Hargreaves, whose ticker symbol atthat time was WRT. As I recall, WRT was trading at about $3 pershare. We had high hopes for the stock, because it was a goldmining stock and therefore likely to go higher if inflation or political unrest became factors in the U.S. and world economies.Virtually every day, we would venture to the brokerage office towatch the ticker on their large quotation board. We were hypnotized by the tape, watching the numbers change.
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We cheered mentally with every price change in WRT: WRT3 1/16 . . . 3 1/8 . . . 3 3/16. We had visions of great wealth. Ofcourse, WRT didn’t make us rich, but the lessons we learnedhave served us well. From WRT we ventured into other goldmining shares. We studied the South African and Canadian goldcompanies. We graduated into mobile home stocks, such as Detroit Mobile Home and Fleetwood Enterprises. John was correctly convinced that semiconductor stocks would become bigwinners in the years ahead.John encouraged me to read books about the stock market,and I did. To date, the single best book I read was Reminiscencesof a Stock Operator by Edwin Lefèvre (alias Jesse Livermore). Thiswas one of John’s favorite books, and it became one of mine.Today, I own several copies, including one of the original copiesfrom the 1930s. It is a book that I encourage every individual toread, whether he or she is interested in the stock market or not.Why? Because it contains numerous life lessons about humanbehavior and psychology. These valuable principles are applicable not only to investing but also to business in general and todaily life.After learning about stocks from John, I ventured off intocommodity trading. John and his father were convinced thatthis would be my ruin. The commodities market was a wild andwoolly place in the 1960s, as, to a given extent, it is today. Commodity trading (called futures trading today), was like the WildWest of the investment scene back then. The moves were fastand furious. You could lose all your investment capital in a matter of minutes. But you could make a large amount of moneyquickly as well, although not as easily.I was lured into the commodity market by a fast-talking Chicago broker who convinced me to send him $1,000. For thosewho don’t remember economic history, $1,000 in the late 1960swould be the equivalent of $16,000 in the 2000s. A new Volks-
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wagen Beetle cost about $1,600. It wasn’t easy for me to partwith the money; however, I did so because I was lured by theprospect of making big money. After all, the broker virtuallyguaranteed me that I could make $18,000 that year, and I wasnot pleased with my earning prospects in the field of psychology. Because my father was a hardworking tailor who rarelyearned more than $5,000 a year in his business, the prospect ofearning $18,000 a year or more was very attractive.My venture, or more correctly my adventure, into the commodity markets was a mixed blessing. At first, I was a winner, andthen I was a loser. It’s a story all too frequently repeated in thecommodity markets. But the good news was that I learned agreat deal, not only about trading but also about myself. My experiences led me to do research on market behavior in stocksand commodities as well as in economic trends.Through my research, I learned a number of valuable concepts that have served me well now for many years. I will sharethese with you, because I truly believe that these lessons willhelp you achieve your goal of financial independence, no matter how old you are, which markets or businesses you plan to gointo, and what your level of experience may be as an investor.I believe these concepts as well as their methods of application can be your keys to success, even if you begin with a verysmall amount of capital. I also believe that these concepts andmethods can help anyone achieve the American dream, no matter the level of education, social status, and current profession.
A FEW OF THE THINGS I LEARNED ANDWHY I WANT TO SHARE THEM WITH YOUMy experiences have taught me valuable lessons that everyonewho wants to achieve financial independence should know and
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take to heart. Although some of the lessons may not seem especially relevant to you at this time, I assure you they will becomeimportant to you when you realize that the good life in a capitalist society is a pure function of money and success. Now I amnot, in any way, shape, or form, suggesting that everythingrevolves around money. Clearly, it does not. Family, friends, spirituality, social awareness and action, as well as ethics and commitment are all part and parcel of a balanced and well-integratedpersonality. But these are outside the scope of this book. Remember: No matter how much success you may achieve financially, your gains will amount to nothing if you fail to developother important aspects of your life.There are several reasons I want to share these things withyou. First and foremost, I believe that every individual who livesin a democratic, capitalist society is entitled to share in theprogress and wealth that defines such societies. Although we willnot all be fabulously wealthy, we are all capable of living verycomfortably if we set our minds and actions to success.Second, and of considerable importance to me, I want to giveback to society some of what it has given to me. In other words,I want to offer thousands of individuals, perhaps hundreds ofthousands, the opportunity to be successful using the tools thattook me many years to accumulate. And third, I want to know thatI have made an impact, that I have made my mark on society, andthat I have hopefully helped improve the lives of many people.Not too long ago, I received a complaint by e-mail from awoman who had read a book I coauthored with my son, ElliottBernstein, titled Stock Market Strategies That Work (McGraw-HillProfessional, 2002). She told me there were some errors in thebook. I asked her what the errors were and, on receiving herreply, I sent a thorough response to her questions, as well as adetailed response to questions she asked that were not part ofthe book she had read.
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She wrote back, telling me that she was still upset about theerrors she found and that she wanted to return the book. Ratherthan thank me even once for the knowledge the book gave her,she was intent on complaining about the $19.95 she had spent.I replied again, telling her that she ought to return the book ifshe was so totally dissatisfied, and that I would still be willing tohelp her with any questions she had free of charge. My interest waspurely to assist her. I did not, as some individuals in my profession do, tell her that my consultation fee was $500 per hour orthat she needed an appointment.Still, she focused her energies on complaints rather than solutions. She implied that my purpose in writing books was tomake money and not to educate. Apparently, she did not understand that writing books like this one generally yields only a smallamount of money for the author, and that the book would likelysink into obscurity after a year or two. Let me tell you again thatmy goals are first and foremost to educate and to have an impacton society, hopefully to improve the lot of average individuals.My lessons in the stock and commodity markets taught me anumber of basic but highly important facts.
Patterns Are the Key to Success inVirtually Any Business or InvestmentBy this I mean that history repeats itself not only in the markets and in economies but also in business ventures. All thingsin life follow cyclical patterns. Cycles begin at a low point, riseto a peak, and then decline, only to repeat the process. Thinkof your own life and experiences in this context. Think aboutyour successes and failures. Think about your relationships. Iwill elaborate on this highly important fact of life repeatedlythroughout this book. For now, take my word that life is full of
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patterns, and that if we know the patterns—of life, of investing,and of economics—then we have improved our odds of successsubstantially.
Time Is More Important Than PriceWe are all preoccupied with price. We bargain for lower prices,even though we want to buy a given item. Sometimes, we miss theopportunity to buy or sell because we waited for a certain price.Though well-to-do in their own right, my in-laws will travel ninemiles to buy grapes for ten cents a pound less than they can buythem locally.Investors who were bitten by the gold bug in the 1970s believed the Hunt brothers when they predicted gold would rise to$1,000/oz. and silver to $100/oz. They bought at the right time,but today, over 25 years later, they’re still waiting for the marketsto hit these predicted price targets. Their mistake