Don't Just Blindly Enter the Markets

If there is one thing I talk about all the time wherever I write, it is about the importance of understanding and participating in the stock market. I talk about it as much as I do because I think being in the stock market trumps all other means of income and wealth building, aside from owning your own successful enterprise.

But there is a caveat to this that I often do not have the space to dig into more deeply, but it as important as my advice to understand and participate in the stock market, and that's to make sure that you know what you are doing when you decide to invest your money.

It's not unlike many things we do in life. We can't just blindly step into something and expect to have an instant good outcome. Knowledge is everything when it comes to not only saving your money but also investing your money.

The thing to keep in mind is that, generally speaking, the stock market is not all that complicated a place. Granted, some may find it a bit scary. Some may believe that it's rigged against the little guy. Some people think it's not a place to make money, but to lose it.

You can learn it.

A great book to read, if you have not already, which is often considered the Bible of Investing is The Intelligent Investor by Benjamin Graham, the man who was the mentor for Warren Buffet and a lot of the ideas he has about what to look for in a company—and essentially how to invest.

I will contend that it is not an end all be all guide. But it is a great book to get started to get your feet wet.

In order to ever be in the money, you must first be in the know. You need to know, when you pick a stock, why you are picking it, and keep in mind in so doing that you are not investing in a stock, but rather you are investing in a company.

What that means is that stocks do things day to day. The interest is not in what a stock does day to day, but what the company does and the value of the company over the long term. Many people get overly cautious or skeptical when a stock moves—they either get scared and sell at a loss, or they sell too soon if the stock suddenly jumps and lose out on the real future value the shares may generate.

It's not as simple as putting a bunch of company names on a dartboard, blindfolding, and simply start tossing darts. It is important to read balance sheets and understand how a company makes money, and how it will either potentially keep on making money or make more money.

It's important to know how a company manages its debt, how much money it keeps in cash, what the costs of operating the business are and what external factors may drive margins up or down. It's important to understand terms like price to earnings, debt to income, EBITDA, and it is important to understand how to compare companies against their peers or to evaluate companies that are similar.

For example, I invest in both Walmart and Amazon. But I invest in them for different reasons. For one, I don't view Amazon, really, as a total retail company like Walmart is. Amazon is much more about distribution and tech, and I think that separates Amazon. Both have lasting value, just in different ways.

For the same reason I invest in Ford Motor Company and Rivian for different reasons.

Granted, you could probably be relatively safe investing in iconic brands that have stood the test of time and likely will for the foreseeable future like Coca-Cola, Kraft Heinz, McDonald's, Proctor & Gamble and things like that. But there are myriad other businesses just as good, with just as much future potential to rocket, that are worth investing in.

You just have to make sure to know what you are doing and do your homework. Due diligence is a tenet of sound investing, and it is key to generating profits that can not only provide future income, replace current income, and generate wealth—but even change the entire way you view money and its benefits.

I think it is vitally important to point all of this out, because the fear I always have is that if people simply go blindly into the markets and then lose their money because they didn't know what they were doing, it will stop them from ever exploring more and they will likely never get ahead or reap the benefits of what the stock market truly offers. Most importantly, to ordinary working folks like you and me.

When I advise people to get into the stock market, I want them to actually succeed. And unfortunately, I can't always take the time to fully explain what it all means, what to look for, and how to actually do it. I also don't like to make investment suggestions, although sometimes I will, because I also feel it is more important for individuals to seek out information on their own, and to have their own perspective and ideas about why Company X is a good investment or not.

A lot of people get it wrong, including me. And you will get it wrong too. But at least you have the goods to understand what you missed because you did your own research in the first place.

At the same time, a lot of people want to rely on brokers or other so-called experts. They watch certain business news programs and want to trust that guys like Jim Cramer know what they are talking about all the time.

Never invest in a company because someone told you it is a good investment. Invest in a company because that's what your own research tells you. If you aren't sure, don't invest until you are. I can't stress that enough.

At the end of the day, it's your money and every penny is important. You work hard to make it, and you work hard to save it. Blindly investing what you have worked hard for and worked hard to save is as much of a waste of money as walking into a casino and expecting a big win or buying a lottery ticket and expecting a big jackpot.

Even a blind man doesn't simply walk blindly. He has the tools and the knowledge to get where he wants to safely be before he ever walks out the door.

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Don't Let Your Money Leave You Stranded

WHEN IT COMES TO MANAGING YOUR MONEY, THERE HAS ALWAYS BEEN ONE STATEMENT THAT I HAVE STRONGLY DISAGREED WITH, and that is to just simply save it and forget it. In other words, you will hear a good many people, and even sometimes from certain financial advisors, to not watch the daily nuances of the markets—

Lest you wish to drive yourself completely insane.

The truth is that in order for you to fully reap the rewards of any investments you may have, you really do need to keep a good tabs on what's going on with them. Yes, it can be a painful thing to watch your portfolio in the throes of its ups and downs. It can be particularly painful when there are bad days, or strings of bad days.

If you go into the process of looking daily at what you have with the mindset that this is just the way that the market operates, and if you have done your due diligence and have confidence in what your individual investments hold for the long haul, the daily nuances should not have the agonizing impact that they might otherwise have.

Going it blind, to me, just seems like a foolish way to go about things. Perhaps it is a stupid analogy. But imagine driving a car that has no gas gauge. You simply drive around having some general idea of where you need to be and how much gas is left in the tank to get you there. But you have no idea how much gas is actually in the tank.

At some point or another, or at various points, you are going to find yourself on the side of the road trekking to the nearest gas station, gas can in hand, to make up for the fact that you got it wrong. You'll even be filling up when you don't need to.

That's time, folks. And time is money. And it's a cog in the wheel that can throw your whole day off balance.

In order to manage your finances, you need to know how much gas is in your tank so you can make wise decisions about when you need to fuel up, when it might be a good idea to pour a few extra gallons in the tank, or even when you are safe to drive a little bit longer before doing anything at all.

But it does another thing for you when you are watching the daily nuances. It helps you to also make wise spending decisions. Look, let's be real here. We save money not only for the future. But we also save it to have it when we want it to do things.

Watching the money and knowing exactly where you are at any particular time can help you decide if now is the time to take that vacation, or replace the car, or go out to eat one night. If I see I am up for the week, perhaps I allow myself to take a little bit of that money off the table to take it out of the bottom line and do something I want to with it. Conversely, if I am down, I'm not taking money away from it making a bad situation worse.

Money is not the most important thing in our lives. Obviously. But it can certainly have an impact on the quality of our lives.

Again, going into the process knowing the mechanics of money and markets is key, and helps us even to see a silver lining. Remember when the markets lost half their value in 2009? It was a devastating thing to watch really. But, having an idea that we have been to places like that before, and seeing that we not only gained it all back eventually, and then some, gives you great insight into what you need to be doing in times like those.

You could say that back then, in 2009, the tank was running on empty. The choice would have been unwise to just keep on driving hoping you would still get to your destination. The wise choice would have been to put some gas in the car and drive a little less.

And by comparison...spend a little less.

You don't want to find yourself on the side of the road dead while all the other cars whiz past you. You want to be on the road with them, getting to the places you want to, and need to go. Pressing the gas pedal is intent to move forward. But you're going to need gas to actually make the car go.

If you really want to reach your destination, it is best to avoid guessing whether or not you will actually have what you need to get there, or what you need to do in order to have some influence on whether or not you will ever actually arrive.

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Taking "Pay Yourself First" One Step Further

The age-old adage in the art of saving away a few bucks for a rainy day and beyond, pay yourself first, is still one of the best ideas to not only plan for, spend around, but to also live by with absolute determination and commitment. For years I have advocated what I like to call the 80/20 rule which basically states that you only live on 80% of your means, and save and invest the 20% you don't need. These days the amount I save is actually higher since the 20% affords, eventually, an increase in your means through dividends, capital gains, and other things that the money "in the bank" tends to generate.

Money makes money is another thing everybody says, but that is also absolutely true.

Something that I find often gets overlooked in all of these concepts surrounding saving money is actually a very important factor that can, if not considered, eat away and terribly counter a great deal of the effort you put into your savings commitments.

The COST of money.

Where this factor is most encountered, it is when we are dealing with how we manage and use credit. Most people who understand credit also understand that there is a difference between good debt and bad debt. Naturally there are some people who will tell you that there is no such thing as any good debt. I am not in that camp. By my definition good debt is debt which leverages an  appreciating asset such as your home. In this instance the cost of the debt is typically negated by the appreciating value of what has been financed. Bad debt is debt that is used to leverage depreciating assets, such as a vehicle. But even I am guilty of making use of this kind of debt—although I do everything I can to minimize the impact. For example when my wife and I purchased our Ford Edge a few years back we put down $10,000 to keep the monthly payments down and reduce the overall interest we would pay. I did the same thing recently when I replaced my old Ford Sport Trac with a newer Ford F-150 and laid out $14,000 cash at the bargaining table.

But the worst debt is the credit card.

Credit cards can be used in ways that actually help you toward your savings goals. For example, I use a Discover card which pays me cash back on every purchase. The trick here is to pay the card as you use it otherwise the cash back rewards are really worthless.

But rather than use credit cards, and finally we're getting to the meat of what I meant when I said let'syour own line of credit? I call this little concept the Credit Savings Account, or CSA. Key here is that if you are following strict savings plans, there should be plenty of money sitting around somewhere that you can allocate to a "credit card" where you are your own bank. My CSA sits in my checking account and when I use it, it is as simple as swiping my debit card.

take the concept of paying yourself first one step further, why not simply establish

And by the way, this is a great way to also avoid overdraft fees, and WORSE, paying for overdraft protection which is absolutely a total waste of money.

Here is how I set up my CSA:

• Establish an amount to fund the account with and determine this to be the credit limit.
• Establish a day each month when you will make payments. Mine is on the 20th of each month.
• Establish an interest rate you will charge yourself. This can be whatever you want it to be. I typically charge myself anywhere from 15%-29.9% depending on the balance, but I never pay myself less than 15% interest.
• ALL INTEREST PAYMENTS MUST BE EITHER PUT INTO SAVINGS, OR USED TO INCREASE THE CREDIT LIMIT. THIS SHOULD NOT BE SPENDING MONEY.
• Establish a minimum payment based on at least 3%-5% of the balance. But of course you can repay yourself any way you want.

When I calculate the interest I don't bother with how credit card companies actually do it, using daily periodic rates and average daily balances etcetera. But of course if you want to you can do it this way—but it is naturally much more time consuming. Here is an example of how I will determine my payment and interest:

• Balance ($300) x 15% interest =  $45 / 12 months = $3.75 (this is my interest charge). Balance ($300) x 5% minimum payment = $15. In this example I will pay $15 on the 20th (my due date). Of the $15 I will apply $11.25 to the principle (balance) and direct $3.75 to interest (which will be deposited to my savings).

There is a caveat here. When you set up this account for yourself you must avoid playing games with yourself, such as forgoing making a payment, or playing around with the interest you charge yourself. This will foil any benefit a CSA will afford you. You are the banker. Act like one and fiercely demand payment and interest, and penalties when you don't pay.

Establishing a CSA takes paying yourself first one step further because it will accomplish two very important things. 1) it will force you to save more money away and 2) it will reduce your cost of money since you are using the CSA in lieu of traditional credit cards.

Perhaps even when I bought my vehicles I should have simply paid cash and set up a loan for myself.

Hmm. Something for me to consider on the next set of wheels I think. Let's keep our fingers crossed that Ford doesn't actually come out with a new Bronco or I may have to revisit this idea sooner than I would like.

Stock Markets Plummet, Do NOTHING!!!

Whenever the stock market is having a tough go of things I always get a kick out of the gloom and doom stories that begin to trend, and all of the wise men of the markets declaring "this is the end," "the sky is falling," and "cash it all in!" It's why I write about it so often. But what gets me more is the well known fact that, well...

We have been down this road time and time and time again.

The fact is, and remains, that the markets will move up and they will move down. And by the way, for anyone who has ever paid attention, they tend to typically go higher than where they left off before they fell when they eventually do go back up. And the markets always do go back up.

Currencies rise and fall. World markets expand and contract and shift. One day it's Japan whose the hottest growing country. Then it's China. Right now it's actually India. Consumer confidence goes up, it goes down, it goes dormant. Wages rise, wages fall. Banks are fantastic, then they are not. Same goes for auto companies, and by the way, every single company that has ever done business and every single market sector for that matter.

Tech is the doll. Then it's the financials. Then it's oil. Then it's durable goods. And then one day they aren't and something else is.

After the Crash of '29, after the recession that hit in the 80's, after Black Tuesday, and after the financial crisis of 2008, all were undeniably the worst markets to deal with obviously, but were also some of the best times to invest. Buy low, sell high might be considered old school to some in the current markets—but I think fundamentally the concept is still very much true.

And the markets are never lower than when they are down.


Wow. That's a brilliant statement, is it not? Of course I am being facetious. But more than buy low, sell high, what is really the point here is staying the course in good times and in bad times. On the averages historically, heedless of what the market does in the short term, you are going to come out ahead in the long term. And since you cannot predict what the market is going to do—ever—there is really no rational reason to try to "time" when you are going to add shares, or even perhaps when the best time to do that is.

It's always painful to see the value of your portfolio go down, and it's even harder sometimes to see the light at the end of the tunnel. What's easy is reacting to it—and it is also a very dangerous and unwise move when it comes to your invested money.

Of course I am speaking not to speculators here, nor traders. I am speaking to investors. Why is that an important distinction to make? Speculators and traders are not investing in companies. These folks are investing in short term movements in the markets. Be they short sellers or day traders buying long hoping to gain a few bucks on a momentum play, the reason they jump ship is because they are riding in a big ocean with heavy waves afoot in a dingy. They can't handle the rougher seas like a bigger boat or yacht can. Investors are the bigger boat, and they can ride out the storm.

This market will fall some more. That's to be sure. All of the indications with oil and a slowing economy in Asia and Europe point to that. But that's a time to buy, not to sell. And since you happen to be an investor invested in companies this just means that those companies, whose fundamentals really haven't changed all that much aside from being kicked around by other falling sectors and stocks, are going to be going on sale. That's when you load up, get more bang for the buck, and enjoy the ride back up eventually.

What's more, if you are invested in dividend paying stocks it's an ever better ride up since the shares you will buy in the downturn will obviously be cheaper, increasing the total yield on your invested dollars.

Sit tight, stand still, do nothing—well, other than buy more stock. The markets will find their current bottom, and then it's bottoms up. The smart money, the investors who ultimately understand the nature of these market dynamics of rising and falling will have won the prize and laughed all the way to the bank.

Mark my words...for the umpteenth time.