When investing and human behavior collide: Painful lessons learned from millions lost

Posted May 21, 2012 at 4:29 pm

An Open Letter To Anybody Who Has Lost Significant Money in the Markets

by Barry Goss & Brad Wajnman, Co-Founders M4 Research    
Co-Contributors: Deron Desautels, Membership Manager; Heather Vale Goss, Associate Editor

Under the Education & Ideas folder inside the Vault, we have an article titled: “Why HYIPers Keep Speculating In Pork Bellies.”

In it, Barry outlines the departing wisdom he got, from a grizzled ol’ commodity trading veteran of 30 years, named Richard.

This mentor of his — for 6-months — practically dragged him back into his office by the back of his shirt collar to throw down some departing raw “money-growing secrets” as he called them.

Whether it was out of a sheer desire to instill final lessons of the game of money upon him, or just out of an ‘I owe him this much so he can pass it on’ yearning, we can’t say for sure.

However, what we do know, without question, is this:

Human psychology 301 lets us predict our foibles, one of which is that the embarrassment of our inabilities (represented by our mind fooling itself into seeing instant riches upon our doorstep) can vastly outweigh our thinking and reasoning ability to humbly ask questions.

Questions are powerful. Actually, to be more dramatic, they are cardinal to your existence. To re-quote Jeffrey Gitomer of The Sales Bible fame, with a twist:

“They are to ‘risk-capital’ [sales] as breath is to life. If you fail to ask them, you will die. If you ask them incorrectly, your death won’t be immediate, but it’s inevitable. If you ask them correctly, the answer is… a likely return ON capital [sale].”

One head-scratching question that Richard asked Barry one fine day in the summer of ’94 is:

“So why do so many people lose money trading in the markets while others consistently make hundreds of thousands — even millions — of dollars each year?”

Richard certainly had some answers to his own question. After all, when you have that much experience doing something, and doing it well, you can’t help but notice things.

And, without sounding trite or having you picture us as the proverbial strict ruler-in-the-hand teacher, if you’re spending any amount of your time or money participating in speculative, higher-risk investing vehicles (the kind, ya know, where your return is solely based off the price movement of a tradable asset, and not so much on the sustained long-term value of the asset), you’d better have eyes wide open.

Now, before we continue with our tongue-in-cheek perspective below, you should know that throughout this article, you will find links to articles and reports we’ve written that give insights and lessons learned based on our experience with investments and growing our money (or, in some cases, attempting to do so without success).

We have learned the hard way — just as you may have too — that sometimes our expectations aren’t reached; and, sometimes our worst fears come true.

That being said, you should know that we have a combined 50 years of direct experience in this industry. When you add on the wisdom of mentors long past, it probably nears 100 years’ worth of wisdom (er, “caution” is more like the word we were thinking).

Most of the time, losses boil down to a few simple sins. Simple, we say… but not so much easy to employ. Humans are humans after all, and for every old man in Las Vegas still hitting on seventeen at the BlackJack table, there will be a middle-aged woman driving ten miles out of her way to use a $.50 coupon on milk.

Yup, some people never learn. Sure, we get that at times the problems can be traced to the system, market, or trading approach itself but most of the time, in our experience, it all boils down to our own flawed and reckless human behavior.

More on that shortly…

Continue Reading…

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How to ‘grow’ your money alongside Chicken Little

Posted December 20, 2011 at 11:35 pm

by Barry Goss
Managing Editor & Publisher, The Wealth Vault

The problem with ‘gloom ‘n doom’ thinkers — or specifically chicken little infused investment analysts — is that they want to be RIGHT, about the future, all all costs.

To them, peril should one day come. When it does, they’ll get their 15-minutes of “I told you so” fame.

Some, even in the face of irrefutable facts that show their less-than-average performance as a money manager or investor, still cling to their the sky will be falling facade.

Yup, fear sells. It always has, it always will.

And, as sad as this is to say, there are people out there morally-tweaked to be ‘okay’ with always selling the potential of future peril, while ignoring ‘right now’ profits.

After all, isn’t it easier for them to throw out excessive and over-the-top warnings about what an investor should BEWARE of than to give them practical (and instantly useable) ideas to PROFIT FROM now?

The former platform just requires them to sound and seem concerned, due to their self-styled ways of expressing what one day may (or possibly can) happen.

But, if you’ve been reading any of our in-house commentary on our Wealth Wire blog, by now you get that we’re about ‘growing money’ through smart traders, managed accounts, and human ingenuity.

So, when I saw an recent episode of Stossel, I couldn’t help but shake my head to the point of exhaustion.

I’m not sure if it’s his voice itself that brought upon my “Are you kidding me!” grimace, or his kid like emotional state of “Well… I just don’t like them [China]” towards the end of the video that is at the bottom of this post.

Stephen Leeb could literally be the poster boy for Chicken Little Investment Analysts (CLIA’s), the world over.

Just ask yourself:

“Do I want to invest alongside somebody who attaches way too much significance to their own ideological hopelessness about the future — where their alarmist identity must force their research to match up their beliefs — or do I want to piggyback off the efforts of the world’s greatest speculators and traders?”

If it’s the latter, check out our informational video that covers our premium research…

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Gold’s Scary Secrets [ Part 1 ]

Posted December 16, 2011 at 3:55 am

by Barry Goss
Managing Editor / Publisher, The Wealth Vault

Ya know… ya gotta admit, things you hear that can be possible, but rarely probable, are indeed fascinating.

For instance, full end-to-end double rainbows really are cool (er, WARNING, if you click the link and have people around you, not looking at your screen, but only hearing what’s coming from your speakers, they may think you’re watching porn).

So, just as fascinating as what the guy in the link above found (taking his hilarious reaction out of the equation) is how we humans mostly only let common sense ‘sink in’ if the teaching — the reminders — are delivered in a not-so-common way.

Sure, there are things in life we don’t need to be taught to “get” — like how wine really is made from grapes… or… how the meat in a Taco Bell taco really is cow meat (not anything more or less).

But, when it comes to finances and money, man oh man, sometimes a good storyline — a setting of cryptic and hammy proportions — is all it takes to have sensibility again become popular (and inspiring) for us.

Enter what the sheeple — those who easily latch onto popular culture and memes rather than expend energy to think in deeper ways — have made one of the longest-running and bestselling books of all time:

The Richest Man in Babylon.

George S. Clason didn’t write it to be a book. Rather, he started writing parables in 1926 and they were distributed by banks in pamphlet form. The most famous of these parables were later compiled into the book, The Richest Man in Babylon.

The book takes a couple of simple concepts and beats them to death in a series of mind-numbing stories written in old English style writing.

The narrative follows two poor workers, Bansir and Kobbi, as they attempt to gain wealth. They ask advice of their friend Arkad, who is the titular “richest man in Babylon”. Arkad proceeds to use a series of parables to illustrate the financial, or wealth-building, secrets of the so-called “ancients.”

If you like old English, or enjoy Shakespeare, and need an “imagine yourself rich” motivational story, you may like this book.

But, somehow I think you’re already past basic concepts like [1] save a portion of your income (put away X% of your income every paycheck); [2] control your expenditures (don’t spend more than you need to); [3] increase the amount of money you earn; and [4] protect your wealth against losses, etc.

Then again, the world-at-large has apparently clamored for the Aesopian proverbs (like, “Better a little caution than a great regret”) and the yoga-esque platitudes (like, “Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those who are skilled in its keep”) that come along with it.

On that latter, seemingly godly note… current day wisdom just might say: “I only invest in businesses I understand” (Warren Buffet). Yeah, but reaaaaaally, come on. Who wants something so simple; so cut-to-the-chase drab, when they can get an eth or thee thrown in every other paragraph? :)

The entire book basically boils down to: pay your bills, save some money, make it grow.

Yet, for the greenhorns coming into a J-O-B with their first paycheck, or for those just getting started in the world of investing, here’s a bit of elaboration on one key word used judiciously throughout the book:

GOLD!

Gold’s Scary Secrets: It doesn’t mean you won’t be wealthy if you don’t have any. Far from it, as it was used to simply signify money, or capital, in the above book.

And, as you’ll soon see, current day money, even in its paper (fiat and legal tender) form, can (and should) be used to increase income and build wealth.

Gold (in “physical” form) can certainly help store the value of your net worth; i.e., the dollar value of your total assets (bank accounts, stocks, real estate equity, etc.) minus the dollar value of your total liabilities (bank loans, credit card debt, etc.)

But, you have to get this distinction: it WAS once used as money. Just like cowry shells, shekels (a weight of barley), and other commodity-driven forms of money were. Yet, they eventually become obsolete due to technology (in my coming DETAILED gold report, I will get into the hype around the gold bugs holding onto the “how every paper-based money has failed, or will fail,” canard).

As a “monetary asset” (yup, regardless of Ron Paul faithfuls’ claim, Bernake was 100% correct with that label; while you can’t pay for dinner with it, you can use it as collateral), bullion (physical gold) is the best hopeful insurance against economic and political disaster (i.e., bureaucrats causing COMPLETE loss of confidence in the worldwide fiat monetary system, as represented through multiple currencies (think: Yen, Dollar, Franc, Euro, etc).

I didn’t add in the word “social” above, as in a breakdown of society, Mad Max style, gold isn’t going to be anything other than a shiny rock to look at. In this far-fetched scenario, the commodities I want on hand are:

Hundreds of 5-gallon Poland Spring Water containers, gasoline stored to run a generator for months, firewood, blood pressure medicine, storable food, Swiss Army knife, Bowie knife, batteries, shortwave radio receiver, and a Remington pump-action 10-gauge shotgun, with sufficient ammo.

Do I spend a waking minute worrying, or even thinking, that the above scenario can (or will) happen? Ah, I think you already know the answer. But, I’ll say it like this:

NO! :)

Instead, I get enthralled with ideas! Combine those with prosperity-minded people, experience, and technological resources and you can’t help but be part of creating a better world through VALUE and INNOVATION (more on that shortly).

So, here’s the problem with just tossing around the word “gold” without any context, or any understanding of anything about it, except its latest 10-year pricing boom.

Like the flock of believers who get sucked into the exploits of the next traveling faith healer, you also might take a leap of faith to the shiny metal… all because, well, everybody seems to be.

In the August 29 issue of Barron’s, Gene Epstein wrote that “In addition to being a commodity, gold is also a cause.”

Yet that cause has gotten skewed. Again, it should ONLY be used to mitigate risk, purchasing power loss, in true investments. But, like some religions who think that those who unquestionably believe (yeah, just believe) will be rewarded handsomely in the afterlife, extreme gold bugs will tell you if you don’t buy all you can now you’re being led astray by the forces of evil.

Just like Christianity is divided into so many sects, so too is gold: You’ve got the hard bullion people, the people who speculate in the miners, the ETFs, and even spinoff precious metals, like silver.

You also have the really far-out-there, cult-like folks who think they’re actually making long-term, value-based “investments” in the relic metal.

[ Uhmm, let's investigate that some after this managed forex find from Brad... ]

NOTE: The above commentary is part of the preface to our October 31st member update. To read it’s continuation and the rest of the update, as well as obtain full access to our coveted money-growing Vault, click here… After you join us a full-fledged paid-up member, go to the October 31st member update to finish reading the above commentary.

Or… you can read part 2 of Gold’s Scary Secrets here…

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We’re bullish on human beings

Posted June 13, 2011 at 3:56 am

by Barry Goss

While your great Uncle Ernie might have got a good scare story or two in over this past weekend’s family barbeque, many others — the non-Ernie Chicken Little’s of the world — were showing passion and purposeful prose for what matters most.

One such grounded and practical-thinking investor was Bill Schultheis, editor of the excellent The Coffee House Investor:

It is a scary time to be an investor, but then it is always a scary time to be an investor if you get caught up in the daily headlines of double-dip recessions, government debt ceilings, and rampant inflation.

For those of us who are spending more time getting on with our lives and less time on daily headlines, it isn’t so scary.

In fact, I am more optimistic about the future than I have been in the past 15 years.

First, the stock market is as cheap as it has been in ages, except for a brief period in early 2009, although some sectors of the market are certainly cheaper than others.

More importantly, I am bullish on human beings.  This past week I connected with three friends from around the world; a corporate securities attorney in Seattle, a businesswoman in Beijing, and a scientist in Germany, all three who were practically giddy with the pace of commerce around them.

Sure our economy and the global economy has big problems.  But don’t forget that the global economy also has billions of people who are working their tail-ends off to provide a better life for their families, their communities, and themselves.

Are you betting against them? I’m not.

Bill, needless to say, I’m not either.

Here’s how I told it via our May 20th ‘WV’ Member Update:

[ An excerpt ] –

Ron Baron is a self-made investor. Many years ago, he started with nothing as a junior stock analyst. Now he’s a billionaire, with over $19 billion in assets under management.

He’s big on PEOPLE and when he tells his staff that “it’s not inconceivable that their money is going to increase eightfold in about 25 years,” he means it and means it like this:

The right products — i.e., energy, industrial, tech, consumer stables — are always going to be sold… regardless of cost pressures.

The right products, sold by high-quality companies (i.e., Johnson & Johnson, Chevron, IBM, Wal-Mart, etc.) find ways to adapt.

Who runs these companies? People!

A good analyst, like Rob Baron, does due diligence on forward-thinking, ambitious, possibility-minded people who are interested in solving problems through good companies.

In a recent interview, Ron states:

“If you had your money in cash starting in 1958, your lost 4% of your investment each year because of inflation — that’s 90% of your investment gone over 50 years. But if you invested in [select] stocks, you made 25 times your money, and I think the same thing is going to happen again.”

Why?

Because regardless of political incompetence, and ill-advised moves on Capitol Hill — or across any other major world economy — the business cycle doesn’t stop. We humans, as long as we’re around, WANT and NEED new and improved “stuff.”

And somebody — a business — has to make it.

When I hear talk from gold bugs transition into their desires to also allocate money in other tangible hard assets, like home, property, art, fine wine, collectibles, etc., I actually am pleased to see their cognitive abilities expand a bit.

Yet, a majority of those same bugs still can’t grasp their foundational reason to hold the shiny metal in the first place.

Gold is money, not an investment. It doesn’t accrue interest, it doesn’t yield dividend. It is money, safe money, universal money. You don’t buy gold to be rich, you buy gold so as to not be poor. Just like you don’t buy a house to be rich, but to have a roof.

It’s the very reason I posted this Wealth Accumulation…or… Wealth Preservation article.

The information there makes it very clear that being overly-exuberant about gold and other precious metals might as well be equivalent to cavalier gambling.

Yes, you want some; but over time you want more of your grub stake in PEOPLE!

Even legendary market observer (and gold bug / stock bear) Richard Russell, editor of the widely popular investment newsletter Dow Theory Letters, told subscribers in late January that they should buy U.S. stocks.

I’ll go so far as to say you should buy stocks that are tied to under-valued companies, no matter where they’re located.

Come to think of it, if inflation in the U.S. goes bananas, the dollar will fall and foreign stocks will act as an automatic hedge as money invested in foreign currencies is translated into more dollars back home.

So, how do you find good companies, being run by good people?

Well, Brad has come up with two very nifty, time-saving software programs for you…

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The Wealth Paradox

Posted February 19, 2011 at 7:39 am

by Barry Goss:

A few weeks ago, we released a new resource within the WV members’ area called “High-Yield Wealth — From The Inside Out.”

In the detailed introduction to this new ongoing series, I made a confession to our members that, ironically enough, doesn’t even jive with who I am, or what I like sharing with the world.

You see, for the last 10 years, I’ve been knee-deep in raw, keep-it-real personal growth and metaphysics. As indicated in my interview with Heather here, I really don’t care for overly-abstract, lofty, or pie-in-the-sky teachings.

As a matter of fact, I’m a firm believer that the more you go right to the heart of the things that scare you the most (or that “feel good” the least), the better off you are (see my blog post, The Dark Night of The Soul).

In life, just as in self improvement and the matters of money and wealth, you either get RESULTS or you don’t.

And if you’re consistently struggling with the latter part (i.e., not getting or doing what you say you want to get or do), look no further than one area of your activity:

Your behavior, and your mindset. They’re the most clear mirror you’ll ever have for if, and how, you’re getting in your own way. Behavior and mindset never, ever, ever lie!

So, why did it take me over a year to agree with Brad that, “Yes, indeed, Sir, we should have a section that discusses the intangibles that turn average, everyday people into thriving, abundant, wealthy ones?”

The answer is simply this:

Continue Reading…

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