I still wanted to learn more Options winning trades to add to my arsenal. When I was at the MPH bookstore, I saw a Rich Dad Advisors book called “Stock Market Cash Flow” by Andy Tanner. I remembered that Robert Kiyosaki always emphasized cash flow in any investment compared to capital gains. I decided to flip the book to find gems. I only bought the book on the second look after discovering that I could learn and practice some of the concepts taught.
To be a great investor, we must first be a great student to learn everything there is about an investment in order to be an expert. This is the first time that I have been introduced to two learning measurement systems; 1) Continuing education helps us measure how well we have learned and applied the concepts of our financial education. The levels are Ignorance, Awareness, Competence, and Competence. 2) The Learning Cone, developed by Edgar Dale, shows how much we retain through different forms of learning, whether active or passive. With these two measurement systems, we can measure how good students we have been at investing.
Andy introduces us to the four main asset classes. They are commercial, real estate, raw material and paper assets. He gave a good comparison of the different asset classes to allow each individual to assess which asset class is the most suitable given their circumstances. Since this book is about paper assets, Andy gave more reasons why an investor should consider having paper assets in their investment portfolio.
Next, Andy presents his 4 investment pillars. The next 4 chapters delve into each pillar. Personally, I find the 4 pillars very useful and guide the investor, no matter what level they are at, to make better decisions. The 4 pillars are:
Pillar 1 – Fundamental Analysis
Pillar 2 – Technical analysis
Pillar 3 – Cash Flow
Pillar 4 – Risk management
Fundamental analysis allows an investor to determine the strength and value of an entity (sovereign, corporate, personal) by understanding its financial health. Basically, the way in which the financial status of each entity will be viewed is governed by the policies in place. Policies must change for the fundamentals to change. One of the best investors of our time, Warren Buffet, is a guru in determining the fundamentals of any company. Gurus like him have a set of important rationales to rely on to determine whether the company is worth investing in. Your company Berkshire Hathaway has put in place excellent policies that have seen your company achieve tremendous growth and an exponential rise in your company’s stock prices. Andy has provided similar ratios (and definitions) for investors to compare stocks. I find them really useful and have used them in my stock analysis.
Technical analysis helps investors determine the strength of the market based on the supply and demand of price movement. Investors use the stock chart to see if there is a trend created by historical price movements. This trend or pattern that the investor identifies will indicate the likely movement that the stock will take. Andy gave a very good introduction to technical analysis, explaining the essential basics like trend, support and resistance types and some commonly used chart patterns. I found that this is all that any investor needs to get ahead if he really becomes proficient in them.
Cash Flow helps an investor to better position themselves in the market. Andy uses the concept of Options to illustrate this point and emphasizes the opportunity of how this instrument allows the investor to profit in any direction of the market. Andy explains the many properties of an option contract. Understanding the basic concepts of a Call / Put and the combination of both options allows the investor to have many ways to position themselves in the market.
Risk Management teaches us three ways to face risk: 1) Avoid risk 2) Take risks 3) Manage risk. Risk is related to control. An investor with more control over his investment will have less risk. The same happens when an investor has less control over his investment, he will have more risk. Those who have no control are players. It is also advisable to know the maximum risk of an investment.
How we end up in the future depends on the decisions we make today and who we surround ourselves with. How good students we are today will determine our financial future.
I really enjoyed this book as Andy is a great teacher, he explains the concepts in very simple language. This allows me to better understand and retain what was taught. I hope you get a copy of your book and light up.