Tag Archives: financial industry

2010 Forecast: Clouds And A 100 Percent Chance Of Algorithms

Swami Stream @ Flickr

Swami Stream @ Flickr

Is the first decade of the 21st century really almost over? Wasn’t it just yesterday that we prepared for the collapse of society because of the Y2K bug? Wasn’t it just yesterday that we laughed off the Mayan 2012 prophecies because they were so far in the future?

Well, the new year and the new decade is fast approaching. This usually brings out the sunshine-and-smile futurists and the doom-and-gloom prognosticators. They all have their vision for the future.

What’s mine?

I’d say, at least for the financial world, there’s a 100 percent chance of Cloud Computing with a algorithmic trading storm in store for the next decade.

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Genghis Khan’s Three Tips For Overcoming Financial Challenges

Genghis Khan and the Making of the Modern World
Genghis Khan and the Making of the Modern World

Timujin, a Mongolian child, had been the victim of a string of bad luck.

His father had been murdered. The tribe he belonged to abandoned him on the brutal Mongolian steppes in winter. His family was close to starving.

He wasn’t supposed to live, or become a Khan, let alone become a Khagan (emperor).

But Timujin, or Genghis Khan as history would call him, overcame all those challenges before him to become the emperor of the largest contiguous empire the world had ever seen.

How he did this–and how you can overcome¬† your own financial challenges–is through guidance based on a set of principles that helped minimize risk and maximize rewards.

This wisdom rests in three simple, but vital ideas.

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Lie: You Can Arrive At Financial Freedom Using A Rear View Mirror

They say that history doesn’t repeat itself; but it does rhyme.

Financial wizards like to parade out statistics from the past and make predictions based on their analysis of this rear-view mirror information.

So far, I’ve heard our current economic trouble compared to:

  • The tech bubble burst of 1999-2000
  • The bear market of the 1970s
  • The Great Depression

… And just about every other economic downturn, from the South Sea bubble to the collapse of tulip bulb prices in Holland, in between.

By cherry-picking bits and pieces of data from those eras, they believe they can convince you that since they understand the patterns of the past, they can see the future. But, that logic is faulty.

While this data may “rhyme” with current conditions, it does not repeat exactly. Take the current conditions: Americans have far more options of saving money, investing money, and creating money than the people in the Depression did. A person today could create a business in seconds for pennies, just by connecting to the internet.

How will this play out?

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Lie: One Method Magically Works In All Markets

WizardOne of the lies financial wizards spread among the community of investors is that there is one, magic, secret method that works in all markets, at all times.

And guess who holds that magic, secret, and, apparently, proprietary method? That’s exactly right, the financial wizards do.

During some investment eras, during precise market conditions, that method may spin off amazing returns. But, when conditions change, the financial wizard’s magic wand suddenly loses its power.

Many financial wizards are one trick ponies who believe that a certain investment style or strategy masters all markets. They think that their special brand of Value Investing works in all conditions, for instance. They believe in momentum trading. They only pick stocks moving above their 60-day average. Or 30-day average. Or 23.5 day average. They look for candlesticks, or double bottoms.

But, the market, I believe, is a group-driven organism and, while there are patterns that develop, those patterns move and evolve. It’s difficult to find a constant. It’s almost impossible for a big bureaucracy to find patterns and act on them.

If the market is an organism, rather than a static chart, then the individual investor has advantages. He or she can remain nimble, looking for those kaleidoscopic patterns to emerge.

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Lie: It Takes Too Much Time And Effort To Manage A Portfolio

A good portion of¬†independent investors are drawn to trading and the market, in general, because they enjoy it. It’s a hobby for many.

But, a vast group of potential investors are left on the doorstep of financial freedom because they believe that it takes special skills and a whole lot of time and effort to become a “trader.” They may invest in a few stocks, but rumors that they will be forced to spend hours locked away with a copy of Value Line and research earnings reports keeps them from actively trading and investing.

With a full-time job and family commitments, time is a commodity they can’t trade.

So, they need someone else to mind their money, they decide.

The financial industry reinforces this stereotype, making it clear that only financial analysts with 120-hour work weeks can understand the market.

But is this true?

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10 Secrets the Financial Industry Doesn’t Want You to Know

This is the last post in the series. See the bottom of the post for the other nine posts.

90% of Financial Success Is Psychology

Have you ever looked at the list of the world’s wealthiest people? It seems that each person found a different way to get rich. Some people, like Bill Gates, did it by building a software business. Others did it through investing. Warren Buffett is a great example. Still others did it in different ways.

So that begs an interesting question. If there’s so many different ways of getting rich, what do they all have in common? The answer is, a certain way of thinking.

90% of financial success is determined by how you think. The remaining 10% is the specific strategies people use to get rich. Most people love to focus on strategy. They talk about who to hire, how to do marketing, or which properties are best to buy. But all of these strategies will only work if they are built on a certain mindset. And this mindset is the psychology of financial success.

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Seven Lies Financial Wizards Want Investors To Believe

Wizard of Oz

The Financial Industry has been hit hard in the past few months, rocked by scandals and poor performance.

I don’t want to be another person jumping on the pile, but it’s become clear, just like Dorothy, the Tin Man, the Cowardly Lion, and the Scarecrow, we’ve been granted an opportunity to look behind the screen to see that these Financial Wizards aren’t nearly as impressive as we once thought.

In fact, they look a lot like you and me.

So, how did we come to believe that certain people could master the market and control our financial world better than us? Simple, like our Oz invaders, we were impressed by the smoke, mirrors, and theatrics of these wizards. We were so impressed that we were led to believe things about them (and us!) that weren’t true.

And the financial industry, which employs most of these Financial Wizards, created a mystique with lies, half-truths, and complexity. These lies are used to promote a victim mentality that allows these wizards to become the sole masters of one’s investment portfolio and, therefore, one’s financial destiny.

We’ll take a look at these lies this week and uncover how you can take an active role in determining your financial future.

Here are the seven lies financial Wizards want investors and traders, like you, to believe.

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Myths about Stock Trading

The Internet has taken stock trading out of the realm of the wealthy investor and put it in the reach of just about anyone with an Internet connection. The financial industry would have you believe that stock trading is risky. Although it definitely requires time and effort to become a successful stock trader, it’s a skill that anybody can learn.

Let’s start with the definition of what I mean by stock trading. I am talking about swing trading. Swing trading is similar to daytrading, but uses less leverage and holds positions longer. Typically, a swing trader will hold a position for days or a few weeks. Although daytrading requires more skill than swing trading, it is fundamentally quite similar.

Here are some common myths about stock trading:

Stock Trading Requires an MBA or other College Education
Listening to all the financial mumbo-jumbo on TV makes people think that they have to have an advanced degree in finances to know what’s going on. Nothing could be further from the truth. Typically, the more financial schooling the person has, the less effective they are as a trader. Why? Because traditional financial education does not teach people how to make money through trading. It teaches them to become a good employee.

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How To Run A Ponzi Scheme

Bernie MadoffReading about the whole Bernie Madoff billion-dollar Ponzi scheme made me think: How can you protect yourself from putting your money into a Ponzi scheme?

The best way to avoid being taken by a confidence scheme, although not guaranteed, is to get inside the mind of a Ponzi-Scheme manager. Find out how they run their business and then you can more easily see the warning signs.

A Ponzi scheme, named for underground financier Charles Ponzi, is simply using money from new investors to pay off previous investors, sort of like the Social Security system without the press and the AARP to back it up.

To get your Ponzi scheme running, you should do the following:

Offer nearly-impossible returns to new investors.

The less astute Ponzi schemers will usually offer extremely high rates of return, but they often attract attention and get discovered quickly. Madoff’s rate of return was small–8 percent or so–but it was so consistently 8 percent that alarm flags should have been raised.

Hide behind social connections.

Madoff was a member of the financial establishment and he worked them over more than he did his investors.

Make sure you are the custodian of your investors’ funds.

You’ll need to issue false statements. To do that, you should be the custodian of your investors accounts. A simpler way to explain it, according to the Brett Arends of the Wall Street Journal:

“If your adviser manages your investments, but the funds are actually held at, say, Charles Schwab or Fidelity, it’s almost impossible for him or her to run a Ponzi scheme.”

Resist transparency

Make sure you pick investors who don’t insist on transparency. If they insist on information, baffle them with B.S. by citing the level of “trust” you have with your investors. Or, simply fill them with a mind-dulling array of investment statistics and number-crunching.

Finally, insist on picking investors for your scheme that don’t want to play a role in their own wealth-generation. Even though independent investors are busier than ever, technology, like Automated Trading systems, are making it easier for them to be independent of financial managers.

As this technology grows, we hope Ponzi scheme managers find it more difficult to dupe new investors.


Ron Paul Takes on Federal Reserve. What About Financial Statements?

Financial StatementsRon Paul wants to abolish the Federal Reserve. He may want to take a look at financial statements first.

If you want a good laugh, or cry, check out one of your financial statements. And look beyond the plummeting numbers. Look at the types of fees your financial company is charging you.

Have you ever read the names of the fees and the explanations for those fees? Try it. I did. Here are a few categories I found in my IRA statement.

  • Investment advisory expense. There’s an expense to advise me? I really don’t expect them to advise me; I expect them to invest my money. Or, are am I paying for someone to advise me that the market’s down 40 percent. Shoo-wee, money well spent.
  • Administrative expenses. Is this, like, a fee to print up a statement to inform me about my investment advisory expense?
  • Mortality and expense risk charges. What? This one sounds pretty morbid. I wonder what the immortality charge is?
  • Acquired fund fees and expenses. Wow! I get a two-fer–fees and expenses! Bonus!

Wow. I can’t help feel like I’ve been put through a ringer.

How about you?