The Online Investing AI Blog

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May you live in interesting times.
–Chinese curse

We do live in interesting times, perhaps the most interesting times in the history of civilization.

That can be good.

And that can be bad.

We seem to be caught up in the eddies of a great transition. These economic, social, and technological forces can toss an individual around. It’s in these interesting times that we are fortunate to have some interesting voices who will help us steer our personal financial ships by offering us advice and issuing us warnings.

In this edition of Weekly Wisdom, we’ll review some of the best posts and articles on personal finance and improvement.

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Accelerating Technology, Investing, Money, Online Investing AI, Success advice, discounts, finance, Investing, investment, Links, Money, personal finance, roundups, saving, wealth

terren@flcikr

Climate change is in the news–almost every day.

The one thing missing from the debate is that the climate always changes! The world’s climate has continually shifted. Ice ages have given way to warm periods. Warm ups have turned chilly. Not only has the global climate shifted, but regional climates change.

People have learned to adapt to the whims of climate.

What does all this have to do with investing?

Investment climates change, too. Global investment climates shift. National climates change. Even local economies alter.

The investor who wins is the investor who adapts. There are a few rules for this type of adaptation.

Read more…

Accelerating Technology, Automated Trading, Investing, Money, Online Investing AI, US Economy adaptation, climate change, economy, investment, investment climate, Money, wealth

casey serin @ Flickr

Big fan of Robert Kiyosaki here.

I believe the underlying message of his books is that there’s a difference between wealth creators and wage earners. I also think that society conditions us to spend and earn ourselves poor, not rich.

But, the key to financial independence is that there’s no such thing as a guru. Generation X Finance says that the author of Rich Dad/Poor Dad is guilty of over-reaching when he attacks the 401(K) system as “the biggest scam ever.”

Gen X Finance certainly makes a case, but is a little less generous than my allegations. I say the article is an over-reach. Gen X Finance claims Kiyosaki is off his rocker. (Again.)

Ouch.

Let’s look at both sides.

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Great Books, Investing, Money, Online Investing AI, US Economy 401 K, author, blogs, guru, Investing, investment, Rich dad poor dad, Robert kiyosaki

Visualizing your shots--investment and otherwise--can improve your chances of success.

A group of basketball players were separated into three teams.

Team A practiced taking shots on the court and practiced visualization exercises.

Team B just practiced visualization exercises, seeing their well-tossed ball swish through the hoop.

Team C didn’t do a thing. Just hung out in the locker room and ate pizza, probably. (Man, I wish I was picked for team!)

Then researchers made them take shots out on the court, recording the number of baskets they made.

Needless to say, Team C didn’t exactly light up the boards. In fact, they kind of stunk. And, as you probably guessed, Team A made the most shots.

You would probably guess that Team B did about the same as Team C. I mean, they just sat around and day-dreamed, right?

Not so. Team B almost did as good as Team A. This research suggests that visualizing your goals is a real performance enhancer.

What does this mean for your investing and trading?

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Dreams Come True, Investing, Money creative visualization, investment, trade, trading, visualize, wealth

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?

Read more…

Accelerating Technology, Automated Trading, Investing, Money, Online Investing AI financial industry, financial wizards, investment, investors, Money, technology, trade, traders, trading

Reading 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.

Automated Trading, Investing, Money, Online Investing AI financial industry, funds, invest, investment, Money, Ponzi, ponzi scheme, schemes

According to a Northwestern University study, the ability to “buy” contracts on candidates Barack Obama and John McCain led to the correct prediction that Obama would win the presidency.

Here it is:

Political prediction markets — in which participants buy and sell “contracts” based on who they think will win an election — accurately predicted Barack Obama’s 2008 victory. Now Northwestern University researchers have determined that these markets behave similar to financial markets.

However, a problem arises when strong partisanship arises. In the 2000 election, for instance, there was such strong partisan rancor that flawed the prediction model, said Daniel Diermeier, the IBM Distinguished Professor of Regulation and Competitive Practice at the Kellogg School of Management.

“I was happy that we could find an account for this abnormality, given that it made sense in the market,” Diermeier says. “You are trading in a market where you may have a very vested interest in the outcome, which is unlike financial markets, where traders probably don’t have an emotional attachment to the price of gold. In political prediction markets, there can be room for wishful thinking.”

But could this behavior point out a bias in the financial market. A trader may not have an emotional attachment to gold, but may have a dislike of Walmart, let’s say. Or, a trader may not like his or her current financial state, causing the trader to bet negatively. Likewise, a confident trader may bet into a bubble.

Our feeling is that emotions and bias should be understood as factors in price movements, but that an unbiased investment system, if properly trained, could better trade these choppy markets without getting caught up in the wrong positions that are based on the two main biases of investors: fear and greed.

Accelerating Technology, Business Strategy, Investing, Money, Online Investing AI invest, investment, investment systems, investors, Money, prediction, prediction market, trade, traders, trading

Most people are completely unaware of the power of compound interest. Compound interest is so incredible, in fact, that Einstein declared “The most powerful force in the universe is compound interest”. But who cares?

One group of people who might care is anyone with credit card debt. The reason for this is that anybody who is on the debt side has the force of compound interest working against them. For many people, just paying interest on their credit cards and house represents a large portion of the money that they pay each month.

Contrast this with someone who has an investment. Not an investment in a mutual fund that’s losing money or in a CD that pays 2% a year. I mean a real investment and it may not pay a lot, but let’s say it pays just 10% per year. If any American used the money that they pay in interest for credit card debt or any other debt, and they could use this money to invest at just 10%, they would quickly become financially free.

The challenge is that most people are totally unaware of this. It’s so much easier to just go and buy a car and pay a few hundred dollars a month, or go to Best Buy and buy a 50 inch plasma TV and pay for it later. It’s very easy in our society to do those things. But there’s no one who teaches people the power of compound interest.

Investing, Money, Success compound interest, credit cards, debt, interest, Investing, investment, mortgage, mutual funds