I still wanted to learn more winning options to add to my arsenal. When I was at the MPH bookstore, I saw a Rich Dad Advisors book called “Cash Flow in the Stock Market” by Andy Tanner. I remembered that Robert Kiyosaki always emphasized that cash flow in any investment is comparable to capital gains. I decided to turn the book over to find the gems. I bought the book only on a second look after discovering that I could learn and practice some of the concepts taught.
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To become a great investor, we have to be a great student to learn all about investing to become an expert. I first became acquainted with two systems of learning measurement; 1) The educational continuum helps us measure how well we have mastered and applied the concepts of our financial education. Levels – ignorance, awareness, competence and skill. 2) The learning cone, developed by Edgar Dale, shows the extent to which we maintain different ways of learning, whether active or passive learning. With these two measurement systems we can measure how good a student we have invested.
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Andy introduces us to four major asset classes. These are business, real estate, commodities and paper assets. He conducted a good comparison of the different asset classes so that everyone could assess which asset class was most appropriate given their circumstances. Since this book is about paper assets, Andy gave a few more reasons why an investor should consider having paper assets in their investment portfolio.
Next Andy presents his 4 basics of investing. The next 4 sections sink deep into each pillar. Personally, I find these 4 pillars very useful and guide the investor, no matter what level he is at, to make better decisions. 4 pillars:
· Column 1 – Fundamental analysis
· Column 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 statements. Basically, what the financial report will look like for each business entity is governed by the implemented policy. Policies need to change to change the fundamentals. One of the best investors of our time, Warren Buffett, is a guru in determining the fundamentals of any company. Gurus like him have many important fundamental factors to look at whether companies should invest. His company Berkshire Hathaway has implemented an excellent policy through which his company has achieved tremendous growth and exponential growth in his company’s stock prices. Andy provided similar ratios (and definitions) for investors to make stock comparisons. I find them really useful and used in my stock analysis.
Technical analysis helps investors determine market strength based on supply and demand when prices move. The stock chart is used by investors to find out if there is a trend created by historical price movements. This trend or pattern, determined by the investor, will tell him about the likelihood of stock movements. Andy gave a pretty good introduction to technical analysis, explaining basic fundamentals such as trend types, support and resistance, and several commonly used chart patterns. I have found that this is all you need to do for any investor if he is really knowledgeable in them.
Cash flow helps the investor better position himself in the market. Andy uses the concept of options to illustrate this point, and emphasizes the possibility of how this tool allows the investor to make a profit in any market direction. Andy explains the many properties of an option contract. Understanding the basics of a call put and a combination of both options allows the investor to have many ways to position themselves in the market.
Risk management teaches us three ways to deal with risk: 1) avoid risk 2) take risk 3) manage risk. Risk is related to control. An investor who is more in control of their investments will be less at risk. The same is true if the investor has less control over their investment and will have more risk. Those who have no control are gamblers. It is also wise to know the maximum risk when investing.
How we find ourselves in the future depends on the choices we make today and on who we surround ourselves with. How good students we are today will determine our financial future.
I really enjoyed this book because Andy is a great teacher who very simply explains these concepts. This allows me to better understand and preserve what is being taught. Hopefully you will get a copy of his book and be enlightened.