Have you ever wondered what your stock advisor invests in? Do they actually invest themselves in what they recommend to you?
I used to have this nagging feeling that I’m being conned by my stock picking advisor. Even though he was probably trying his best to do his job right and he is actually a certified advisor and works for a large respectable company in the field.
I suppose I’m not the typical investor who agrees to what the expert in the nice suite and tie tell them. I am constantly dissatisfied, in a general sense, not just when it comes to picking individual stocks to invest in… I always want to understand the reasoning behind decisions taken regarding my financial health, let alone my physical health.
My advisor was kind enough to let me in to his thinking process and I discovered that he has a very simplistic choosing system to build my portfolio. He asked me some questions and decided on the right mix of stocks to bonds according to his understanding of my risk tolerance at the time. I was young, single and had a lot of spare income.
He actually never picked single stocks for me, he picked mutual funds and he did that according to their variance in price! He simply sorted the list of all mutual funds and took the top ones – the ones that vary in price the least in several major categories.
After he had the full percentage of the account invested in those, he switched to the bonds portion of my account and started buying bonds in a similar way, picking some of his favorites in each major category according to their variance.
Now, I’m sure this is a responsible and professional way of building a portfolio but I would never recommend anyone do it themselves.
This was a long time ago and I got frustrated when the stock market was booming at 1995 and 1996 and my account barely moved up while at other times, when the market slowed but still was moving up, I was losing money!
I was earning a lot of money comparatively to my spendings at the time and I wanted to enjoy life. I was a student and lived in a shared apartment with 2 other students. I also studied to be a skipper and when that was done and I received my skipper’s license I knew what to do with the money. I bought a beautiful 30 feet sail boat, sailed to Herzlia’s marina and lived there in the boat. Ah, the life!
That’s how I ended my first phase of learning about the stock market.
Later, in one of my endless trips to the USA as the CEO and owner of my start-up I had a stop over in London’s airport and I went to the bookstore. I love reading books, be them airplane novels or some dry analytical subject. So there I was, I had 3 hours to my next flight and I was browsing the book shelves. Adjusting to the British English was nice, It was pretty similar to the American English that I was used to, but different enough to make it a kind of curiosity. It made me nostalgic, in high school we actually studied according to the British English spelling and I saw words like colour and litre winking at me and telling me this is the correct spelling here
Actually litre is not only spelled differently in the USA, it is actually a different measuring system altogether.
But I digress, I wanted to write about the book that caught my eye at the airport, it was actually a series of books, the Motley Fool books. Let me mention that this is in 1998, before Amazon and Google and the commercialization of the Internet, actually it was 3 years before that, in 1995, but it was still mostly non commercial. I bought there “The Motley Fool investment guide” and “The Motley Fool Rule Breaker, Rule Maker”.
These were fascinating books and I learned a lot from them. I also learned that investing is a tricky business and that there are many different styles of investing. Many well known wisdoms are actually very stupid when you check them out and other ideas are either flat out wrong.
After reading these books I had information overload and experienced ‘Analysis Paralysis’. I had to organize the ideas I learned and I wanted to test them out in the real world but I didn’t have any money. I started what’s called “virtual” trading. It was tedious and not as exciting as earning or losing real money and I lost interest after a few weeks.
A few years later, around 2005 my wife, Anat found an evening course about self trading stocks in the american stock market, it was called IQTrade.co.il and it was taught by Kobi Eldar who just returned from a sabatical in the USA where he worked in the field. We drove once a week in the evening to a two and a half hours lecture with some computer practice. It was slowww and tedious, perhaps I was too advanced for this course but I did learn some new stuff, like technical analysis and day trading.
I never succeeded in day trading. I lost money too fast for my account to tolerate.
What I did learn from Koby was in his advanced course on options. This was much more interesting and in it I learned the basics of options and some of the advanced material regarding options.
We, Anat and I flew to the Money Show in Las Vegas with Kobi Eldar and some other students of him. It was a lot of fun and we went to different lectures during the three days there and we also gambled at the casinos.
As usual, I bought a lot of books there. The one that I learned the most from is The Volatility Course by Fontanills, George A. and Gentile, Tom. I was really impressed by the professional lecture by Mr. Fontanills and bought the heavy book. It wasn’t the easiest read and I had to really try some of the things he teaches there for myself before they really stuck and until today, I know I only use a small part of what I read of in that book.
Fast forward to the present, and I use a combination of ideas from several different books, courses, lectures and some of my own. I am quite happy with what I’ve got at the moment. I follow this flow chart I created and you can download for your self for free here.
For a detailed explanation of the different parts, subscribe to the totally free mini course on this trading system.
It is a low frequency system that needs your attention once a week for a few minutes. You can always use it more frequently but it is not necessary. Actually it is not recommended! When I over-trade, I lose money more often than I make a profit.
It took me time to discover my right rhythm and I’m happy I found it at last.