I still wanted to learn more winning Options 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 was reminded that Robert Kiyosaki always emphasized cash flow in any investment as opposed to capital gains. I decided to flip the book to find gems. I only bought the book on the second search after I found that I was able to 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 investing in order to be an expert. This is the first time I have been introduced to two learning measurement systems; 1) The Continuum of Education helps us measure how well we have learned and applied the concepts of our financial education. The levels are Ignorance, Awareness, Competence, and Mastery. 2) The Cone of Learning, developed by Edgar Dale, shows how much we retain through different forms of learning, be it active or passive learning. With these two measurement systems, we can measure how good an investment student we have been.
Andy introduces us to the four main asset classes. They are businesses, real estate, commodities, and paper assets. He gave a good comparison of the different asset classes to allow each individual to assess which asset class best suits their circumstances. Since this book is about paper assets, Andy gave more reasons why an investor should consider having paper assets in his investment portfolio.
Below, 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 he is 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 state. Basically, the way the financial statement of each entity will be seen is governed by the policies implemented. Policies must change for fundamentals to change. One of the best investors of our time, Warren Buffet, is a guru when it comes to determining the fundamentals of any company. Gurus like him have a set of important fundamental metrics to rely on to determine if the company is worth investing in. His company, Berkshire Hathaway, has implemented excellent policies that have seen his company achieve tremendous growth and an exponential increase in his company’s stock prices. Andy has provided similar ratios (and definitions) for investors to do a stock comparison. 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 the price movement. Investors use the stock chart to see if there is a trend created by historical price movements. This trend or pattern identified by the investor will indicate the probable movement that the stock will take. Andy gave a very good introduction to technical analysis, explaining the essential basics like trend types, support and resistance, and some commonly used chart patterns. I found that this is all you need for any investor to get by if they really become adept at them.
Cash Flow helps an investor to better position himself 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 either 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 deal with risk, 1) Avoid risk 2) Take risk 3) Manage risk. Risk is related to control. An investor with more control in his investment will have less risk. The same thing happens when an investor has less control in his investment he will have more risk. Those without control are players. It is also advisable to know the maximum risk in an investment.
How we end up in the future depends on the choices 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 is being taught. I hope you get a copy of his book and enlighten yourself.