I always wanted to know more about the 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 remembered that Robert Kiyosaki had always insisted on cash flow in any investment versus capital gains. I decided to turn the book over to find some gems. I only bought the book on the second navigation after discovering that I could learn and practice some of the concepts taught.
To be a great investor, we must first be an excellent student to learn all there is about an investment in order to be an expert. It is the first time that I have been introduced to two learning measurement systems; 1) The education continuum helps us measure how well we have learned and applied the concepts of our financial education. The levels are ignorance, awareness, skill and competence. 2) The learning cone, developed by Edgar Dale, shows how much we conserve through different ways of learning, whether it is active or passive learning. With these two measurement systems, we can measure the quality of a student that we have invested.
Andy introduces us to the four main asset classes. These are business, real estate, raw materials and paper assets. He gave a good comparison of the different asset classes to allow each individual to assess the asset class best suited to his situation. Since this book is about paper assets, Andy has given more reasons why an investor should consider having paper assets in his investment portfolio.
Next, Andy presents his 4 pillars of investment. The following 4 chapters delve deeply into each pillar. Personally, I find the 4 pillars very useful and guide the investor, whatever their level, 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, business, personal) by understanding its financial statements. Basically, the aspect of the financial statements of each entity 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 to determine the fundamentals of any business. Gurus like him have a set of important fundamental ratios on which to rely to determine if the business is worth investing in. His business Berkshire Hathaway has implemented excellent policies that have allowed his business to experience huge growth and an exponential increase in his company's stock prices. Andy provided similar ratios (and definitions) for investors to compare stocks. I find them really useful and used them in my stock analysis.
Technical analysis helps investors determine market strength based on supply and demand for price movement. The stock chart is used by investors to see if there is a trend created by historical price movements. This trend or pattern identified by the investor will indicate to him the likely movement that the action will take. Andy gave a pretty good introduction to technical analysis, explaining essential basics like trend types, support and resistance and some commonly used chart models. I have found that this is all you need for any investor to get by if he becomes truly competent.
Cash flows help an investor better position themselves in the market. Andy uses the concept of Options to illustrate this point and underlines the opportunity this instrument allows the investor to profit in any direction of the market. Andy explains the many properties of an option contract. Understanding the basics of a Call / Put and the combination of the two options allows the investor to have several ways to position themselves in the market.
Risk management teaches us three ways to manage risk: 1) avoid risks 2) take risks 3) manage risks. The risk is linked to control. An investor with more control over his investment will have less risk. The same applies when an investor with less control over his investment has more risk. Those who have no control are players. It is also wise to know the maximum risk of an investment.
How we meet in the future will all depend on the choices we make today and who we surround ourselves with. The quality of student that we are today will determine our financial future.
I really enjoyed this book because Andy is an excellent teacher, explaining the concepts in very simple language. This allows me to better understand and remember what has been taught. I hope you will get a copy of his book and that you will be enlightened.