I still wanted to find out more options for winning trades to add to my arsenal. When I was at the MPH bookstore, I saw a book by Rich Dad Advisors called “Cash Flow on the Stock Market” by Andy Tanner. I remembered that Robert Kiyosaki always stressed about cash flow in any investment compared to capital gains. I decided to flip through the book to find gems. I bought the book only on the second browsing after finding that I can learn and practice some of the concepts taught.
To be a great investor, we must first be a great student to learn all there is to know about an investment to be an expert. This is the first time I have been introduced to two learning measurement systems; 1) The educational continuum helps us measure how well we have learned and applied the concepts of our financial education. The levels are Ignorance, Awareness, Competence and Competence. 2) The learning cone, developed by Edgar Dale, shows how much we keep through different ways of learning, whether it is active or passive learning. With these two measurement systems, we can measure how good we have been investing in a student.
Andy introduces us to the four main asset classes. There is business, real estate, goods and paper assets. He made a good comparison of the different asset classes to allow each individual to assess which asset class is most appropriate, given their circumstances. Since this book is about paper assets, Andy offered several reasons why an investor should consider the existence of paper assets in their investment portfolio.
Then, Andy presents his 4 pillars of investment. The next 4 chapters sink deep into each pillar. Personally, I consider that the 4 pillars are very useful and I guide the investor, regardless of 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 power and value of an entity (sovereign, corporate, personal) by understanding its financial situation. Basically, the way the financial situation will look for each entity is governed by the implemented policies. Policies need to change for the fundamentals to change. One of the best investors of our time, Warren Buffet, is a guru in determining the foundations of any company. Gurus like him have a set of important fundamental reports 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 a huge increase and an exponential increase in the prices of his company’s shares. Andy provided similar reports (and definitions) for investors to compare shares. I find them very useful and I used them in my stock analysis.
Technical analysis helps investors determine market power 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 tell him the likely move the stock will take. Andy made a pretty good introduction to technical analysis, explaining the essential basics, such as the types of trends, support and resistance, and some commonly used chart patterns. We have found that this is all you need for any investor to pass if they become truly adept at them.
Cash flow helps an investor to position itself better in the market. Andy uses the concept of Options to illustrate this point and emphasizes the opportunity in which this tool allows the investor to profit in any market direction. Andy explains the many properties of an Option contract. Understanding the basics of a Call / Put and combining both options allows the investor to have several ways to position himself in the market.
Risk management teaches us three ways to deal with risk, 1) Avoid risk 2) Take risk 3) Manage risk. The risk is related to control. An investor with more control over his investment will have a lower risk. The same is true when an investor has less control over his investment he will have a higher risk. Those without control are players. It is also wise to know the maximum risk in an investment.
How we get into 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 because Andy is a wonderful teacher, explaining the concepts in very simple language. This allows me to better understand and preserve what has been learned. I hope you get a copy of his book and be enlightened.