Top Four Learning Strategies - Learn Just About Anything Quickly

Jan 26, 2015 -

There is no doubt that the older we get the more difficult it is to learn new things. In grade school, I was always bewildered by how the teacher could forget our names. Granted they probably had more students then those in my class, but it was almost like instant recalls for myself. As I grew older, I started having trouble remembering people's names. Was his name John or was it Jim? He looks like someone I know named Jim, but his name is John.

Researchers have attributed learning difficulties as we age to numerous things. Evidently, age for one. But, some have said that the interference from knowledge gained in the past affects the processing power for new memories. Others have cited that the brain becomes more specialized and does away with the neuron connections that are not used as often. Sort of a "use it or lose it" kind of gig. In any event, there is a way to combat this, but like anything, it require work.

Shoot for the stars and land on the moon.

If you want to become good at something, look for the best. When I picked up golf about five years ago, I knew that eventually I was going to build a habit and a way of swinging the club - whether it be the proper way or a Charles Barkley way. It didn't make sense to go read a bunch of golf books or watch a bunch of amateurs. Even if I didn't want to play professional golf, the quickest way was to learn proper golf from someone who was doing it at a high level. At the very beginning, I sought out an instructor who had played professional golf in his earlier years. I wanted to build good habits from the beginning, so what better way to learn then to learn from the best.

Learn by doing and not be reading.

If you want to learn how to build a website or use Photoshop. The best way to learn is always by doing. In addition, to building this blog, I've created and a number of websites over the years including my most recent project, Noveloot. My background is in accounting/finance, and I didn't take a single programming class in college or ever. All of my learning came from Googling and trial and error.

Share your knowledge.

One of the reasons why I created this blog was to help reinforce everything that I've learned. If you are able to teach someone what you've learned that ultimately means you truly understand the material. Furthermore, I wanted a personal database of all the interesting and fascinating things I've learned. Recently, a friend of mine was planning a trip to Amsterdam, I was able to direct her to my blog. Let's face it, it is hard enough to remember what you had for lunch.

Practice shorter, but more often than longer, but less frequent.

A piano player that practices 10 minutes every day will do a lot better than one who practices 2 hours once a week. Let's face it, your brain needs time to process what you've learned. Also, we remember the first and last things the most. So recap what you've learned after each session to reinforce the important things you want to remember.

Ultimately, fast learning is an illusion. Most people who appear to be learning quickly are merely just associating what they are learning with similar concepts they've encountered in the past. They were modifying and combining old ideas to figure out new ones. One interesting similarity shared amongst them were that they were always looking to learn new things, draw new connections, and develop their intuitions.
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How Many Shares Do You Buy?

Jan 21, 2015 -

How many shares of a stock you can buy is largely dependent on how much capital you have. Evidently, the more money you have the more shares you can buy. But does that mean you should buy more shares of a company?

The general rule to how many shares you should buy is largely a function of how much you are willing to lose or risk. Not only are you looking at how much money you could lose, but also the opportunity cost foregone. Ask yourself what else could you be doing with the money? You could be saving it for a down payment on a house or a car. Alternatively, that money could be going into bonds or certificate of deposits (CDs).

Furthermore, investments take time to appreciate in value. Even if you are looking to trade stocks in the short-term, you may need to wait days or even weeks for their value to increase. In other words, when you buy a stock you will have to be prepared to have that money "locked" up for a certain period of time. Of course, unlike a CD there is no set time limit, but you can't exactly withdraw money out of your brokerage like a checking account either. 

The general rule to how many shares you should buy is largely a function of how much are you willing to lose or risk.

When you've figured out how much money you are willing to set aside for stocks and understand that you may not be able to use that money for a while that's when you can start to determine how many shares of a company you should buy.

Determine your Trading Time Frame

Are you looking to trade stocks in the short-term (less than a year) and engage in speculation? Or are you looking to hold stocks for the long-term (more than a year)?

Long-Term Position Sizing

If you are looking to hold stocks for the long-term then the answer is easy. The cheaper the stock and the stronger the belief you have in the business itself, then the more of it you should buy. For example, if you have $30,000 then maybe allocate $15,000, $10,000 and $5,000 to three different stocks. Put $15,000 in the stock you have the strongest belief in and $10,000 in the next and then $5,000 in the stock you are not as confident in. Alternatively, you could allocate it evenly between three. It is better to own a lot of three of the best stocks than some shares of twenty different stocks. Why do you ask? The reason is because you will be more selective and only pick the best of the best

Short-Term Position Sizing

Should you decide to trade in the short-term and engage in stock speculation then you'll have to determine how many shares you buy based on how much you are willing to lose on every trade. 

For example, let's say you have $10,000 of trading capital. The rule of thumb is to risk no more than 1% of your portfolio in any one trade. That means the most you can stand to lose on one trade is $100 including trading commissions. This doesn't mean that you can only buy $100 dollars worth of stock in any one trade. In fact, you can buy $10,000 in stock and still only risk $100. 

What do you mean by buying $10,000 worth of shares and still only risk $100?

Suppose you buy Clean Energy (CLNE) at $12 a share. You put your STOP LOSS at $10 dollars per share. The stop loss is the point at which you admit defeat and for whatever reason your trading plan no longer works. In other words, time to get out of the position.

In the above situation, you are buying at $12 and because your strategy is to play the $12-$14 trading range you sell when it breaks $10. You do this because you want to protect your capital and limit your losses to $2 per share. Yes, the stock could rebound and go back to $12, but you don't want to take that risk because it could just as easily go down to $8. When your trading strategy stops working it is time to get out because you can no longer with high probability predict where the stock will go next. When you first entered the position at $12, you had a good idea that it could go up to $14 and trade within that trading range. The moment it breaks the trading range, the strategy is to exit immediately. Cut your losses right then and there.

Should you decide to trade in the short-term and engage in stock speculation then you'll have to determine how many shares you buy based on how much you are willing to lose on every trade.

If you are looking to risk $2 per share and based on $10,000 portfolio, you should buy 50 shares of CLNE or at $12 a share that is a total of $600 dollars. If the stock dips to $10 you exit and come out with a controlled loss of $100 (before commissions). Should the stock go to $14, you come out with a $100 gain (before commissions). That is how you can trade with more money, but put less money at risk.
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Should You Even Consider ETFs in Your Investment Portfolio?

Jan 13, 2015 -

Exchange traded funds (ETFs) combine both stock and mutual fund-like characteristics. Like stocks, ETFs can be bought and sold throughout the day at market determined prices (i.e. market orders or limit orders). Similar to mutual funds, ETFs represent interests in a pool of assets and can track against indices, commodities, currencies or industries. ETFs have ticker symbols just like stocks and mutual funds. The difference is that with ETFs, you will actually be able to see the daily or weekly market prices much like a stock, while for mutual funds a stock chart may be harder to come by.

Diversified Funds

There are ETFs for all the major indices including S&P 500, Dow Jones, Russell, NASDAQ, commodities such as gold and silver, industries such as technology and oil, and currencies such as the yen. In addition, generally speaking, ETF's fund fund fees are less than that of mutual funds. Though if you are actively trading in and out of them, the fees are negligible or non-existent.

For example, XLU (Utilities Select Sector SPDR) tracks the utilities sector and in December 2014 it was trading at around $40 per share on the NYSE. As such, if you are bullish on a particular industry or commodity, you can purchase an ETF that tracks it. The price of your ETF will move similar to that of the actual index, commodity, or industry.

Leveraged trading without using margin

You can also leverage twice (2x) or even three (3x) times these indices and specific industries. For example, if you were to purchase Ultra Dow 30 (DDM), which tracks the Dow 2x and the Dow moves 2% during the day, then your ETF would move about 4% in the same direction. Conversely, if the Dow moves down 2%, your ETF would go down by approximately 4%. Now if you think that the Dow will go down you could buy UltraShort Dow 30 (DXD). This would track inverse that of the Dow by 2x. So, a decline of 2% in the Dow, in theory would increase your ETF price by 4%. While these do not track perfectly, they move relatively close to the actual indices. Therefore, you will be subject to some premium and discount volatility.

ETFs make great trading vehicles for those who want to use leverage without having to draw on margin accounts. With margin accounts, you borrow money from the brokerage to buy or borrow stocks. The disadvantage of trading on margin is that you are charged interest on the amount borrowed. With ETFs, there is no interest when you buy inverse ETFs. They trade like stocks and other ETFs.

Having said all of this, it is usually not the best idea to hold leveraged and inverse ETFs for more than a day. Why is this? Leveraged ETFs re-balance and look to deliver the multiple only on that day. So, if you hold over multiple days you may not get the return you are looking for. These ETFs are typically reserved for the very active traders.

Additional Reading

Can get enough? Here is a list of bullish ETFs and bearish ETFs. Are you looking to learn more about ETFs? Here are two books that have come highly recommended by other investors.


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How Do You Decide to Buy a Stock?

Jan 7, 2015 -

Let's not kid ourselves and cut to the chase. We will only buy stocks if we think at a later time we can sell it for more than we had purchased it for.

Buy into a Company for Future Earnings and Potential

A stock represents an ownership interest in a business. While buying a handful or even couple thousand of shares will not grant you significant influence over say an Apple or Google, but you still technically have a say. That means you have voting rights when it comes to electing directors and fundamental changes that affect the company such as mergers and acquisitions.

There are different ways to value that piece of ownership. One way of doing this is asking yourself what would you pay for the entire business? Then ask yourself is that stock worth that portion of the entire business?

If the business does well or is projected to do well then in theory we would expect the stock to do well also. Of course, it is not a direct correlation all the time. The market dictates the price and like things sold at the supermarket, sometimes it will go on sale or be marked up. However, in the long run, you would expect the stock price to catch up to the company's profits.

Bottom line is that if you believe that a business will continue to increase profits and grow market share, then you should buy it now because in the future it will be worth much more than you paid for it. Having said that, a couple of companies you might want to do some research on are Alibaba (BABA) and Tesla (TSLA).

Collect your Passive Income Now

Let's say you are looking for passive income. Something that will give you money for little or no work at all. Maybe you've considered buying investment real estate property. Every month, your tenant sends you a check for rent. That sounds great, but usually there are a couple other hoops to jump through. First of all, you'll need to find a tenant. Then of course if anything in the house breaks you'll have to go and fix it or find a handyman. What happens if your tenant doesn't pay on time? Oh you might have to chase them down for payment.

There are alternative forms of passive income. Buy dividend yielding stocks. These are stocks that pay a portion of their earnings or profits to their shareholders. In most cases, these companies are large established profitable businesses that have enough money to reinvest a portion of their profits and payout to shareholders.

Dividends are usually paid out quarterly and depending on the company can yield more than 10% of their share price a year. Typically, Real Estate Investment Trusts (REITs) offer the highest investment yields to their shareholders. The main reason is that they are obligated to distribute at least 90% of their taxable income to shareholders in the form of dividends. REITs allow investors to invest in real estate without having to deal with the shenanigans of purchasing and maintaining property.

However, like other stocks, these REITs are subject to market fluctuations. But, if you are not looking to sell, then these dividend yielding stocks can provide for a decent passive income stream. Companies such as American Realty Capital Properties (ARCP) and American Capital Agency Corp. (AGNC) both yield annually at around a 12% dividend rate.

Flip a Stock and Make a Quick Profit

Undoubtedly, stocks are subject to market fluctuations. As I had previously mentioned, stocks may be trading at discounts, but there can also be times when they are severely overvalued. For example, in 2008-2009 the financial crisis hit and that caused many stock prices to fall more than 50%. Had you had the insight into that, you would've bought then and there as you've now seen stock prices reach all-time highs.

There are a number of ways to determine whether or not you are at the low or high end of a price range. The first question you ask yourself is, is the stock undervalued in the short term (weeks or months)? Technical analysis is the technique in which you analyze whether or not the price of a stock is over or undervalued in the near term. In other words, with a level of certainty you determine when to buy a stock based on their stock chart.

For example, some stocks will trade in price ranges. This means the stock will fluctuate from say $12 to $14. The simple strategy is to buy when it is $12 and then sell when it is $14. You thereby make about a 16% profit. Now this doesn't always work, but for five months in 2013 this was a great strategy for trading Clean Energy Fuels (CLNE).

Another example is a what we call in technical analysis as a descending channel. For about seven months in 2014, Deere & Co (DE) declined from about $93 to $79 per share. This whole time we drew a channel to track the price. There isn't an exact science to drawing the channel, but the more points the chart touches the line the more accurate the channel. When it finally broke outside of the channel, we bought at $82. If you check the stock now, it is trading upwards towards $85 per share now.

If you are looking for more technical analysis patterns, I would highly recommend looking into the below stock chart books.


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Alternative to Excel Pulling Stock Quotes from MSN Money - Use Google Sheets

Dec 24, 2014 -

The Microsoft Excel stock quotes plug-in stopped working the way it was designed to. Maybe it is temporary or maybe it is here to stay. Regardless, here is a temporary or with a little effort you could make it a permanent solution.
Start using Google Spreadsheets. My only gripe about it years ago was that you were not able to take it offline or had to go through a number of hoops to take it offline. However, they've fixed it since and now you can save it to a Google Drive and access it offline. 

When you open Google Sheets, you can create a new sheet by clicking on the huge green plus sign on the bottom right corner. Next it will take you to a sheet that looks very much like Microsoft Excel. Like with Excel formulas, you can actually put in a stock formula that will pull delayed quotes from Google Finance. 

The formula is =GOOGLEFINANCE(ticker). This will default to the price of the stock. Similar to Excel, you are also able to select a cell with a ticker versus typing in the ticker. Your formula would look like =GOOGLEFINANCE(A1). Whereby A1 is the cell in which you have your ticker symbol. 

What is so great about Google Sheets is that you can do a lot more than you could in Excel. For example, if you are looking for the current day volume, just simply put "volume" after the ticker as the "[attribute]". It would look like this =GOOGLEFINANCE(NKE, "volume"). 

Another useful function of Google Sheets is that you can pull historical stock price data straight from Google's stock database. In the below example, when you specify the symbol, attribute, start_date, num_days or end_date, and 1 interval, Google will automatically pull that information into your sheet. 

You might decide to forgo Microsoft Excel stock plug-in and use Google Sheets. Google Sheets lets you import your old Excel sheets. That way you don't need to start from scratch. Just go to File -> Import and then select your Excel sheet.

What else can Google Sheets do? It can also pull quote and data for mutual funds and foreign exchange trends. 

A number of useful attributes for pulling stock information from Google Finance are all shown below. 

GOOGLEFINANCE(ticker, [attribute], [start_date], [num_days|end_date], [interval])
  • ticker - The ticker symbol for the security to consider.
  • attribute - [ OPTIONAL - "price" by default ] - The attribute to fetch about ticker from Google Finance.
    • attribute is one of the following for realtime data:
      • "price" - Realtime price quote, delayed by up to 20 minutes.
      • "priceopen" - The price as of market open.
      • "high" - The current day's high price.
      • "low" - The current day's low price.
      • "volume" - The current day's trading volume.
      • "marketcap" - The market capitalization of the stock.
      • "tradetime" - The time of the last trade.
      • "datadelay" - How far delayed the realtime data is.
      • "volumeavg" - The average daily trading volume.
      • "pe" - The price/earnings ratio.
      • "eps" - The earnings per share.
      • "high52" - The 52-week high price.
      • "low52" - The 52-week low price.
      • "change" - The price change since the previous trading day's close.
      • "beta" - The beta value.
      • "changepct" - The percentage change in price since the previous trading day's close.
      • "closeyest" - The previous day's closing price.
      • "shares" - The number of outstanding shares.
      • "currency" - The currency in which the security is priced.
    • attribute is one of the following for historical data:
      • "open" - The opening price for the specified date(s).
      • "close" - The closing price for the specified date(s).
      • "high" - The high price for the specified date(s).
      • "low" - The low price for the specified date(s).
      • "volume" - The volume for the specified date(s).
      • "all" - All of the above.
    • attribute is one of the following for mutual fund data:
      • "closeyest" - The previous day's closing price.
      • "date" - The date at which the net asset value was reported.
      • "returnytd" - The year-to-date return.
      • "netassets" - The net assets.
      • "change" - The change in the most recently reported net asset value and the one immediately prior.
      • "changepct" - The percentage change int he net asset value.
      • "yieldpct" - The distribution yield, the sum of the prior 12 months' income distributions (stock dividends and fixed income interest payments) and net asset value gains divided by the previous month's net asset value number.
      • "returnday" - One-day total return.
      • "return1" - One-week total return.
      • "return4" - Four-week total return.
      • "return13" - Thirteen-week total return.
      • "return52" - Fifty-two-week (annual) total return.
      • "return156" - 156-week (3-year) total return.
      • "return260" - 260-week (5-year) total return.
      • "incomedividend" - The amount of the most recent cash distribution.
      • "incomedividenddate" - The date of the most recent cash distribution.
      • "capitalgain" - The amount of the most recent capital gain distribution.
      • "morningstarrating" - The Morningstar "star" rating.
      • "expenseratio" - The fund's expense ratio.
  • start_date - [ OPTIONAL ] - The start date when fetching historical data.
    • If start_date is specified but end_date|num_days is not, only the single day's data is returned.
  • end_date|num_days - [ OPTIONAL ] - The end date when fetching historical data, or the number of days from start_date for which to return data.
  • interval - [ OPTIONAL ] - The frequency of returned data; either "DAILY" or "WEEKLY".
    • interval can alternatively be specified as 1 or 7. Other numeric values are disallowed.
  • All parameters must be enclosed in quotation marks or be references to cells containing text, except when interval is specified as a number and when end_date|num_days is specified as a number of days.
  • Realtime results will be returned as a value within a single cell. Historical data, even for a single day, will be returned as an expanded array with column headers.
  • GOOGLEFINANCE is only available in English and does not support most international exchanges.

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Stock of the Week: NIKE (NKE)

Dec 21, 2014 -

An Overview Summary of NIKE (NKE)

NIKE, inc. is a household brand name athletic footwear, apparel, equipment, and accessories company. NIKE focuses on eight key categories including Running, Basketball, Soccer, Men's Training, Women's Training, Action Sports, Sportswear and Golf. 

What you may not already know is that NIKE also owns Hurley, Converse, and of course Brand Jordan. In late 2012, NIKE sold off their stake in Cole Haan to a private equity firm in Apax Partners for $570 million. Sales of Cole Haan only represented 2% of NIKE's overall revenue. In early 2013, NIKE also announced the sale of the Umbro brand to Iconix Brand Group for $225 million.

Highlight Fundamentals

As a consumer products company, NIKE's business is subject to changing sports and fashion trends. Shifts in sports popularity affects where revenue comes from. Generally speaking, in the past year NIKE has experienced higher sales in Running, Basketball, and Soccer. While NIKE designs and distributes athletic footwear and such, nearly all of its manufacturing is done overseas at independent contractors mostly in Vietnam, China, and Indonesia. 

NIKE's competitive advantage comes from focusing on product quality, performance and reliability, new product innovation, and consumer price/value. Furthermore, as the largest seller of athletic footwear, apparel, and equipment in the world, they are extremely focused on consumer connection and influential athletes. It is not unusual to see a Kobe Bryant or Lebron James in a NIKE ad campaign. 

Since 2010, NIKE's revenues have increased every year from $18.3B to $27.8B in 2014. This is over a 50% increase in four years. Much of NIKE's revenue is derived from its wholesale business. Meaning they will sell directly to wholesale customers, who will then sell to retailers alike. In fiscal year 2014, this accounted for nearly 76% of total revenues, with sales direct to customers coming in at 20%. The remaining 4% is revenues from licensing, which could mean NIKE allowed someone to use their trademarks or other intellectual property rights and in return paid royalty revenues to NIKE. 

Net income for the past three years from 2012 to 2014 has been around $2.2B to $2.7B. Equally impressive is that its gross margin has held at a 43.5% to 46.4% range. As of Q3 2014, it holds $2.5B in cash and short-term investments, which more than covers its long-term debt of $1.2B. It is also worth noting that recently the company spent $2.6B on repurchasing common stock. 

The majority of NIKE's sales has come from North America where Basketball, Sportswear, and Running categories dominate. In other parts of the world, it is not surprising to see Soccer sales be greater than almost any other category. Such is the case in Europe.

Highlight Technicals

From a technical perspective, NIKE has done particularly well in the last three six months.

It just recently retested the 50 DMA a second time. Typically when this happens the 50 day moving average (DMA) is more than likely to break. The more times a moving average is tested, the more likely it is to fail. However, we will need a candlestick confirmation as to whether or not this is a true break of the 50 DMA.

Should the 50 DMA break, then you are looking at support at around $90. Furthermore a move back to around $90 also happens to be at the 61.8% Fibonacci retracement level. Evidently there is resistance at $100 both in the psychological sense and technical sense. 

The oscillators are showing that the stock just work off some overbought conditions. A confirmation that the Friday hammer is indeed a reversal signal would be good for the bulls. Otherwise there maybe more downward action before a true bounce from the downtrend beginning in early December.

Disclaimer: This article is written for informational purposes only and not intended for investment advice. For more similar articles visit
Disclosure: I do not have a position in NKE.
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12 of the Best Gifts for the Avid Investor

Dec 15, 2014 -

The Intelligent Investor$12

One of the world's richest men in the world cited that The Intelligent Investor changed his financial life. This book was written by the great Ben Graham, whom Warren Buffet cited as one of the greatest investors of all-time. Graham lays out the foundation of value investing: the idea of "Mr. Market", a value-oriented approach to investing, and the "margin of safety" concept. 

Security Analysis$40

The teachings of Benjamin Graham, known commonly as “the father of value investing”, are as relevant today as when they first appeared nearly eight decades ago. The book focuses on how to read and understand financial statements. This book is not an easy read as it is lengthy. You can not afford NOT to read Security Analysis. This is a highly recommended book to investors alike.

The Wolf of Wall Street$14

Jordan Belfort was a kingpin of an investment firm and one of the most infamous people in American finance, he sold securities and racked up millions in fees. You and your friends may not be able to replicate what he has done and probably wouldn't want to as he eventually had the SEC and FBI on his tail. But, you might find his story an interesting one in The Wolf of Wall Street

Boiler Room - $5

Seth Davis, a decent college dropout earning a living by running a casino inside his house. Seth takes on a job at a stock brokerage firm where he becomes a fast tracking stock broker and making good money. Only later does he find out that his job isn't what it's cracked up to be. If you're in the mood for a really good film, buy Boiler Room

Eat Sleep Stocks Mug$13

For the avid stock investor, this stock mug is an absolute must. We all eat, sleep, and breathe, but only the greatest of investors focuses on stocks as well. This Eat Sleep Stocks mug is 11oz of ceramic, large, and the perfect size for or morning coffee or late-night brew.

U.S. Silver Eagle Coin$28

The Silver Eagle coin is made of one ounce of .999 fine silver. This official collectors version is made from the official United States Mint. U.S. Mint proof coins are extraordinarily brilliant, with sharp relief and a mirror-like background. Their frosted, sculpted foregrounds give them a special cameo effect. Proof blanks are polished and cleaned to ensure high-quality strikes.

US Mint Uncirculated Coin Set $37

The United States Mint Uncirculated Coin sets always make great gifts. This particular coin set features 28 different coins in uncirculated quality. Each coin is sealed and displayed in folders. Just know that this could turn out to be worth more in the future than you paid for today. But, of course this would make a great gift for any avid investor. Set comes in its full original US Mint packaging.

Bronze Plated Bear and Bull Head Bookends$49

If you know an avid investor or financial planner, you can be sure that he or she has tons of finance books. When we think of Wall Street, we think of bull and bear markets. These bull and bear bookends would make fantastic gifts for avid investors. 

Margin Call $5

Kevin Spacey plays Sam Rogers, Head of Sales and Trading, in the entangling thriller of "Margin Call". Involved are key players at an investment firm during the earliest hours of the 2008 financial crisis. An entry-level analyst unlocks information that could prove to be the downfall of the firm. Employees decide to save their own company or risk fleecing millions of investors.

Wall Street Journal Subscription$23

Finally, something your friend would find useful - daily newspaper (except Sunday) straight to the Kindle. Perhaps he or she already subscribes to the Wall Street Journal. Well, you could always renew their subscription for them. This subscription comes with a risk-free 14-day FREE period after which the subscription starts.

Sheet of 2 dollar bills$80

Green, Green, Green. What is better than giving money? A sheet full of money. Did you know bills are actually printed on sheets and then they are cut into bills? These are genuine crisp $2 United States Note uncirculated legal tender bills.

Banker Green Lamp$42

Incidentally, early incandescent light bulbs tended to be harsh on eyes. Therefore, green shades were used to lessen eyestrain by many financial professionals and lawyers. Much can be said about a person's table decor and in particular a lamp. The classic banker's lamp has a green shade long since been associated with finance and accounting.

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Be Happier and Make Decisions that are "Good Enough"

Dec 10, 2014 -

Suppose your laptop broke down or is showing signs of wear and tear. You finally decide to go shopping for a brand new laptop computer.

Good Enough - Satisficer

The satisficer says, "I just need one that will let me check my e-mail, run YouTube, be able to play movies, and of course is reasonably priced. It doesn't have to have the best processor or even have the biggest hard drive."

You go to the department store and check out four different laptops. Of course you try and figure out which one will suit your needs and is priced reasonably. You weed out the most expensive model because it has more gadgets than you really need. Since you plan on keeping your laptop for a while, you want something that is durable and not made cheaply. So, the least expensive laptop is out of the question. Now you have two to chose from. Just when you are about to pick one over the other, the sales associate comes over and introduces you to three more laptops. You feel like you've already made a decision on your laptop, so you stick with yours and head for the checkout line. All of this might have taken you thirty minutes tops. You understand that you might have not made the "best" choice, but it is one that is good enough for your needs. The extra time spent on trying to compare and contrast the other three laptops is not worth the effort for the incremental benefit. Now dust your hands off, you've just made yourself a decent purchase.

Best Option Ever - Maximixer

The maximizer says, "I want to find the best laptop for my money."

Despite your high expectations right off the bat, like the satisficer, you were able to weed out two of the laptops right off the bat. But, the moment the sales associate brings in those other three laptops, you begin to analyze those as well. One of the laptops is actually fairly similar to that of another. The only difference is one has a bigger hard drive, while the other one has a better graphics card. You do want to play games on this laptop, but you also value the extra storage for your movies and music. After thirty minutes of going back and forth, you finally make a reluctant decision to go with the one with extra storage. On the way back home, you question whether or not you truly made the best decision. While objectively you've considered more alternatives and weighed the pros and cons a whole lot better than the satisficer, you can't help but question if you made the best choice after all.

Most likely the maximizer ended up with the better laptop when compared to the price paid. However because of higher expectations, the maximizer feels as if he could have done better. It is nearly impossible to scrutinize every little detail and come out with the "best" choice. That task is further complicated when even more choices are added to the equation. As a result, maximizers will unequivocally feel unsatisfied and disappointed at the results.

Signs you are a maximizer include the following:

1) You are always on the look out for a better job, even if you are satisfied with your current.
2) You TV channel surf even when attempting to watch one TV show.
3) Renting videos are difficult because you always want to choose the best one.
4) No matter what you do, you hold myself to high standards.
5) You have trouble picking what to eat because you struggle to make the correct choice.

What is the morale of this story? If you want to be happy, be a satisficer. If you want to optimize be a maximizer.
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Three Simple Tips to Turn Money into Happiness

Dec 3, 2014 -

According to a study conducted by Princeton economist Angus Deaton and famed psychologist Daniel Kahneman, the magic salary number whereby additional amounts would have no measurable effect on day-to-day contentment is $75,000 a year. If you make more than that, you don't gain any more happiness than if you made $75,000. Now whether or not we choose to believe this is another story. How did we pinpoint this amount? Why not $70,020 or $80,500? In any event, what is more important is how we decide to spend the cash we make.

You can always earn more money, but can't buy more time.
Time is money and money is time. Isn't that how the saying goes? They say we trade time for money when we are young and when we get older, we trade money for time. On weekends, my friends and I will frequent nightclubs or bars. Now in Los Angeles and in New York, there usually is a line for the more popular clubs. Sometimes the line is an hour and a half long or sometimes it's 45 minutes. Regardless, in the interest of time, we usually slip the bouncer $20 per head to get in. The way you go about doing this is you go up to the bouncer and tell them you have a reservation. At the same time, slip him the cash. We figure, we make more than $20 bucks an hour, so skipping the line is worth more than $20. Remember we can always earn more money, but we can't turn back the clock.

Buy more experiences vs. material possessions.
This one is less intuitive then you would think. Suppose I gave you a hundred dollar bill, would you rather buy these bluetooth speakers you've been wanting for your Vegas room pre-game party or spend it on a day at Universal Studios with your buddies or girlfriend? Your friends of course would have to pay for themselves. At first we might be more inclined to go for the speakers because after we spend the day at Universal Studios, all we would have left is a bunch of pictures and nothing to take home. Whereas, if we bought the speakers, we'd have the speakers for as long as we decide to keep them.

Now the problem with going for the speakers is that we'll start to compare the speakers to what other people have. If theirs is better than ours, we start to feel bad about our purchase. With activities, it is much harder to compare our experience with that of others. The reason being we may be with different people when we go or perhaps you go for different occasions.

Learn to give away your money.
Professor Elizabeth Dunn at the University of British Columbia discovered that those who spent money on other people were happier than those who treated themselves. This was even in the case where people had very little for themselves. This is an interesting paradox because one would think that the more money you have the happier you would be. But that is not the case! This sheds new light on the saying, "It is better to give than to receive.".

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Pro Stock Trading Tip #9 - Three of Charlie Munger's Best Investment Advice

Nov 26, 2014 -

Warren Buffet's Investment Partner - Top Three Stock Picking Tips

Charlie shares not only his opinions, but his through process behind his belief system and stock picking strategy. Here are some insights into his thought process.

Circle of Competence
While we do have knowledge at the tip of our fingertips, we are still not advanced enough to process it as fast a computers can. In other words, even with all this information available to us, it is impossible to know everything about everything. When investing, Charlie Munger sticks with what he knows and businesses that are simple and understandable. In addition, these businesses need to be able to thrive under different market environments. Among those that are difficult to understand include pharmaceuticals and technology companies. Not surprisingly, Munger excludes highly promoted "deals" and IPOs from his potential investment list. In order to value a business, you need to understand it. If you can't do that then you have no business in investing in that company.

"I'm no genius. I'm smart in spots, and I stay around those spots." - Thomas Watson Sr.

Find Companies with Moats
Few businesses survive over generations. Metaphorically speaking, companies that have "moats" are those are able to hold a durable competitive advantage over others. Thereby they would be businesses that have a higher probability of surviving in the future. While each year may not be more profitable than the last, the fact that the company's competitive advantage widens year after year is a sign of a great business. An example of a company with little to no moat at all is Groupon (GRPN). Since Groupon was released to the public a number of different competitors have entered the market including Amazon's Living Social and Google Offers. The discount coupon business model relies on vendors to provide discounts such as coupons to users. These coupons are then sold to users. A portion of the profits would then be allocated to Groupon themselves. However, customers are not loyal to Groupon. If there was a better deal offered on Living Social they would purchase that discount or coupon from that site. Sites like Living Social and Google Offers reached out to the same vendors as Groupon and essentially obtain the same deal for its members. As a result, Groupon's sales have taken a huge dip losing $81M in the September 9 months ended 2014 compared to $14M loss in the prior year comparable period.

Margin of Safety
Having a "margin of safety" is basically having a cushion to allow for errors in calculation. For example, suppose an elevator was built to hold five tons with a maximum capacity of 5 people. That would mean you would need five people who weighted in total five tons for the elevator to not be able to hold. You build the elevator to handle this amount of weight, just in case even if you know you will most likely not need it. Compare this with purchasing shares in a company, if you believe a stock is worth $20 and you buy it at $15, you give yourself a margin of safety of $5 in case you analysis is incorrect and it's actually worth $17.

"A great business at a fair price is superior to a fair business at a great price." - Charlie Munger

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Having More Choices is Better Right? Actually, It's Quite the Opposite.

Nov 12, 2014 -

Having Fewer Choices Leads to Happiness

The world we live in today is much different than the world we lived in thirty years ago. In particular we have more choices than ever before. For example, not only did we not have cell phones thirty years ago, but we also rented our land-line phones from a company called Bell. Now we have the iPhone 6, Samsung Galaxy Ace 2, HTC One, Sony Xperia U, Nexus 4, and so on and so forth.  

Technology has allowed us to communicate with just about anyone at any time from anywhere. At any point in time you may get a phone call from your boss or an email might come through your phone. You ask yourself, should I answer that phone call or should I reply to that email? Everywhere you turn there is a decision to be made. A choice you need to make.

Give a man or woman too many choices and we will find ourselves paralyzed or uncertain as to what to do. For example, if you take your lady to the mall and she sees hundreds of purses, she will not know which one to choose. What will end up happening is she will spend two hours looking for the "right" one. Then when she finally decides on a bag and purchases it, on the way home she will start to think about all the other bags that she didn't buy. She starts to question whether or not she made the right decision.

This similar scenario would play out for a guy who shopping for electronics. We compare and contract the latest phones or gadgets. Since there are literally hundreds of different electronics, we can't make a quick decision. The minute that we do, we end up thinking about the other gadgets we didn't end up buying. When there are more options to choose from, it is easier to imagine that you could have made a better choice. What ends up happening is that you regret the decision you made and that regret leads to less satisfaction.

"Opportunity costs subtract from the satisfaction we get out of what we choose, even when what we choose is terrific. And the more options there are to consider, the more attractive features of these options are going to be reflected by us as opportunity costs." - Barry Schwartz

When more choices are presented, we naturally raise our expectations. Suppose you were presented with 100 different soda flavors. Of course you'd expect that from at least one of those 100 flavors, you'd be able to find a perfect flavor. One that will blow your mind and be crowned the victor of all sodas. Arguably, if there is only one flavor, you will have lower expectations as to whether or not that particular flavor will dazzle your taste buds. Even when statistically in the 100 flavors there is a high probability that at least one of the flavors is better than that single flavor, the fact that our expectations are raised, will result in being less satisfied. In conclusion, if you want to be happy, just have low expectations. 

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Excel Tip #16 - Filling in Blank Cells with Header Cell Values

Nov 5, 2014 -

Excel - Fill in those Blank Cells with Header Information

When you have a report that has some of the header information filled out but not all of it, what is the best way to fill in blank cells with header values? 

This is especially the case when the rows in your report have repeating information. Typically, the report itself will just show the first new value and leave the remaining blank. This is great if you are viewing the report because you don't want extraneous information. But, what if you want to sort the information and organize a pivot table? You'll need to manually type in the blanks, but that could take you a couple of hours. Imagine if you had thousands of pages of blanks, that would take you days. 

This five step process will help you fill in the blanks with header cell values within minutes! 

1. Highlight and select the range with blanks, including headings to be copied. 
2. Hit "F5", which will prompt up the "GoTo" dialog box.
3. You'll want to hit "Special" and select "Blanks". Then hit "OK".
4. Press "=" key and the Up Arrow.
5. Hold down the Control key and press Enter.

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Stock of the Week: American Express (AXP)

Oct 28, 2014 -

American Express Impresses with Q3 Earnings

In late October of 2014, American Express (AXP) traded at $86.40 per share and had a total market capitalization of approx. $90.42B. This is compared to its competitors including Visa (V) and MasterCard (MA) at approximately $133B and $85.69B respectively. While all three companies are in the same industry and arguably overlap in target customers, American Express has been known to target higher net worth individuals. Resulting in generating more revenues per customer than either.
What is one major difference between the three companies?

American Express typically offers more attractive rewards and benefits to its card members than V and MA. The reason they are able to do this is because their typical card member spends more than that of a Visa or MasterCard user.

Unlike that of Visa and Mastercard, American Express is that it is also in the banking industry. AXP has subsidiaries that are bank holding companies including Centurion Bank and AEBFSB. In addition to revenue from card services, AXP earns interest income on deposits at its banks. While both of which are subject to Dodd-Frank and FDIC regulations, both banks are well-capitalized.

Highlight Fundamentals

In Q3 of 2014, American Express' EPS grew 12% year over year to $1.40 per share. Though revenues are consistent with that of the prior period, we need to back out the business travel operations revenue portion from the prior comparable period (Q3 2013) as that was deconsolidated in a joint venture (JV) transaction. The joint venture is with an unrelated third-party investor group who contributed $900 million to the JV for 50% ownership of the American Express Global Business Travel brand in June 2014. Excluding that revenue from a year ago, adjusted revenues increased 5% or 6% with foreign translation adjustments. Higher member spending and higher net interest income contributed to the increase in revenues.

American Express has reduced its company's expenses. Most notably, the decrease in 'Salaries and employee benefits accounted for 1,290M versus 1,544M in the Q3 2014 and Q3 2013, respectively. This is due primarily to the fact that the expenses from business travel is no longer consolidated in the income statement.

The company continues to repurchase common shares and as a result have reduced the shares outstanding from 1,071M shares in Q3'13 to 1,035M shares in Q3'14.  This only makes the company's shares look more attractive. When there are less outstanding shares, this means the company's value is less diluted. In theory each share would be worth more than before given that the company's financials remain constant.

In 2008, American Express acquired 13.5% ownership stake in Concur Technologies (CNQR). Recently SAP SE (SAP) a enterprise software company proposed to acquire CNQR at $129 per share. The expectation is that this transaction will close in Q4 2014, however it could roll until Q1 2015. This would result in a sizable gain as 6.4M shares were originally purchased at $39.27 per share. In addition, AXP received warrants with the right to purchase an additional 1.28 million shares of Concur at 39.27 per share any time from 2008 to 2010. AXP did note that a portion of the shares were sold during Q3 2014.

Highlight Technicals

From a technical perspective, in the short-term there do not appear to be any glaringly obvious bullish patterns to trade. However, if we pan out and take a look at the weekly chart over two years, we can see that it just bounced off support at around 80. There is a nice hammer pattern with confirmation shown in October. This is a bullish sign when it tests prior resistance successfully as now it has become an important support level.

This resistance test coincided with the approximately 10% SPY market pull back, which swung from a market record high of 2019.26 to 1820.66. It has since rebounded to 1964.58 or a pull back just above the 61.8% Fibonacci extension.

If I were planning on going long on AXP, from a technical perspective, now would be a decent opportunity to enter. The stock just convincingly bounced off support at around $80/share and has moved higher since.

Disclaimer: This article is written for informational purposes only and isn't intended as investment advice.
Disclosure: I do not have a position in AXP.
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Lessons in Making Drinks - Three Basic Ice Shapes

Oct 20, 2014 -

Understanding the Importance of Ice in Alcoholic Drinks

Many people underestimate the importance of quality ice in alcoholic drinks. Ice plays a huge role in a well-made drink as not only does ice control temperature, but also the dilution of your beverage. Different types of ice will dilute your drink at different levels and similarly the temperature will change at different speeds. There is nothing worse than a drink that was perfect two minutes ago and now sitting warm in your hand. Use the correct ice, so this doesn't happen to you or your guests.

Tip #1 - Keeping ice in the freezer with food for too long will result in the ice absorbing food flavors. Toss unused ice every couple days.

For drinks meant to be sipped like Macallan Scotch 12 Year, Dewar's, Manhattan, or an old-fashioned you require larger ice cubes. Ideally, you'd want a ice sphere or block that fits snug in your lowball glass. That way the drink dilutes slower and as a result the temperature of the drink remains in that perfect temperature for longer periods of time. Stay classy my friends, drop a sphere in your glass.

For tall and narrow Collins glasses, use rectangles of ice that are about an inch thick and four inches long. This works well for drinks such as the long island iced tea as the ice melts slowly. Not to mention the presentation is impeccable.

Some cocktails require fast-melting ice and shaved ice spears helps the dilution of the drink. Such drinks may include the Mojito and mint juleps.

One way to have your drink stand out is by using flavored cubes. In fuse your cocktail with ice flavored ginger or even watermelon. Depending on how much you want your drink to be flavored, you can freeze complete ice cubes of watermelon juice or dilute it with water prior to freezing. Whether they add a bit of spice in ginger or sour in lemonade, flavored cubes will without a doubt bring your drink to the next level. This is a sure way to impress your friends and significant others.

Tip #2 - Always use filtered and warm water when making ice cubes. They will be far more translucent.

Quick Pairing Tips

1. Watermelon cubes generally work with most white spirits such as tequila and rum.
2. A pairing of citrus and a bit of sugar goes well with gin or vodka.
3. Should you fancy darker alcohols such as whiskey or dark rums, try that with a bit of ginger or apple.
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Inside the Mind of Warren Buffet's Probable Successor

Oct 14, 2014 -

Buffet's Successor? Who is Li Lu?

Li Lu is rumored to be the front runner in managing Berkshire Hathaway's investment portfolio after Warren Buffet steps down. After hearing Warren Buffet speak at a Columbia alumnus lecture, Li Lu was inspired to work in investment banking. After his stint in investment banking, he founded Himalaya Capital Management (a hedge fund, which later was transformed into a long-only vehicle).

His claim to fame was introducing the Chinese battery and auto maker BYD Company to Charlie Munger and Warren Buffet. In 2008, Warren Buffet invested about $230M in BYD for 10% of the company at HK$8/share. In Sept of 2014, the value ballooned to about HK$53/share.

From left to right: David Sokol of MidAmerican, Warren Buffett, Wang Chuan-Fu of BYD and Li Lu. Photo: David Yellen
Recently Li Lu spoke in front of an audience about his investing principals. There are three basic principals surrounding value stock investing.

1) A stock is not a piece of paper that you trade. Instead it represents a fraction of ownership in a company. Therefore when valuing a stock, you are valuing a portion of the business.

2) When valuing a financial asset you should be able to reasonably predict future cash flows. However, should you be wrong, make sure you've left yourself a "margin of safety".

The future is a distribution of all probabilities. Even though you may be 90% certain that an asset will continue to grow, that 10% of stagnation or devaluation is still a possibility. Should all that could go wrong go wrong just make sure you will still be in the game. That is the core behind the concept of margin of safety.

3) The market can be emotional and neurotic causing irrational behaviors among investors.

When value investing you have to be in a frame of mind that allows you to be comfortable in standing alone even when the whole market is against you and everyone thinks you are wrong. What allows you to do this is your research. Trusting your research even when everyone else thinks otherwise is a difficult and unnatural thing to do.

All the successful value investors have a couple of things in common. First of all, they do not bet often. Instead they wait for the best situation. A situation that allows has margin of safety enough so that they are able to stand against the whole market, which requires immense amount of discipline.

Real World Value Stock Examples
In the early 1990s, Russia privatized most of their state assets almost overnight. Many people did not understand privatization, so those who received shares were selling them at discounted prices. For example, a Russian oil company's stock was trading at 1 cent on the dollar per barrel of oil it held on its books. At the time oil was trading at $20/barrel. Even with excluding earnings and considering the political uncertainty, you would have came up on top at these discounted prices.

A couple of years ago there were non-voting common shares trading at 70-80% discount compared to the common voting shares equivalents. This was a company that had been growing on a compounded basis for three to four decades. Furthermore there is virtually no difference between the voting and non-voting common shares because the family has controlling interest.

The holy grail of investing is finding businesses trading at inexpensive prices that also have the ability to generate cash on a compounded basis.

How do you decide when to sell a stock?
Every situation is different. The upside and downside of a business can change based on factors outside of the company, therefore it is important to reevaluate the situation on an ongoing basis. While you may not feel comfortable with a 70% discount on a company based in Russia, a 20% discount in a large US corporation may be enough of a margin of safety. When a stock becomes valued at extreme levels or the situation turns unfavorable - that is when you sell. However, if the company's earnings continue to grow, there is less of a hurry to sell. Because you are essentially letting your investment grow interest free by avoiding the capital gain tax when you do sell.

Finding a stock with a large margin of safety could require long periods of time where you don't swing at all. But, you should be studying all the time to be ready for opportunities when they do arise. Investment ideas can come from anywhere from the Wall Street Journal to maybe even billboard signs. Diversification is necessary to stay in the game in the long run. However, the extent to which you diversify is based on your opportunity cost. What else can do you with the cash?

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