Most likely this book will not
make you a billionaire. I’m not one myself. If I were one, do you think I have
the time to write a book? It is used to
catch your attention. The title “How to be a 10 millionaire” does not sound too
appealing. When a child wants to be a president, most likely he will end up at
least a good citizen. Aim high.
However, if you’re young, 10
million (in 2020’s money) is very doable. I separated this book into 4 stages.
If I had this book or a similar book when I started out, I could have made over
10 million by now.
When you become a recent college
graduate, buy this book and start with Stage 1. They do not teach you how to
become rich in college. It makes the ideal gift for a recent college graduate
and they will thank you forever. It is truly a gift that keeps on gifting.
There are more important
objectives in life than seeking wealth such as happiness, health, relationship,
etc. With wealth, a wise man can make the other objectives easier to obtain,
but an unwise man can do the opposite. When you lose a lot of money and you’re
still smiling, you’re a winner; the winner knows it is a temporary setback.
My friend died of worrying about
losing most of his life saving in the stock market. Eventually the market
returned, but he was dead already.
Most of my friends making at
least 2 million are investors in stocks, real estate or both. First we should
be thankful as there are fewer wars than our parents and grandparents. It is
easy to accumulate 2 million to retire in my generation.
Stage 1
Unless you work in the investing
industry, you do not want to spend a lot of time in investing. You have a life
too I hope! At this stage, concentrate on your career. Accumulate cash for an
emergency fund to support you for at least three months and a down payment for
a house. Invest fully in a Roth IRA (if you’re eligible), at least the matched
part of your 401K if it is available to you and then ETFs for funds left
over.
Do not marry someone who likes to
spend money like there is no tomorrow. Contrary to the current popular belief,
you should attend a good college even the monetary payback may not be good
initially. You have a higher chance to find a compatible spouse.
I have designed a simple plan on
how to invest in ETFs and a simple way to time the market. It takes about 10
minutes on investing on the first (or any specific) day of each month.
Stage 2
Learn how to invest in the
market. Begin with using paper trades. I provide you with all the tools.
Depending on your time, learn stock investing, but do not use real money
initially. Knowledge leads to success. However, little and/or any
misinterpretation could cost you money.
Stage 3
Invest in the market with real
money. Start in small ways and increase your positions gradually. It is the gut
of this book covering most areas in profitable investing. Stay away from the
risky day trading; most newcomers lose money in day trading. Even many experts
in day trading have their huge losses periodically. Value investing with market
timing and trailing stops is the turtle way to make money in the long run.
There is no substitution.
Stage 4
Protect your profits and donate
some to the poor. There are more topics covered here. You should be very
wealthy at this stage, if you have followed the book. Do not take extra risk on
risky stocks. This is the time to enjoy your fruits in life.
Billionaires among us
Every generation has its
opportunities to produce billionaires. In our generation, we have Bill Gates,
Warren Buffett and many others. I prefer to set a ‘modest’ target of 10 million
(in 2020’s money). Actually I know many folks with about a million dollar
enjoying a happy retirement. You do not need a billion to enjoy your retirement
or have a happy life at least financially. Here is why:
Jesse Livermore,
considered to be the greatest trader, made millions and bankrupted several
times. Finally he committed suicide. It is better to be a turtle, boring
investor. It is easy for the mind to make millions, but tough to lose millions.
Examples abound.
I know four billionaires
personally. The first two have something in common: Participated in IPOs in
Chinese companies. It is once-in-a-life-time opportunity to build bridges
between the US and the Chinese businesses. It is similar to Walton family
making billions by importing Chinese products. What a simple idea and why I
missed it? The other one is my high school classmate making movies in Hong
Kong. Another classmate worked in MIT’s post-graduate program and became one of
the earliest employees of a famous drug company in the U.S.
The objectives in life
We come
to this earth with nothing and leave with nothing. Why do we fight for wealth,
prestige and power? However, if we do not have the objective for wealth,
prestige and power, it is a life without meaning for most.
Money
should not be our primary objective in life and happiness and health have to be
earned and cannot be bought with money. When you’ve accumulated enough wealth
to have a comfortable financial life, you may want to pursue other objectives
in life besides wealth.
I have
seen many successful men and women who are not wealthy using financial
yardsticks but they are wealthy in working in jobs they love, good friends,
good families, good health and/or fulfilling their own objectives in life such
as helping the poor.
Check
out the wealthy singers, movie stars and athletes. Are most of them really
happy with all the broken marriages, drug and alcohol abuses? I rest my case. Many
of them do not have basic investing knowledge (most likely they have not bought
this $10 book and lose millions), and many end up bankrupted.
I do
not believe most authors on investing are rich. Unless they do it for fun, the
successful ones do not want to reveal their secrets. As of this writing, I’m
financially sound especially with my age and my frugal life style. I do it for
fun and I read my own books to remind me of my mistakes in investing. The best
trader in our generation committed suicide losing all his money and called
himself a loser. Learn from his failure: 1. He did not practice what he
preached and 2. Risky bets.
One of
my friends accused the 1% (I do not belong in this group) of altering the tax
laws to reduce their taxes. It is partly true and Buffett should not pay less
than the tax rate of his secretary. However, many rich folks donate their
wealth to charities.
Unfortunately
only 60% in this country pay Federal income tax. We should encourage the other
40% to work. The current system takes away their benefits for taking a job. I
contribute by paying income taxes when I make money in the stock market. A good
market allows me to help the poor more.
Investors buy stocks to finance new products and services and hence
boost employment. Capitalism is not evil.
The six pillars of success
They
are hard work, persistency, innovation, honesty, passion and social
responsibility, in random order. Why luck is not one? Most successful folks do
not attribute the success to luck.
Also successful folks also are
humble in learning how and why others are successful. Successful folks do make
mistakes, but they try hard not to repeat their mistakes. They also learn from
others’ mistakes. Now, you are ready to set your objectives and enjoy your road
to wealth.
Until you retire, you should
spend most of your time / effort in your career / business and NOT in the stock
market. The swing in your portfolio would tempt you spending too much time in
investing and that’s not profitable in the long run.
Why you want to gift
this book
What should you tell your
children about why you did not buy him/her this book 30 years from now?
Colleges do not teach them how to achieve financial success but this book does.
If you’ve achieved financial success after 30 years, do not thank me but thank
the one who bought you this book. Pat your shoulder if you bought this book for
yourself.
The book “How to be a
billionaire” is a perfect gift for college graduates. My other investing book for beginners
is “Investing
for Beginners”.
Why invest?
This is the only way to make
money for the average person. Our capitalistic system punishes us for not
taking risks (i.e. investing). It is easy to confirm when you compare the
average returns of stocks and CDs in the last 30 years.
This stage requires you to spend
minimum time by timing the market in its simplest form and buying ETFs that do
not require a lot of knowledge and time to evaluate stocks.
Read basic investment articles
for beginners. Both Fidelity and AAII (both require being a client or a
subscriber) have excellent articles. Refer to “How to Start” in Section I.
After you have funds for down payment of a house and emergency fund, I recommend
buy ETFs such as SPY. When the market is plunging, sell the ETFs to accumulate
cash. Move back to ETFs when the market recovers. For more aggressive
investors, buy contra ETFs such as SH when the market is plunging.
Why market timing
Before 2000, market timing was a
waste of time. However after that, we have had two market plunges with the
average loss of about 45%. It sounds harder to time the market than it actually
is. We have a simple technique to detect market plunges and when to reenter the
market. Our objective is reducing the loss to 25%. Before you start Stage 2,
practice what you have learned. Buy an ETF such as SPY that simulates the
market when the market is not plunging.
Links
1 %: https://www.youtube.com/watch?v=ds5LQXBKtQg
My steps to trade
stocks
1. Search
for valued stocks (from the proven screens).
2. Evaluate
the screened stocks by:
a. Fundamental
Analysis.
b. Intangible
Analysis.
c. Qualitative
Analysis.
d. Technical
Analysis.
3. Sell
stocks.
As with everything in life, there
is no guarantee that this book will always make you money. However, the chance
of success will be substantially improved especially when you practice all the
ideas presented in this book. Start with paper trading first in this stage.
Screens (used to search stocks)
are better than others in certain market conditions. You should have several
screens and keep track of their recent performances. I prefer value stocks
especially for beginners.
Learn about investing and test
out some of the basic concepts. This stage gives you a foundation to the next
stage that will use real money in trading stocks.
Continue market timing and
trading ETFs as described in Stage 1. You’re not ready to compete with
professionals in trading stocks, but trading ETFs with market timing is fine.
Beside
stock research
In this stage, you should enjoy
the better things in life such as owning your own house and taking nice
vacations. A trip to Washington DC should not cost a lot, but it is fun,
memorable and a great learning experience especially if you have children.
Buying a fancy car is consumption, and buying a decent house is an investment.
Stick with investments.
This is the gut of this book. I introduce long-term swing
trading (i.e. keeping the stocks more than 6 months) as the first strategy.
In addition to Market Timing,
Technical Analysis and Trade are included in this stage. You may want to start
with mutual funds and/or ETFs. However, about one third of them cannot beat the
market after fees. Depending on the time available, you may want to move a
portion of your investments into portfolios managed by yourself.
Jesse Livermore, the best trader
I believe, lost most of his fortune and committed suicide. Professor Irvin
Fisher, the father of Wall Street, did not predict the 1929 crash and lost a
bundle including most of his own life savings. Recently, the legendary Kirk
Kerkorian’s wealth reportedly reduced his portfolio from $16 billion in 2008 to
$3.3 billion in March 2013. Examples abound.
This Stage introduces the
following strategies: Sector Rotation, Insider Trading and Dividend investing.
We should monitor our trades. Why are they are big winners or big losers? Learn
from both and trade accordingly. The rest is investment advice.
If you need a financial advisor,
try to use the paid-for service. There is no free lunch and try not to buy
their over-inflated services. When they try to sell you an annuity, run as fast
as you can towards the exit door. Most annuities are written by the providers
for their benefits. Very few have low-maintenance fees. However, the annuities
before the market crash in 2020 perform better than the market. Do not attend
any free seminars with fancy meals. Remember if you are the only one to buy
their services, you have to pay the meals for all the attendees.
#Filler: War-like or war-addicted
We have 16 years of peace out of
242-year history. The price is too big to be the big brother and the global
police. Some wars such as Vietnam and Afghan were just wrong wars for us. This
is the U.N.’s job, not ours. We have so many problems to fix at home such as
homeless, drug / alcohol addictions, disaster control, shooting…
The following describes
my own experiences and yet everyone’s situation is quite different. Check the
current tax laws and consult your tax professional on any related topic. Also
check my Disclaimer in the Introduction section.
Will and estate planning
They will lure you to
their presentations by giving you meals at expensive restaurants. If your
estate is small (such as below the Federal exemption), a simple will signed by
a notary public and the assignments of beneficiaries in your broker’s accounts
may be sufficient. Gifting at the maximum limit allowed by law is a common and
easy way to pass your estate to your children before you die.
Check the estate tax
requirements in your state. Some investors move to another state that has more
favorable estate tax treatment or even some people give up their US
citizenship.
Many people transfer
their houses to their children to avoid long-term care expenses. Check how to
do it right with a professional.
I had several ‘free’
meals before I settled for my lawyer. He put my house into a joint trust. He
advised me to put my largest taxable account into a trust account.
Taxes
I am lucky (or unlucky in
considering how much taxes I pay) to have a higher tax rate in retirement than
my working years due to my good investment return so far. Hence, it would be
better for me not to postpone taxes during my work years. At 70 ½, we are
required to withdraw our retirement accounts (except Roth IRA under the current
tax law). Before 70½, I had converted some Roll-over IRA (used to be 401K
during work) into Roth IRA as allowed under the tax law then. I paid taxes but
it could be less at 70 ½ and/or if I start to annualize my annuity. Again everyone’s
tax situation is different and the tax laws may change.
Market Timing
Concentrate more on
conservative investments such as CDs, Treasury bonds, safe corporate bonds and
diversified ETFs. Save your emergency fund for at least three months after your
retirement incomes.
From 1970-2000, the
average annualized return is about 10%. Market timing may not help at all.
However, since 2000, we had two market plunges (2000 and 2007) with an average
loss of about 45%. For simplicity, read the chapter on “Simple market timing”
and “Rotate four ETFs”. For more detailed description, check out the chapter on
Market Timing which shows you how to detect market plunges. To summarize:
·
Do
not invest during a market plunge.
·
Invest
aggressively in the early recovery phase of a market cycle.
·
Invest
conservatively during other phases with stop losses.
Make your money last
You may never run out of
money if you withdraw 4%
of your total asset every year.
http://moneyover55.about.com/od/RetirementAccountWithdrawals/a/What-Is-The-4-Rule-In-Retirement.htm
Health
I highly recommend the book China Study by Dr. Campbell. In short, eat
more whole grains, vegetables and fruits particularly with different colors and
avoid meats / dairy products. Replace milk with soy milk. Avoid cakes, cookies
and potato chips. Exercise regularly. Maintain both good physical health and
mental health. This is a start on health and I am no expert.
Enjoy your retirement life with hobbies and travelling as long as you are
healthy.
More information
This book concentrates on investing and it tries not to duplicate the
financial topics for retirees from many well-written books. I obtained the
following books in Kindle format for 99 cents each from Amazon.com.
Retirement Financial
Planning for Baby Boomers by Whitney Smith.
Retirement Solutions:
Financial Strategies for Today’s Retirees by Michael Dallas, CFP. More related
articles:
Retire
overseas.
http://www.marketwatch.com/story/5-reasons-not-to-retire-in-the-us-2014-08-07
Managed
Accounts.
http://blogs.marketwatch.com/encore/2014/08/05/managed-accounts-too-pricey-for-retirees/
Being good in your profession
normally leads you to a rewarding life. Being good in investing would make you
financially wealthy and that is what this book is about. Starting a business
would make you very wealthy or make you very poor. The pandemic of 2020
bankrupts a lot of businesses.
Three out of four new businesses
fail in the first few years. Jobs, Gates and Zuckerberg are good examples of
success stories. However, they are the exceptions. After watching the Million
Dollar Idea from the History Channel, I conclude:
·
You need to have an innovative idea to start and
it has not been used before.
·
Every generation has its own opportunities. The
three mentioned have their opportunities in the new PC. Internet has made a lot
of billionaires.
·
The clip-on lens inventor from the TV show has
the opportunity of add-on to the successful iPhones. Clipping on others’
success is not a bad idea, but it may not last long for profits without future
products.
·
Very few starters can afford advertising. Market
share does not mean profit. Many advertisers of internet products in the Super
Bowl 2000 went bankrupt.
·
Invest with minimal cost such as at a trade show
gains publicity.
·
TV shows and magazines will knock on your door
if your product is innovative. It will help them to attract viewers. It is free
and effective advertising.
·
Need to protect your product by patenting and
keeping secrets during early development. You cannot save money in this area.
·
Most inventors are not good businessmen. You
want to let professionals run your business, but you have to keep an eagle eye
on it.
·
Be prepared to make a budget during early
development, and plan to secure extra financing when the budget is exceeded –
it usually does.
·
Prepare for hard work.
·
If your spouse does not join you in your
venture, you have to choose between fulfilling your dream and keeping your
spouse. That’s why so many successful entrepreneurs are single while starting
their ventures.
·
Prepare for failure and how/when to exit.
·
Most new products have to go thru many
milestones before they become marketable products.
·
Ensure your product is not a fad after its
initial success. Follow-up products should be planned.
·
Face the reality.
To illustrate, do not allow your bias on China to cover
your eyes on business decisions. Many businessmen such as Walton and Apple
contribute part of their successes to China. For some products, assemble them
in South China as they already have component manufacturer’s close by, cheap
labor, fewer regulations and a large internal market. After the pandemic of
2020, it may change.
My own experiences
You may be thinking I’m giving
advice from others’ experiences. I did run a one-man company named Micro
Architect selling software for over five years. My opportunity was that there
were few or no software for the first (arguable) personal computer, the Tandy
computer. What was driving me to work hard was my dream to think big and my passion
was to make good money.
I wrote about 10 software
programs. I spent money on two ads and gained a lot of publicity via press
releases. I attended PC computer shows once a year in Boston. My wife’s
insurance covered the entire family. Larger companies have a team of more than
10 programmers developing a program compared to one person writing 10 programs.
My exit strategy was looking for a full-time job when I found out my new
programs did not sell well. I used a blanket to watch TV in the cold wintry
days more than 10 years before they invented the blanket with sleeves. My
friend thought about the won-ton making machines long before any such machine
was available. If we only dream without actions, we will have to bring our
regrets and ideas to our graves. Even if we fail, we will have no regrets.
# Filler:
In any business, we can learn
a lot from Bill
Belichick. It is the same for stock research, we need to have knowledge, leave
no stone unturned, work hard… Luck has nothing to do with success for most
successful folks.
Many millionaires (with assets
over 10 M) I know have made fatal mistakes. Many should take good care of their
health, enjoy their family and protect their wealth or forget their objectives
in life. That’s why most big lottery winners are not happy.
·
With the millions, some eat and drink
carelessly. Some do not exercise enough. Many die early.
·
Many always work more than 100%. At least one
person I know died early during playing tennis, so know your limits.
·
Many ‘smart’ investors end up bankrupted. One
more zero added to your net worth does not mean anything to them, but losing all
will.
·
Many famous singers and athletes die early or
end up bankrupted. Many are drug addicts and some pass their problems on to the
next generation.
·
When it is time to retire, enjoy life and do not
start a new business.
How I retired earlier
I retired in early 50s. My wife’s
insurance covered us for life. I am spending most of the time learning and
testing investing strategies. Here are my comments with others on this topic.
·
Do not borrow money and/or max out your credit
cards except for the primary residence.
·
Have an emergency fund up to at least lasting
for 3 months.
·
You do not need fancy stuffs to make you happy.
·
Invest in a weighted ETF for large companies
such as SPY and spend a few minutes in market timing as described in this book.
·
Invest your time and knowledge in maintaining
good wealth.
Marry your spouse with same
objective in your financial life.
