Teeka Tiwari, Chief Investment Officer, The Tycoon Report

There’s a dirty little secret that the Wall Street firms hope you won’t find out.

Let me back up for a second. The real goal of Wall Street is not to make you money, and it’s not to lose you money either (they just can’t help doing that).

Let me explain.

Wall Street has spent millions convincing the public that they are the sole keepers of your financial future; and for a small nominal fee (usually 1% annually), they will guide you through the perilous investment waters to deliver you to the land of your financial dreams. It’s an interesting fairy tale, and it would be a humorous one at that if it weren’t for the fact that so many people have bought into it.

I’m going to let you in on a huge industry secret! Are you ready?

The number one goal of any Wall Street firm is to keep you even.

Why?

Have you noticed that many firms have shifted away from commission-oriented transaction business to charging an annual fee instead? On the surface it looks like a good deal. "My objectives are tied with your objectives Mr. Jones," says your friendly neighborhood broker, "The more you make, the more I make."

But do you know why the firms have really made this move? It’s not because they’re good guys and wanted to do you a favor. They realized that they could not consistently show you above-market returns. So how could they keep your account, keep you even, and stop you from bolting? I can just imagine the strategy meeting that took place …

Business Development Guy #1: "I know! Let’s spend millions of marketing dollars convincing everybody that they cannot make money on their own! Then let’s convince everybody that the only way to make money is to buy a diversified mix of mutual funds and hold onto it for 30 years!"

Business Development Guy #2: "We need a new, catchy name for this scam er … excuse me … I mean approach. Oh, Oh, I know, I know, let’s call it MODERN PORTFOLIO THEORY!"

Business Development Guy #3: "Yes! Yes! That’s it. Oh, and by the way, take a look at all this yummy projected cash flow on those 1% fees we will be collecting for the next THIRTY YEARS!!"

But let’s take a closer look at this strategy before we dismiss it out of hand. Maybe the buy and hold approach is the right one after all, and why should we begrudge the mutual fund boys their 1% fee? After all, it’s not like they’re not working hard for that money … generating new ideas, poring over research, and committing huge amounts of energy to generating money-making ideas.

Actually, they’re not.

75% of all mutual fund equity is invested in the S&P 500. 87% of mutual fund performance is correlated to the S&P 500!! Want to know another dirty little secret that the Wall Street firms hope you don’t find out?

You don’t need them to enact this strategy!!

Do you want to know how to do this on your own?

Well here it is: Just buy 5 different exchange traded funds, one each for big cap & small cap growth, one each for big cap & small cap value, and a diversified international exchange traded fund. Dollar cost average in every month/quarter, and after thirty years you’ll have about an average compounded 11% rate of return (that is if you also reinvested all of your dividends). That’s it! Pretty simple huh? No wonder the firms love this approach! It’s so profitable for them. They have you feeding them money every month, and all they do is passively invest in mutual funds. That’s it! My eight year old daughter could do that!!

"But it’s only 1% a year, and I don’t have to be bothered with it" I can hear some of you saying.

Let me show you how much that 1% per year is costing you over a thirty year period. Let’s say you’re 35, and you invest $1,000,000 in a retirement portfolio of 5 diversified exchange traded funds as outlined above. You go about your business for the next thirty years, building your career, raising your family, going to church and living life. Lo and behold, age 65 is here before you know it. Now, all things being equal, your $1,000,000 investment - through the magic of compounding - should have grown to $8,000,000, right?

Wrong!!

You forgot about your friendly neighborhood brokerage firm. They have to be paid for all of the "work" that they did. Here’s what it cost: After thirty years of paying out 1% annually in fees, it has cut your retirement nest egg by a third! Instead of $8,000,000 you will receive $5,333,333!!

Think about that for a second. You just paid out over $88,000 a year in fees, and lost capital gains (two million, six hundred and sixty six thousand dollars) for something you could have done by yourself.

It is insanity to give up one third of your entire portfolio to enact this "no-brainer" strategy.

Isn’t it time to grab hold of your own financial reins?

by Investopedia Staff

When it comes to learning about investment, the internet is one of the fastest, most up-to-date ways to make your way through the jungle of information out there. But if you’re looking for a historical perspective on investing or a more detailed analysis of a certain topic, there are several classic books on investing that make for great reading. Here we give you a brief overview of our favorite investing books of all time and set you on the path to investing enlightenment.

 "The Intelligent Investor" (1949) by Benjamin Graham

Benjamin Graham is undisputedly the father of value investing. His ideas about security analysis laid the foundation for a generation of investors, including his most famous student, Warren Buffett. Published in 1949, "The Intelligent Investor" is much more readable than Graham’s 1934 work entitled "Security Analysis", which is probably the most quoted, but least read, investing book. "The Intelligent Investor" won’t tell you how to pick stocks, but it does teach sound, time-tested principles that every investor can use. Plus, it’s worth a read based solely on Warren Buffett’s testimonial: "By far the best book on investing ever written."

"Common Stocks And Uncommon Profits" (1958) by Philip Fisher

Another pioneer in the world of financial analysis, Philip Fisher has had a major influence on modern investment theory. The basic idea of analyzing a stock based on growth potential is largely attributed to Fisher. "Common Stocks And Uncommon Profits" teaches investors to analyze the quality of a business and its ability to produce profits. First published in the 1950s, Fisher’s lessons are just as applicable half a century later.

"Stocks For The Long Run" (1994) by Jeremy Siegel

A professor at the Wharton School of Business, Jeremy Siegel makes the case for - you guessed it - investing in stocks over the long run. He draws on extensive research over the past two centuries to argue not only that equities surpass all other financial assets when it comes to returns, but also that stock returns are safer and more predictable in the face of the effects of inflation.

"Learn To Earn" (1995), "One Up On Wall Street" (1989) or "Beating The Street" (1994) by Peter Lynch

Peter Lynch came into prominence in the 1980s as the manager of the spectacularly performing Fidelity Magellan Fund. "Learn To Earn" is aimed at a younger audience and explains many business basics, "One Up On Wall Street" makes the case for the benefits of self-directed investing, and "Beating The Street" focuses on how Peter Lynch went about choosing winning stocks (or how he missed them) while running the famed Magellan Fund. All three of Lynch’s books follow his common sense approach, which insists that individual investors, if they take the time to do their homework, can perform just as well or even better than the experts.

"A Random Walk Down Wall Street" (1973) by Burton G. Malkiel

This book popularized the ideas that the stock market is efficient and that its prices follow a random walk. Essentially, this means that you can’t beat the market. That’s right - according to Malkiel, no amount of research, whether fundamental or technical, will help you in the least. Like any good academic, Malkiel backs up his argument with piles of research and statistics. It would be an understatement to say that these ideas are controversial, and many consider them just short of blasphemy. But whether you agree with Malkiel’s ideas or not, it is not a bad idea to take a look at how he arrives at his theories.

"The Essays Of Warren Buffett: Lessons For Corporate America" (2001) by Warren Buffett and Lawrence Cunningham

Although Buffett seldom comments on his current holdings, he loves to discuss the principles behind his investments. This book is actually a collection of letters that Buffett wrote to shareholders over the past few decades. It’s the definitive work summarizing the techniques of the world’s greatest investor. Another great Buffett book is "The Warren Buffett Way" by Robert Hagstrom.

"How To Make Money In Stocks" (2003, 3rd ed.) by William J. O’Neil

Bill O’Neil is the founder of Investor’s Business Daily, a national business of financial daily newspapers, and the creator of the CANSLIM system. If you are interested in stock picking, this is a great place to start. Many other books are big on generalities with little substance, but "How To Make Money In Stocks" doesn’t make the same mistake. Reading this book will provide you with a tangible system that you can implement right away in your research.

"Rich Dad Poor Dad" (1997) by Robert T. Kiyosaki

This book is all about the lessons the rich teach their kids about money, which, according to the author, poor and middle-class parents neglect. Robert Kiyosaki’s message is simple, but it holds an important financial lesson that may motivate you to start investing: the poor make money by working for it, while the rich make money by having their assets work for them. We can’t think of a better financial book to buy for your kids.

"Common Sense On Mutual Funds" (1999) by John Bogle

John Bogle, founder of the Vanguard Group, is a driving force behind the case for index funds and against actively-managed mutual funds. In this book, he begins with a primer on investment strategy before blasting the mutual fund industry for the exorbitant fees it charges investors. If you own mutual funds, you should read this book.

"Irrational Exuberance" (2000) by Robert J. Shiller

Named after Alan Greenspan’s infamous 1996 comment on the absurdity of stock market valuations, Shiller’s book, released in Mar 2000, gives a chilling warning of the dotcom bubble’s impending burst. The Yale economist dispels the myth that the market is rational and instead explains it in terms of emotion, herd behavior and speculation. In an ironic twist, "Irrational Exuberance" was released almost exactly at the peak of the market.

The more you know, the more you’ll be able to incorporate the advice of some of these experts into your own investment strategy. This reading list will get you started, but it is only a fraction of all the great resources available. Do you have a favorite investing book that we’ve missed?

Why are you investing? It’s OK if you have many different answers for this question, but there is a big problem if you have no answer at all. Investing is like driving - it is best done with your eyes open!

Joking aside, having clear reasons or purposes for investing is critical to investing successfully. Like training in a gym, investing can become difficult, tedious and even dangerous if you are not working toward a goal and monitoring your progress. In this article we examine some common reasons for investing and suggest investments that fit those reasons.

Retirement

No one knows whether the pension system will survive the coming decades. It is this uncertainty and the reality of inflation that forces us to plan for our own retirement. You need only open the newspaper to find out about a company that is freezing pensions or a new bill that will cut government payouts. In these uncertain times, investing can be a tool to help you carve out a solid path to retirement. There are three maxims that apply to investing for your post-work years:

The more years there are between today and your retirement, the more years your money has to grow. You have to keep in mind that you are fighting inflation when you are planning to retire. In other words, if you don’t invest your money to outpace inflation, it won’t be worth as much in the future.

The older you are when you start, the more risk averse you will have to be. This means that you will likely use guaranteed investments such as debt securities, which have lower returns. By contrast, if you start young, you can take larger risks for (hopefully) larger gains.

The earlier you start learning about investing, the easier it will be to pick it up. Financial professionals are difficult to choose and costly to keep, so it is best to manage your own affairs whenever possible.
 
Investing for retirement is similar to long-term investing. You want to find quality investment vehicles to buy and hold with the majority of your investment capital. Your retirement portfolio will actually be a mix of stocks, debt securities, index funds and other money market instruments. This mix will change as you do, moving increasingly toward low-risk guaranteed investments as you age.

Achieving Financial Goals

You don’t always have to think long-term. Investing is as much a tool for shaping your present financial situation as it is for forming your future one. Do you want to buy a BMW next year? Want to go on a cruise from Seattle to Morocco? Wouldn’t a vacation that was paid for with dividends feel nicer?

Investing can be used as a way to enhance your employment income, helping you to buy the things you want. Because investing changes along with the investor’s desired goals, this type of investing is not like retirement investing. Investing to achieve financial goals involves a blend of long-term and short-term investments. If you are investing in the hope of buying a house, you will almost certainly be looking at longer-term instruments. If you are investing to buy a new computer in the New Year, you may want short-term investments that pay dividends or some high-yield bonds.

The caveat here is that you need to pinpoint your goals first. If you want to go on a vacation in a year, you have to sit down and figure out the cost of the vacation in total and then come up with an investing strategy to meet that goal. If you don’t have a set goal, the money that should be going into that investment will doubtless be used for other purposes that seem more pressing at the time (Christmas presents, a night out, and so on).

Investing to achieve financial goals can be very exciting and challenging. Combining the pressure of time constraints with the fact that you’re not usually dealing with large sums of vital money (as in retirement investing), you may be less risk averse and more motivated to learn about higher yield investments. Best of all, there is a tangible reward at the end.   

Reasons Not To Invest

Just as there are two main reasons to invest, there are two big reasons not to invest: debt or a lack of knowledge.

In the first case, it is a simple matter of math. Imagine that you have a $1,000 loan at 9% interest, and you get a $1,000 dollar bonus. Should you invest it or should you pay down the debt? Short answer: pay down the debt. If you invest it, the money has to make a return of well over 9% (not counting commissions and fees) to make it worthwhile. It can be done, but it is much easier to find good returns on investment without having to fight losses on your debt.

There are different kinds of debt - credit card, mortgage, student loans, loan sharks - and they carry different degrees of weight when you are considering whether or not to invest in spite of them.

When it comes to lack of knowledge, it is a matter of "fools rush in where angels fear to tread". Throwing your money haphazardly into investments that you don’t understand is a sure way to lose it quickly. Returning to the exercise analogy, you don’t walk into a gym and squat 500 pounds your first day (unless having kneecaps bothers you). In other words, your introduction to investing should follow the same incremental process as weight training.

Conclusion: Allowing for Change

Your reasons for investing are bound to change as you go through the ups and downs of life. This is an important process because the only other option is to invest with no purpose, which will likely result in investing practices that reflect your uncertainty and cause your returns to suffer. Your reasons and goals will have to be reviewed and adjusted as your circumstances change. Even if nothing significant has changed, it is always helpful to reacquaint yourself with your reasons at regular intervals to see how you’ve progressed. Like running on a treadmill, investing gets easier and easier once you actually start.

以下第一行均为投资大师，第二行均为失败投资者

1、相信最高优先级的事情永远是保住资本，这是他的投资策略的基石。 唯一的投资目标是“赚大钱”。结果，他常常连本钱都保不住。

2、他是风险厌恶者。 认为只有冒大险才能赚大钱。

3、他有他自己的投资哲学，这种哲学是他的个性、 能力、知识、品位和目标的表达。因此，任何两个极为成功的投资者都不可能有一样的投资哲学。 没有投资哲学或相信别人的投资哲学。

4、已经开发并检验了他自己的个性化选择，购买或拋售投资系统。 没有系统，或者不加检验和个性化调整地採纳了其他人的系统。（如果这个系统对他不管用，他会採纳另一个……还是一个对他不管用的系统。）

5、认为分散化是荒唐可笑的。 没信心持有任何一个投资对象的大头寸。

6、憎恨缴纳税款和其他交易成本，巧妙地安排他的行动以合法实现税额最小化。 忽视或不重视税收和其他交易成本对长期投资效益的影响。

7、只投资于他懂的领域。 没有认识到对自身行为的深刻理解是成功的一个根本性先决条件。很少认识到赢利机会存在于（而且很有可能大量存在于）他自己的专长领域中。

8、从来不做不符合他标准的投资。可以很轻松地对任何事情说“不！”。 没有标准，或採纳了别人的标准。无法对自己的贪婪说“不”。

9、不断寻找符合他标准的新投资机会，积极进行独立调查研究。只愿意听取那些他有充分理由去尊重的投资者或分析家的意见。 总是寻找那种能让他一夜暴富的“绝对”好机会，于是经常跟着“本月热点消息”走。总是听从其他某个所谓“专家”的建议。很少在买入之前深入研究一个投资对象。他的“调查”就是从经纪人和顾问那里或昨天的报纸上得到最新的“热点”消息。

10、当他找到不符合他的标准的投资机会时，他会耐心等待，直到发现机会。认为他合适的时候都必须在市场中有所行动。

11、在做出决策后即刻行动。迟疑不决。

12、持有赢钱的投资，直到事先确定的退出条件成立。很少有事先确定的退出法则。常常因担心小利润会转变成损失而匆匆脱手─因此经常错失大利润。

13、坚定地遵守他自己的系统。总是“怀疑”他的系统─如果他有系统的话。改变标准和“立场”以証明自己的行为是合理的。

14、知道自己也会犯错。在发现错误的时候即刻纠正它们。因此很少遭受大损失。不忍放弃赔钱的投资，寄希望于“不赔不赚”。结果经常遭受巨大的损失。

15、把错误看成学习的机会。从不在某一种方法上坚持足够长的时间，因此也从不知道如何改进一种方法。总在寻找“速效药”。

16、随着经验的积累，他的回报也越来越多……现在他似乎能用更少的时间赚更多的钱。因为他已经“交了学费”。不知道“交学费”是必要的。很少在实践中学习……容易重复同样的错误，直到输个精光。

17、几乎从不对任何人说他在做些什么。对其他人如何评价他的投资决策没情趣也不关心。总在谈论他当前的投资，根据其他人的观点而不是现实变化来“检验”他的决策。

18、成功地将他的大多数任务委派给了其他人。选择投资顾问和管理者的方法同他做投资决策的方法一样。

19、花的钱远少于他赚的钱。有可能花的钱超过他赚的钱（大多数人是这样）。

20、工作是为了刺激和自我实现，不是为钱。以赚钱为目标：认为投资是致富的捷径。

21、迷恋投资的过程（并从中得到满足）；可以轻松摆脱任何个别投资对象。爱上了他的投资对象。

22、24小时不离投资。没有为实现他的投资目标而竭尽全力（即使他知道他的目标是什么）。

23、把他的钱投到了他赖以谋生的地方。例如，沃伦伦巴菲特的财产有99%是伯克夏-哈撒韦的股份，乔治治索罗斯也把他的大部分财产投入了量子基金。他们的个人利益与那些将钱托付给他们的人是完全一致的。投资对他的净财产贡献甚微─实际上，他的投资行为常常威胁到他的财富。他的投资（以及弥补损失的）资金来自于其他地方：企业利润、薪水、退休金、公司分红，等等。

By Dylan Jovine

As the "value investor" of this motley crew of investors who write for the Tycoon Report, I am very often asked why I invest for the long-term. Trading, they argue, is the most logical way to invest your money.

Isn’t it smart to follow trends rather than wait for them?

Well yes … and no. There are many reasons I don’t trade. Perhaps the biggest are

     a) I do not like to pay taxes
     b) Value investing fits my emotional disposition, and
     c) I think it’s the most profitable way to invest for the long-term.

Over the next few articles I write, I’m going to discuss why I am a long-term value investor, and why I never pay attention to short-term trends. This is not to argue against our dear friends Chris & Teeka. Indeed, I’ve seen what they can do first hand, and it is quite impressive.

But it is important for you as investors to understand some of the key issues that make us different.

So with that in mind, today I’m going to focus on my desire to avoid paying short-term capital gains taxes.

How Taxes Kill Investment Returns

Paying taxes has a devastating effect on the power of compounding returns in your portfolio.

To show you just how devastating trading stocks (and by default paying taxes) can be on your portfolio, I’ve prepared a table below to illustrate.

The Power of Compounding Returns (Or my alternative title, "How Taxes Kill Investment Returns")

Let’s say that both Portfolio A and Portfolio B each begin with a $10,000 investment. In addition, each earns 20 percent each year. But while Portfolio A holds onto the same stock each and every single year for 10 years, Portfolio B does one trade annually (I won’t even show how devastating multiple trades can be).

Now let’s take a look at Portfolio B, where one trade is executed each year creating a single taxable event at a short-term tax rate of 40 percent.

As you can see clearly here, taxes have a devastating effect on the compounding effects of returns on your portfolio. At the end of the ten-year period, Portfolio A has a total of $61,917. This is in stark contrast to the $30,912 in Portfolio B. The difference? One trade each year and the taxes associated with that.

It’s no secret then why investing greats such as John Templeton, Warren Buffett and Ed Lampert have always preached the importance of finding great companies and holding them for as long as you can.

Having been fortunate enough to have "seen the light" (and the facts) at an early age, I’ve been practicing the same philosophy for years. That’s why, much to the astonishment of many of my friends, I’m not glued to the screen each day waiting for news to hit the tape. Oftentimes, they’re the ones who know about the news of one of my portfolio companies earlier in the day than I do.

To sum up my philosophy in one sentence, my goal is to buy a piece of a company that has great "natural" economics and to receive returns commiserate with the economics of the company over a long period of time.

If I never have to sell the company, and never have to pay taxes, I will be a very happy man.