San Gabriel Investments: Step By Step Instructions To Investing

Step One to Investing
by Dr Invest

Money Acquistion

There is one thing that absolutely imperative to investing, YOU GOTTA HAVE SOMETHING TO INVEST. Now robbing a bank or starting a ponzi scheme might seem the quickest way to get money fast, but alas, such endeavors in acquiring money develop habits that are counter productive, when you finally get enough money to invest.

The key to money acquisition is DISCIPLINE. There is nothing difficult about this, but it requires fundamental changes in habits and attitude. The same DISCIPLINE in habits and attitude that are needed to save money, is the same DISCIPLINE in habits and attitude that is needed to invest money. Eons ago, in a book called, Proverbs, it was written: "A fool and his money are soon parted".

You must develop the right DISCIPLINES to keep on track and squeeze the 20 to 30% of your income that is wasted on non important things each month.

Start Small, Grow Big

It is not how much you save, it is how little you save. It is not getting a bunch of money fast, it is regularly saving a little bit at a time until it accumulates to something big. Most families can squeeze $20 a week out of their budget to save. This amounts to around $80 monthly. Compounding this simple investment on a monthly basis for 40 years, results in a total of $512,438. (@10% annually)

Money Robbers

Almost every person protests, "I don't have any money I can spare!" Yet, I see the same people driving the newest model cars, possessing boats and jet skis, motorcycles, memberships in golf clubs, hunting clubs, or health clubs, owning second vacation homes or time shares. Many times the very poorest among us are laboring under habits for tobacco and alcohol. Even simple habits, like your morning visit to STARBUCKS, can deeply impact your savings and erode your investment capacity. Here are some examples:

2005 MONTEREY 223 SUNDECK $32,000 (Used Boat) $49,000 (New Boat)
2011 Chev CAMARO $40,600 (New Car)
2008 KAWASAKI JET SKI w TRAILER $8,900 (Used Jet Ski with only 23hrs on it)
2012 HARLEY DAVIDSON SPORTSER $10,604 (New Motorcycle)
BALCONES GOLF CLUB $2,000 initiation fee $298 per mo. ($3,576 a year)
SNAP FITNESS 2011 $39 per month ($468 a year)
TIME SHARE GALVESTON $28,000 for three weeks per year ($750 a year maintenance)
VACATION HOME $150,000 - 300,000 ($3k to 5k for property taxes)
CIGARETTES $7 a pack (@2packs a day for a year = $5,110 per person
BEER 6 beers daily @ .71 per beer = $1,562 a year per person
STARBUCKS 1 late daily @ $4.25 and $4.75 pastery = $2,340 each year per person

I think you are getting the point that: First, most of this spending is pointless; And Second, that there are savings to gleened from what most people consider to be every-day expenses.

Debt, Another Money Robber

One of the most omnious robbers is DEBT. When you buy something today that you can put off paying until tomorrow, you are robbing from your future. Listen to me! The resources you could use now to really enjoy the future are taken from you by debt. You can buy a house NOW for $200,000, but the real cost for enjoying your investment is $600,000. Through DEBT, you just lost $400,000 of your lifetime earning potential. When you multiply this DEBT FACTOR over the entirety of your LIFETIME OF DEBT, it greatly diminishes your LIFETIME EARNING POTENTIAL.

Let me mention, that each person, depending on education and legacy, has different earning potentials. Please read this carefully...it is the poorest people that are charged the highest interest rate for their DEBT. LOW LIFETIME EARNING POTENTIAL, when combined with HIGH LIFETIME DEBT is explosive.

The goodnews is that you, by DISCIPLINE, can control your debt. People who gain wealth do so by LIVING BELOW THEIR MEANS; they spend less than they make. Who cares whether you owned a Mercedes for eight years of your life, but were bankrupt for the last 40 years of your life. What bragging rights did you get? I once was rich! Yeah, that's not very impressive as you eat from your tuna can.

By a series of careful decisions and a clearcut plan for your future, you can DISCIPLINE yourself and take control of your debt, winning the rewards that you really seek.

The Hard Decisions

Discipline is not easy, but it is better than the whip of poverty. So if you are interested in making real advances in gaining funds to invest, here is how you start.

Get a Job

This is where habits and attitude come in... most people lose jobs over habits and attitude. Should you get enough money to invest, you will lose it all because of poor habits and attitude. So start now developing character. If you are waiting for the perfect job, with the perfect salary, then you will be both a poor investor as well as a poor employee. For God's sake, it a job! It is work! It is boring! There is no job you will like! Why? Because it is a job.

You don't get a job because it pays you what you want, you get a job so you can eat. You want to devote yourself to the job, giving it your whole mind, heart, and attention because if you don't, you won't eat. So just get a job! Any job will do and any job is better than no job.

Even if you don't like the job, act like you do. Whatever other job you land in the future will require these same acting skills. These are things that change your character and attitude. When you don't feel like going to work, you go to work anyway because you need the money. You smile and act enthusiastic, because you know it will engender more favor and you might even get a pay raise. Maybe even one day, you will realize it isn't an act, finding that you are genuinely enthusiastic about what you do. And when you finally succeed in this, you will have discovered the lessons you need to learn to become a good investor.

If you don't have enough drive to excel while working as a waiter, janitor, cook, or any other job that I could mention, then you will not have enough drive to excel as an executive, manager, or director who is making the big money. And most importantly, you will not excel in investing your own money when you lack enthusiasm. So get a job, any job will do!

Once you succeed at gainful employment, you can begin looking for ways to save. Google, Dave Ramesy Gazelle Budget Lite Calculator and use it. Live within that gazelle budget. If you can't discipline yourself enough to live within a budget, I promise you will not be able to discipline yourself enough to successfully manage your own stock investments.

Sell Your Junk

I have already given you a list of JUNK that robs you of your money. I noted that one item, a jet ski, purchased in 2008, had only 23 hours on the engine. In four years, this person had only used his jet ski 6 hours per year. Look, this is really laughable! Six hours a year for a $10,000 investment? It is JUNK! Don't you get it?

Sell your junk! Sell all of it! Put the money from each large item sold into a three month Certificate of Deposit.

What about all the shiny tin setting in your driveway? A friend purchased a new truck with the light bar across the top and big wheels all around. Although a bit red-neck, it was pretty. The monthly cost was $875. Now this is sad, because I'm only paying $826 monthly on my mortgage. After several months of paying on his truck, he came to me and asked, "What do you think I should do to get my budget more manageable?" I said, "SELL THE TRUCK!" I swear, I saw a little tear in the corner of his eye, but he admitted I was right. He sold the truck at a LOSS, but it was the best business decision he ever made.

Remember the word, DISCIPLINE. If you don't have discipline when you BUY and when you SELL, you will lose money. My friend learned an expensive lesson. He should have seen that his decision to buy the truck would result in a loss.

I know that you are not going to like this, but for now, sell your new model car, reduce your monthly payment, and put the money toward reducing debt or saving money. $275 monthly for a used vehicle = $3,300 a year. $875 monthly for a new vehicle = $10,500. The net annual difference is $7,200. I know that there could be a tear in your eye too, but $7,200 is plenty of reason for me to drive a used car. What is even more apparent is that over a 30 year period of owning cars, preferring a used car to a new car, would amount to $125,868 for a SINGLE CAR. If you preferred driving two used cars, this would amount to a savings of $251,736.

Before you can be a good investor, you have to learn these lessons. Debt will cripple you as you pursue wealth, or you can soar by seeing real wealth as the avoidance of debt. As you invest into the market, brokerages will give you an opportunity to LEVERAGE your trades. You are borrowing their money, so you can combine it with your money and buy more stocks. This seems innocent enough, but what you are doing is GOING INTO DEBT. So if a trade goes bad, not only do you lose your investment, but all the extra cash lent to you by the brokerage house. You must LEARN these important LESSONS NOW or you will be tempted a moments of success to borrow money to sweeten the returns on your trades. The poor habit of going into debt will eventually bankrupt your future as a stock trader unless you have enough character to say, NO! to debt.

Don't Buy New Junk

Why am I even telling you this? It should be obvious that selling your old junk doesn't mean you are making room for new junk. You are selling the junk so you can move FIXED ASSETS into CASH. Instead of the fixed assets rusting, rotting, and falling into disrepair, you are selling them so you can put the value of those fixed assets to work. This is not the time to use the cash for that dream hunting trip or that once in a lifetime superbowl vacation. Be DISCIPLINED. You have to have cash to buy stocks. A 20% return from a stock investment is extrordinary, but from a $100 investment, that is only $20; from a $1000 investment, that is only $200; from a $10,000, that is a return of $2000; and from $100,000, it is a return of $20,000.

You don't want to spend the cash that you will put to work to make you money. The larger your cash reserves, the larger the return. Choosing to spend the cash for some NEW THING will simply rob you of the possible benefits of a carefully planned investment.

Curb Your Habits

If you need medical help to stop smoking, then get it. The $1,000 you spend for medical intervention will save you $5,000 in the annual cost of tobacco. The net result to you is $4,000 per year or $333 per month. If you and your wife smoke, that result is $8,000 per year or $666 per month savings. Go to you local bank, open two separate ROTH IRA ACCOUNTS, putting $4,000 into your ROTH IRA and the other $4,000 into your wife's ROTH IRA.

One thing I didn't mention was EATING OUT. For two people, it is around $20 per meal. Take a sack lunch to work. Your'e gonna save about 70% of your cost or about $3,800 per year.

Cable TV can be estimated at $78 monthly for a basic package or $1,000 per year with federal taxes. Your wired telephone costs, without DSL can be around $80 per month. Few people understand that they can get a DRY LOOP from their telephone company, providing them with DSL service ONLY. Using MAGICJACK or any number of other services, your present telephone number can be migrated to a DIGITAL NUMBER. So it works just like your orginal phone and when people call your number, it rings in your house. (A shortfall is that if your DSL service doesn't work, you don't have telephone service, but seldom does that happen and most people also have cell phones.) So we have another $1,000 saved.

In these few paragraphs, I have already set aside $13,000 to be used by you for investment purposes. Oh, you want more.

Cell phones are wonderful devices and I am enamored by all the bells and whistles, but iPhones for each family member? Really? NEVER...NEVER...NEVER buy an unlimted cell phone plan. There are two reasons. First, this is where cell phone companies make money... it is on the premium accounts. Second, you need to learn discipline. You need to learn how to say no to using too much DATA and TELEPHONE TIME. Get the cheaper plans and teach your children to discipline themselves. When you have learned to work with less, you will have learned how to be a better investor. My wife and I share a family plan that gives us a limited DATA plan and 700 minutes a month for $110. This is a savings of about $100 per month or $1,200 per year when compared to the Unlimited Plan.

Have you ever considered how much it cost to maintain a pet? I know you will not like this, but pets are expensive. Dog food, cat food, dog houses, dog toys, cat houses, cat toys, I'm already getting exhausted here. One of the most stable stocks as of this date is PETM, referred to as Pet Smart. It fell very little in the 2008 recession and continued to climb in the face of recessionary pressures. Why? Pets are people's children. Get it! People are going to take care of family first and a pet is one of the family. If you will take a moment to really assess the cost, you will see how expensive it is to maintain two or three pets. Consider giving your pets to a friend, an uncle, or mother-in-law.

Clubs, memberships, dues, and fees

There are some circumstances where clubs, memberships, dues, and fees make sense. It is where these make you money. By belonging to a country club, have you seen any increases in your income? How long would you invest in an idea, an organization, or project without seeing a return? See this is fundamental to investing in stocks. You don't have time to see your money wasted. If a stock doesn't produce, you need to sell and find a stock that does. If being member of a club doesn't bring financial results, put your money to work elsewhere.

Home Ownership, Does It Make Sense?

Now that I'm older, I have a very different outlook on home ownership than I did when I was twenty. I now know that it doesn't really make sense to have an investment that doesn't make money, and a house is almost the worst investment you can make because you are not putting your money to work. To the credit of owning a home, it does make a person set back a regular amount so that equity builds in the investment over time. One could see then, ownership of a house as an investment vehicle.

Owning a duplex is a much better choice for someone just married or starting a family or for someone who is retired. I'm going to give you some real numbers for this kind of investment in my region. An average duplex will cost $150,000 and return around $1,600 monthly in rent. The mortgage payment on that duplex is around $826 monthly. About the same as the mortgage on a house in our region. Your return on the investment is $776 monthly. I did not figure the $3K in property taxes annually because that would have still been due if you had owned a house. Even counting the taxes as an expense, the net profit from a duplex in our region would have been $6,288.

When you compare this net profit of $6,288 to the net loss of owning a house of ($12,912), you can see the benefits of buying a duplex and renting out one side. You still make a profit because the property is INCOME PRODUCING. Most young couples will start out in an apartment and most retirees will end in an apartment. I know of a young couple who are engaged in this method of money acquisition. Wisely, they are taking the extra income and adding to the income the amount they would have paid for an apartment ($800 a month) and doubling up on their mortgage payments. In only a eight years, they will have their duplex paid off and will purchase their first home. They will use the income from the duplex to pay the mortgage on the home and what profit remains from the duplex will be used to pay against the principle of their new home.

Now I want you to think about this with me. They will have never payed a mortgage payment. By planning how they will manage their money, they will reduce risks and maximize returns. This is THE WAY OF THE TRADER. Trading is not so much about money, as it is about money management and planning. This young man and woman are cooperating together to manage their money and achieve an investment end. From that will spring their dream of home ownership.

Conclusion

I have demonstrated a number of ways to acquire money for investing. Don't permit emotion to direct your decisions. You don't need the new car. You don't require a country club membership. You will survive without cable TV. And most of all, you need the DISCIPLINE that comes from curbing your habits and attitudes.

(Disclaimer: This is for entertainment purposes only and not to be used as investment advice)

Step Two to Investing
by Dr Invest

Keeping Your Money
Early in my trading experience, someone quipped, "The best way to get a million dollars from the stock market is to start out with two million." The tragedy is that, he was right.

The one, and only one objective in investing is: DON'T LOSE MONEY! As a small investor, you have an advantage over institutional investors, you can move your money in and out of the market without causing major waves in the market. An institutional investor, with billions to invest, doesn't have that luxury and in-fact there are trading rules against it. So the mantra of the institutional investor is "Buy and Hold" because that is all they can do. As a small investor, you can be in the market when it most likely to gain value and get out of the market when it is most likely to loose value.

So, before talking about how to diversify or in what sectors to invest your money, I want to talk about the mindset you need to KEEP YOUR MONEY.

Don't Bet On A Loosing Horse

Trading is a combination of "facts, suspicions, intuitions, and emotions". You can't let the last three of these, rule your decisions as a trader. Only FACTS matter and those FACTS are not always rational. Sometimes all the facts point to be out-of-the market, while the market keeps climbing. Looking at August of 2011, there was every reason to be out-of-the market, yet; in October, the market irrationally gained more in that one month, than it had the entire year. The fact is that the market grew, even in the face-of-the facts that no one should be in the market.

It is only the market that matters. The market doesn't really care what you or anyone else thinks. The market is the sole determinate of market direction. The market, consistently moving toward higher highs is enough of a fact to make an investment. Awareness of other facts, such as news events that may impact the market, can warn you to make preparations for a new direction in the market. But the market is its own fact, although it can be completely irrational. This is the kind of irrational market you are entering in order to risk your hard-earned money for an opportunity see some very minimal gains. There are RISKS! (Memoirs of Extraordinary Popular Delusions and the Madness of Crowds is a must read to understand irrational markets) http://www.cmi-gold-silver.com/pdf/mackaych2451824518-8.pdf

You can't afford to bet on a losing horse. At the horse races you place your bet and then you wait to see who wins. The remarkable thing about the stock market is that you can change your bet while the horse is running and even remove your bet before the horse ends the race. This is why gambling at the track and trading at a brokerage are completely different beasts.

Listen, you don't have to wait til the end of the race to get out of your stock, you can sell or buy whenever you wish. If your stock is loosing, you will be a fool not to get out of your stock. This is the ONE RULE THAT YOU MUST NEVER FORGET. If you are going to manage your own money, YOU ARE THE ONE SOLEY RESPONSIBLE FOR CONTROLLING YOUR LOSSES AND SECURING YOUR PROFITS.

Secure Every Trade You Make

Before you ever BUY a security (stock) know how much you are willing to loose. For example: You buy XYZstock at $100 per share, immediately put a stop-sell at $94 or at 6% below the purchase price.

The reason you bought XYZstock is because you believed that it would continue to rise in price. You observed that the price of the XYZstock's 50 day moving average had risen above it's 200 day moving average and that its momentum was still strong. Should the other technicals remain strong such as profits, etc., this would be a stock of interest.

So your expectation when buying a stock is that it will continue an upward climb with higher highs; but you are prepared to take a loss, if your stock suddenly turns toward a downward trend. You use the stop-sell to do this.

With XYZstock, I have set a 6% stop-sell, so if XYZstock falls below $94 it will automatically sell. Example: As I watch XYZstock for the next several weeks, it climbs to $110 per share. I will now want to move my stop-sell to $105 per share for a 5% gain if the stock suddenly turns downward in price. Adjusting the stop-sell is somewhat of an art and is learned by experience; moving the stop-sell too close to the closing price of the stock will result in a pre-mature sell.

The Importance of Following Your Rules

Buying and Selling stocks cannot be based upon your feelings or emotions. Making a rule on how you will enter a trade and how you will leave the trade is of great wisdom. I have explained the rules for buying and selling.

You are not smarter than these rules. If you buy a stock, you can't wait until you feel good about selling it. If the stock begins to move downward in price, you just can't believe you made a mistake and that this downturn will be for only a few days... then a few weeks... and then you will justify that you are a buy & hold investor, all the while, your stock will continue its downward plunge until it falls 40 or 50%. Hoping to simply recover your loss, you will continue to take greater and greater risks, until you are caught in an ever-tightening circle of losses. You didn't realize at the time that you were slipping into a common psychological trap and that you could have escaped it by having the right TRADING RULES.

I have personally made this mistake several times, before learning that YOU CANNOT TRUST YOURSELF when it comes to making trades. If a stock you buy doesn't continue to climb in value, sell it immedately and take your loss. Buy defining your loss at 6 to 8% and using a stop-sell, you are limiting your loss. If the stock continues to climb as expected, you are defining your gain.

(Disclaimer: This is for entertainment purposes only and not to be used as investment advice)

Step Three to Investing

by Dr Invest

How to Diversify

There really is something to the old saying: "Don't put all your eggs in the same basket." Regardless the method of diversifying that you use, you don't want to all the money you have into one investment, even if you become successful in an area of investment expertise.

For example: You may have been quite successful in real estate investment and own many properties that return a sizeable sum monthly. Given the right environment, as we have recently seen in the real estate bubble, you investment can loose 40, 50, 60% of its original value. Investment into precious metals is another area of concern. In the past three years, some have seen their investment into gold double. Given the right environment, such as China suddenly dumping their gold onto the market, you could see the value of your gold declining 50 to 75%. (Yeah, I know you want to argue about this, but the subject is diversity.)

So how do you keep from breaking all your eggs? There are many plans for diversity based upon age, the amount of money you have to invest, whether the general tone of the market is up or down. But I prefer simplicity over all of the varied tweaks.

Dividing Up Your Wealth

Let's start with a little accounting. Every place you have CASH, write down on a piece of paper and place it into on stack on your table. Every place that you have STOCKS, write down the value of those stocks and place them into a separate stack on your table. Finally, every place that you have BONDS or REAL PROPERTY, write down on a piece of paper and place that into a third but separate stack on your table. Add up the amounts for each stack.

Dreyfus Investments utilizes this simple diagram as a recommendation for diversity. Hold a third of your total wealth in CASH, a third of your total wealth in BONDS, and a third of your total wealth in STOCKS.

Your "total wealth" is not your DEBT. You subtract all of your "financial obligations" from the total amount of your assets. By looking at each pile, you should be able to see if your assets are equally divided into these three asset classes to the right.

http://www.sec.gov/investor/pubs/assetallocation.htm

Questions and Answers

Should I always hold the exact amount of one-third of each of these asset classes in my investments?
Answer: No! This is just a target or goal. For example, you may move into more cash if STOCKS move into a downtrend. You might also move into more cash if BONDS move into a downtrend.

When should I rebalance my asset classes to reflect the one-third in each asset class?
Answer: Well I would never let my cash fall below one-third. Eventhough my cash asset might rise above one-third, I would primarily be readjusting my portfolio between STOCKS and BONDS.

Well, how do I keep the balance between bonds and stocks?
Answer: Don't become too obessed with keeping exactly one-third in each asset class. When STOCKS decline, BONDS rise. Likewise, when BONDS decline, STOCKS rise. So in a volatile market, you would be wise to move out of STOCKS and into BONDS. Your one-third of assets in STOCKS would become less than one-third.

Why does my investment advisor suggest that I fervently adhere to the above diagram?
Answer: Most investment advisors have a BUY and HOLD investment theory. The above diagram become the RULE and even if the market completely crashes with both STOCKS and BONDS being devalued, you STAY IN THE MARKET. This has worked for the past 100 years in investing, but in the past 40 years our goverment in utilizing "fiat currency" and "market design" has changed the way the market behaves. In 2008, not only did stocks fall, but bonds fell as well as the federal government moved the interest rate lower and lower. (The goal, get you to put your money in bonds, let the economy inflate 25% so they could deflate their government debt, all the while, robbing you of that 25%.) What San Gabriel Investments suggests, is that individual learn how to take an active management in their own investment portfolio. So instead of a BUY and HOLD theory, I purport investing into BONDS when they are rising and investing into STOCKS when they are rising. When the market is NOT VOLATILE, your asset balace should look like the graph above with roughly one-third in each asset class.

What do you mean by active management?
Answer: Active management, means that you are buying or selling STOCKS and BONDS when you see that such purchases are beneficial to growing your portfolio. For example: In January of 2011 and the months following, APA (apache petroleum) gained 26% until it was sold when the stock turned toward a downtrend. Over the Summer months the BOND FUNDS of TIP and BND were down, but when the market fell in August, TIP and BND rose dramatically, inviting to be purchased. As an ACTIVE MANAGER, you can decide how you want to direct your investments. This is powerful, in that you can see dramatic increases to your portfolio, but you can also see dramatic declines if you are undisciplined in your selection of stocks and bonds.

Sub-Allocations

We divided our total assets into three equal parts of STOCKS, BONDS, and CASH. Sub-allocations are made in each category. So the category of BONDS would contain any bond funds, bond ETFs, real-estate, REIT, or personal loans you have made to someone. In the category of STOCKS, the sub-allocations would be various stocks or stock ETFs.

An example might be a BOND category containing: BND, VNQ and TIP. Or the STOCK category containing PETM, CATM, MCD, COST, DBC, VTI. The CASH category will contain CDs, interest bearing accounts, brokerage accounts, etc. These are examples, but not recommendations. BONDS and STOCKS are cyclic. (they follow cycles) At certain times in a year, a stock may move into favor or out of favor. For instance, stocks in companies that sell gas and heating oil do best WHEN? Your right, winter. Bonds act the same way. With numerous municipalities declaring bankruptcy, you would be foolish to purchase a MUNICIPAL BOND at this time. On the other hand, treasury bonds are in favor right now. Most allocations are just practical and obvious. It is winter, natural gas and heating oil will make money. It is summer, many people will travel in their cars, so buy stocks that are petroleum related like XOM, CRZO, APA, APC. Sometimes shortages of an item can create a demand that causes certain STOCKS rise. For example, people need food, DBC is a commodity ETF, perfect for a person looking to increase their position.

The goal in choosing stocks or bonds is always the same, to buy low and sell high. So you are looking for stocks or bonds that are consistenly rising over a six month period. www.finviz.com is a STOCK SCREENER and also provides a temperature map. You can see a visualization of what areas and sectors of the market are producing returns.

You will want to position yourself where and when you can get the maximum return for your investment. Diversifying between STOCKS and BONDS will bring consistent returns and allocating across sectors will also bring consistent returns. Last word, DIVERSIFY.
(Disclaimer: This is for entertainment purposes only and not to be used as investment advice)

Step By Step Instructions To Investing

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