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Only a relative few have made significant, successful adjustments to changing conditions from irresistible forces (such as financial markets, weather, demographics, new technology, and attitude shifts). There is perhaps no more interesting an example than Berkshire Hathaway, which started as an owner of a failing textile mill that eventually did go out of business due to adverse conditions.
Since then, Warren Buffett, Berkshire’s founder, has successfully navigated the changing tides of business and financial markets over the years to built one of the most successful companies ever. Unlike Microsoft and Intel which had relatively few important shifts in irresistible forces, Berkshire Hathaway has weathered many by redirecting its resources and energies into more promising directions.
After having been primarily a portfolio manager of a handful of common stocks for many years, the company has recently shifted again to emphasize purchasing and operating companies. You too can learn to catch the full benefit of today’s volatile and rapidly changing forces and spur your enterprise on to greater and more rapid growth than ever before.
Be Prepared: Being in the Right Position to Optimize Opportunity
Many business people are fond of saying, “I’d rather be lucky than smart.” Everyone has experienced the exhilaration of an unexpected boost from favorable circumstances and wishes it would happen more often. Choosing a strategy that puts you in the right position is a way for you to create your own good fortune.
You will achieve more favorable results by thinking differently so you work smart, not hard. Asked why he scored so many goals in hockey, NHL scoring champion Wayne Gretzky replied that he skated to where he thought the puck would be going. That gave him an important edge because most other skaters go toward where the puck is already.
But it isn’t enough to just be in the right place at the right time. The tightrope walker working outdoors in the wind prefers that the wind be at her back, because a side wind could more easily knock her off balance. Setting up the tight rope to make the breeze’s direction favorable can provide the necessary advantage for her. She can further improve her security by using a balance pole.
To move your enterprise from its current position to a better one takes careful thinking It’s like the tightrope walker finding the wind coming from the wrong direction, and demanding a move in the tight rope’s location before she performs. The equipment handlers have a lot of hard work to undo and redo. That’s the bad news about getting into the right position.
The good news is that once your company has reached its ideal position, your subsequent need to change will be less. In the long run, this means less change, less work, as well as better results. Like the Olympic wrestler who fights his way to a position securely on top of his opponent, you will be able to seize superior positions that will allow you the advantage no matter how your competitors react and your business environment changes.
Most organizations are unfortunately like the wrestler’s opponent, operating subject to the whims of powerful competitors and vagaries of circumstances as their noses grind into the smelly, dirty mat. Is yours one of them?
If your enterprise is like most, it operates according to a plan. Your business pays attention to executing that plan. When things go wrong, most people in your organization will try to protect their self-interest and their chances for achieving the plan’s goals. If things get bad enough, they’ll be stunned into inaction.
These behaviors reflect some of the many faulty thinking patterns you should abolish and replace in order to achieve a winning position in an increasingly volatile and unpredictable organizational environment. You need to focus on getting the most benefit from your enterprise’s irresistible forces rather than trying to fend off the forces.
Every change in irresistible forces provides new opportunities to those who think that way. For very cyclical businesses, when demand is strong, you can sell high-cost facilities and obtain long-term relationships with attractive customers. When demand is poor, you can buy low-cost facilities, repurchase your own stock, negotiate lower prices from suppliers and get complementary competitors interested in merging with you. There is always some optimal opportunity being presented, if you learn how to look at the circumstances with an eye prepared to gaining important advantages from your business’s environment.
Once an opportunity is recognized, you need to be properly prepared to take the right actions at the right time. You have to have the flexibility to take advantage of rapid and extreme changes in irresistible forces. Such flexibility can be improved through the use of planning extreme scenarios that greatly exaggerate the future impact of these forces to clarify opportunities.
This thinking requires using an improved kind of scenario planning for possible future circumstances, most of which will never occur. By studying these scenarios uour enterprise will then locate and be ready to implement its “Always-Win, No-Lose” opportunities, that minimize the down side, while leaving the up side open-ended, regardless of the irresistible forces.
This form of strategy replaces the costs and delays for your organization learning primarily through broad scale trial and error. Irresistible force management is the missing element that makes this possible.
Copyright 2008 Donald W. Mitchell, All Rights Reserved
Donald Mitchell is CEO of Mitchell and Company, a strategy and financial consulting firm in Weston, MA. He is coauthor of seven books including Adventures of an Optimist, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage . You can find free tips for accomplishing 20 times more by registering at:
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Investing in a bear market presents new challenges for conservative investors. No one wants to loose money. Fortunately, there are safe strategies for conservative investors to continue to invest their money. This conservative investment idea is designed to save your IRA from experiencing losses during a bear market. In addition, it helps to position you for the recovery in the stock market once it begins.
Cash is King
When investing your IRA portfolios during a bear market the best strategy is to stay in cash, use income investments, and/or be short. In a bear market, I divide my IRA portfolio into three segments, not necessarily equal. My objective is to preserve my capital until the market turns around with a secondary objective to make some money.
Invest the first segment in a money market fund. Cash is a position that has no risk and earns a small return. Money market funds are fine for this. They are safe and you can access your cash when you need to do so. The percent of your portfolio that you place in this segment depends on your comfort level with the other two strategies.
Build a Ladder
Use the second segment to capture slightly higher returns from longer-term income investments than what is available through money market funds. You build what is called a ladder. The idea is to invest in longer term securities that are completely safe. You can do this with bank CDs or Treasury bonds. Assume you have allocated $24,000 to this segment. At the beginning of the bear market or when you decide to get out of the market, go to your bank to set up six certificates of deposit (CD) as follows:
$4,000 in a 1 month CD $4,000 in a 2 month CD $4,000 in a 3 month CD $4,000 in a 4 month CD $4,000 in a 5 month CD $4,000 in a 6 month CD
As each CD matures, roll it over into a 6-month CD. After six months, you will have six separate 6-month CDs maturing every month. Continue to roll them over as each one matures. You could use one year CDs as well.
When the bear market looks to be over, you can then move the money from each CD as it matures into the market over a six-month or one-year period depending on the maturity of your CDs. This way you can enter the market in stages and you will not commit all your money at once.
You can also use bond mutual funds to accomplish the same idea, if that is what you have available in your IRA.
The concept of building ladders is commonly used in bond investing and in situation where the investor needs access to their money on a regular schedule. You can set up ladders for college savings, retirement payouts, or any other situation where you want to receive your money over a period of time.
Short the Market
In the third segment, hold a portion of your portfolio in and ETF that shorts an index such as the S&P 500. If you can only invest in mutual funds then use one of the inverse mutual funds. The purpose of this segment of your money is to take advantage of the weakness in the market and make some money. You are in a bear market, so being short takes advantage of the downtrend of the market. This segment will experience more volatility during bear market rallies. The level of volatility you can stand will help determine how much money you commit to shorting.
This strategy works for portfolios where you are somewhat limited in where you can place your money such as IRAs. It is conservative in that it stays primarily in very safe investments and the securities you buy are with the overall trend in the market.
Transition Bull to Bear and Bear to Bull
The decision whether we are entering bear market can be made easier, if you stage the building of your bear market portfolio over a couple of months. For example, if you believe we are about to enter a bear market, you can close out most or all of your long positions and move to cash. This might take place over the course of several months. For more on how to identify a bear market, please see xxx article.
If all indications still point to a bear market, then start to build your ladder using either CDs or bonds. Then start an initial investment in a mutual fund or ETF that shorts the market such as the S&P 500. During the course of a bear market, there will be rallies that last from a couple of weeks to a couple of months. If you can, try to buy more shares of a short fund at the top of one of these bear market rallies and then sell some of the shares at the next low point. Do not want to sell all my shares, since the overall market trend is down and you want a downward bias to this portion of your portfolio. Your goal is to take advantage of the volatility of the market.
This buying and selling of short mutual funds is what changes the dollar size of your cash position. A keep some money in cash just to be conservative. The amount you invest in a short position depends on how much risk you wish to take with your retirement funds. To me it is prudent to risk no more than 50% in a short position. However, that depends on your own financial situation and your ability to sleep at night.
The transition from a bear market to a bull market tends to follow the reverse course. At the first sign, the bear market is ending; close out the short positions moving to cash. Have a set of stocks and ETFs that you want to be ready to buy should the new bull market be real. Start to establish positions in the best stocks and funds that should do well in the early stages of a bull market. As long as the signs of a bull market remain, move more cash into these early positions over the course of a several of months. Start to draw down the ladders, adding the cash to long positions until fully invested.
The objective of this transition process is to capture the vast majority of the trend, yet not commit all your money at once. It gives you some flexibility to adjust your strategy incase something unforeseen takes place.
The Bottom Line
Conservative investors can overcome the affects of a bear market by using simple strategies to allocate their IRA portfolios in safe investments. By employing, the techniques mentioned you could save your IRA portfolio from a meltdown. After all, the first rule of Warren Buffett’s investing strategy is to not loose any money. It is a rule well worth following.
Who doesn’t dream of marching into their boss’ office one day and resigning without caring about the financial repercussions? Well, you can only do so if you have acquired sufficient assets (wealth) through which you can generate a future income to replace your current earned income. By the way, as a rule of thumb I don’t recommend you hand in your resignation unless you have at least 1 and ideally 2 years living expenses put away in liquid assets.
Simply put, to become wealthy over time you basically need to make, save and invest money wisely. The smarter you are at doing this the faster you become wealthy. Assuming you’ve read my other articles on How to Get Rich (the making of and management of money) then you are ready to look at the 3 most common wealth building strategies of the super wealthy.
1. Investing in Paper Assets (Stocks, Bonds, Funds, Currency)
Investing in “paper assets” is a great way to start building wealth. It teaches you the principals of money management, capital, rates of returns, risk etc. You can invest in stocks, bonds, mutual funds, commodities, and foreign exchange (“forex”). Each of these options presents various levels of risk and reward and requires thorough research before you start. You don’t necessarily have to read the Wall Street Journal daily or subscribe to Fortune magazine in order to be a good stock investor. But you should at least get trained by an expert or have access to wholly independent financial advice from an experienced investor.
To help you get started, a basic overview of the paper assets investment landscape goes like this: There are 2 types of investments; ownership investments in which you own part of the asset (a stock is a good example) and loan investments in which you lend money to someone and they pay you interest (a bond is a good example). In many cases, you are looking for growth investments and those are ownership-type investments. (Bonds rarely provide a way to make you wealthy. Rather, they are a way to protect your wealth once you have it). Warren Buffett is a great example of someone who created massive wealth through investing in paper assets.
2. Investing in Real Estate
Real estate is another great way to build wealth. With real estate, you typically buy a property and then make money through selling it eventually for a much higher value than its purchase price and/or becoming a landlord and letting the property. One of the advantages of real estate investing is using the principle of leverage (i.e. a mortgage) to buy an asset that you otherwise couldn’t’t afford. Leverage isn’t commonly available in paper assets investing (although you can buy on margin but this can be risky if you don’t know what you’re doing!).
Real estate investing can be focused on either residential, commercial or land. Wealth building through real estate involves buying and selling a property – sometimes referred to as “flipping” or “trading” and often involves “rehabbing” a property (i.e. fixing it up)– to give the fastest and best rate of return.. However, landlording is a more standard approach that requires more time to build wealth, generating a small income in the meantime from the rental income after subtracting all expenses. Want to know how to build wealth quickly with real estate? Consider buying a distressed property using leverage, fixing it up, and selling it again quickly. However, watch for market fluctuations in supply and demand and availability of capital in order to use this strategy effectively. Donald Trump is a great example of someone who created massive wealth through real estate investing.
3. Starting, or Owning a Business
Starting, or owning a business is another common wealth-building strategy. Starting a business doesn’t always make you really wealthy right away. It takes time and energy to build the income of a business and its capital value, but it can make you wealthy over time if managed effectively. Therefore, if you have previous experience of running a business it can sometime makes more sense to buy an existing business and simply run it better. Want to know how to build wealth starting or owning a business? Find something that you love to do and that solves the needs of a target market. Then sell that product or service through relentless marketing and sales. Create efficient systems to sell more, more often. And work towards growing the value of your business by making it less dependent on you so that you can eventually sell it to a new owner. Bill Gates is a great example of someone who created serious wealth by starting a business.
Whatever way you chose to start building wealth, always remember those words from the mouth of antihero Gordon Gecko in the movie Wall Street…“Money never sleeps pal”. Different asset class values will shift in time (daily/monthly/annually) and according to market cycles. It’s also a good idea to scrutinize your assets and then take steps to rebalance your portfolio periodically. You also need to match risk to what stage you are in life. So, want to know how to build wealth quickly? It’s simple: Take your hard-earned money, save as much as you can as you go and then choose a strategy (from above) and consistently, month by month, year by year, apply yourself to these wealth building strategies.
The applied stock market investment strategy for each set of investment can vary. This is because each investment has its own set of factors to consider, its own profit goals and loss tolerance as well as its own acceptable risks. Thus, the following investment strategies can be applied on their own or in combination with the others, depending on the circumstances.
First, you can apply fundamental analysis, which is also called the value approach and best exemplified by Warren Buffett. Basically, you find the stocks of undervalued companies based on your analysis of their quantitative and qualitative properties like expected earnings, dividends, market niches and management competency.
The stocks are priced lower than their perceived value for many reasons. It can be that the run-of-the-mill analysts have overlooked their potential or that the market is temporarily not favorable to their growth. Whatever the reason for the low stock prices, you foresee that said values will increase sooner or later.
The second stock market investment strategy is technical analysis. To put it simply, you are using charts, graphs and other technical tools to predict the prices of stocks based on past trends, both in trading values and volumes. As you will observe, technical analysis is more suited to short-term trading activities than long-term investment plans.
Although technical analysis may not work well on its own where long-term investments are concerned, you can still use its techniques in conjunction with fundamental analysis. In this case, it is called Leeds analysis, yet another investment strategy that has served many successful investors very well.
Last but not least, you can use the buy-and-hold-the-market strategy. Basically, you are investing in all the 500 stocks that make up the S&P 500, which is possible if and when you invest in its index mutual fund.
Or if you have no intention or capability to invest in everything because of the risks and complications involved, you can always aim for a well-diversified portfolio. Just make sure that you can keep track of all of them and manage them well. Your investment portfolio will become bigger and bigger if, and only if, you know how to handle it.
Ultimately, the stock market investment strategy chosen can only be taken advantage of in the hands of a master. You can be provided with all the tips, advice and suggestions for successful stock market investments but if you cannot apply them, you will still be left behind.
Value investor Warren Buffett, uses specific strategies to make sizable returns in individual stocks. There are three major steps that Value Investors take and they are: 1. identify great businesses, 2. buy them only at a huge discount and 3. wait for the market to realize their true value or overvalue them.
Step 1: Identify Great Businesses
Always remember that when you are buying a stock, you are not buying a lottery ticket. You are buying part-ownership of a company. If you want the value of your stock to increase over time, you must identify and invest in great businesses. And you must truly understand the business behind the stock. So, what is a great business? It is one where we can predict with confidence that, over the long-term, the company’s earnings (profits) and hence stock value will increase (if a company can make increasingly higher profits in the future, it would become more valuable). When the value of the company increases, the stock price will eventually increase.
While bad news and disasters like wars, recessions and new competition will always cause the market to panic and stock prices to plunge, a very good business is one that we are confident will always recover and prosper after such events. In the next part of this chapter, you will learn specifically how to select companies that are financially strong and have a high certainty for growth. In this case, you do not have to depend on market predictions for your stock’s price to rise, but you are certain it will rise because of its strong business fundamentals and earnings.
Step 2: Buy them Only At A Huge Discount
Great companies with strong earnings, financial strength and high growth potential are usually expensive to buy (their stock price is often overvalued) as they are usually the favourite of fund managers and stock analysts. However, the market always goes through booms and busts and there will always be short-term bad news that hits a company, no matter how great it is (e.g. the company reports lower than expected profits, new product failure, recession fears). It is under these circumstances that the irrational short-term orientated market will panic and sell the stock until its price is way below its intrinsic value. The smart value investor who knows the true value of the stock, will buy as much as he can at such times, thereby getting a huge discount. He knows that the market will eventually come to its senses and recover, correcting the stock price and bringing it up to its true value. This is when very substantial returns are made for the
investor who is patient and confident in his purchase.
Step 3: Wait For The Market to Realize a Stock’s True Value Or Overvalue It.
The best time to sell is when the stock market is booming or there is good news that makes the market over-react. Investors will flock to buy up so much stock that the prices of all stocks rise above their intrinsic value. When a stock is highly overvalued, it is a good time to sell as you will make a huge profit.
Now you can apply the 3 strategies used by Value Investor Warren Buffet.
As a previous money boss I associated with a lot of other money executives. Some of them were successful, some of them weren’t and none of them ever taught their systems. They all said that I was funny when I said i was going to educate my system. But knowing what I know about volume and liquidity on the daily charts I knew I wouldn’t be hurting myself. No leveraged etf trader worth their salt would ever share their system if it hurt their own fills and performance no matter how’nice’ they appear.
With that asserted I need to share with you five characteristics of successful traders. All of the successful money manager I know had these characteristics.
Successful traders don’t'make things happen’. If you try and force the market and enter too early because’you know it should go up’ you will get hurt. The secret is to be a follower, not a leader. Follow your system ( if it is’s a proven system like mine ) and don’t make things occur outside of it. If you have got a trigger finger and can’t help clicking your mouse, then do it on a demo account. Just don’t think when you get fortunate a few times that it’s ok to’make things happen’. That is the whole reason for employing a system and milking the slight edge it gives you.
Successful trades are prepared. It’s very important that you have got a trading plan and that you stick to it. I’m going to show you the simplest way to plan each trade simply each night in only 5-10 minutes after you learn my system.
Successful traders remain emotionally detached. When you enter a trade, are you willing to forget it till your pre-determined exit methodology is met? I admit that it’s entertaining to watch your trading account soar in a matter of days, but watching it too closely can be deadly. My after market trading plan disposes of 99% of emotion.
Successful traders expect to become rich. Can you picture yourself wealthy? Successful traders can. Don’t restrict yourself. Wealth must be on the inside of you before it is on the outside. If not you’ll self sabotage your trading account when it starts to get too high because of a subconscious hang up that you don’t should be rich. I’ll teach you the best way to think and overcome any concealed physiological hurdles that are hindering you from success. That is a component of my mentoring program.
Successful traders all had a coach. Warren Buffett looked up to and learned from Ben Graham. Jim Rogers learned from George Soros. My personal mentor is still in the business ( and no he doesn’t teach his system ). Sure Warren smorgasboard altered his system from Ben Graham and later modified it to make it his very own. That’s why my system has three sets of trading rules.
One for those who are extraordinarily conservative.
One for those who want moderate risk.
One for the assertive students.
This permits you to take possession of your trading. Taking possession might be listed as number six. Why would you be any different in the respect to needing a mentor? It’s correct and if I have to’sell’ you on this part I am not sure you know how life works. For example, on your current job did anyone teach you anything so you could do your job effectively? If you’re the rare person who is on my e-mail list and is already successful I guarantee you’ll learn some valuable strategies in my course which will make it all worthwhile.
I will give up selling my course the week my personal account starts to get extreme slippage. Don’t worry ; I can still support all current members with 2 weekly webinars and email support for 12 more months after I shut down. I don’t have a guess as to when this could be because it isn’t dependant on the number of students I have, but on the size of their accounts.
You can get insider tricks and tips from a former fund manager. You can lLearn the Leveraged etf’s secrets from a former manager.