Monday, July 13, 2009

KYATMA Explained

KYATMA is the initials to the title of my book, Keep Your Assets Take My Advice, It is Easier to Climb Out of a Shallow Hole.

I read a lot. These are some of the things that I read weekly or monthly as they are published.

Inside Information
Investment News Magazine
Investment Advisor Magazine
Financial Advisor Magazine
Financial Planning Magazine
Futures Magazine
Registered Representative Magazine
The Wall Street Journal
Senior Market Advisor
Benefits Selling Advisor
Life Insurance Selling
The Register

My wife tells me that I am all business, but I find time to read the Bible. The Bible is God's word and the works of Jesus Christ. We all need to read it more, myself included. I also read non-business books like The Noticer by Andy Andrews. Andy has a good blog. He is an inspirational writer that can make you focus on what is most important in life.

What is my point? When I walk into a room full of my professional peers, I can easily see by their questions and responses that I am far ahead of them in wisdom. In these trade magazines that I read, they are becoming more like psychology magazines than they are financial magazines.

It appears that most financial advisors have failed miserably in their duties to their clients in protecting their investment portfolios. A ton of the stories that I read now are how to keep clients after you have done a lousy job for them. Other stories talk about how to deal with the stress of losing a large chunk of revenue as a result of your bad advice. Still others discuss ways to lay people off from work, again as a result of your bad advice.

What kills me is that this is all really simple when it comes down to it. If you are a client or a financial advisor, then listen up. There are two inevitable truths when it comes to the stock market.
  1. The stock market goes up.
  2. The stock market goes down.

You have to invest based on both of these two facts. It is really that simple.

Most every investment mistake can be traced to either an investor or a financial advisor believing only in number one above and completely ignoring number two.

In my book, I talk about how if you put more than 20% in any one asset class, then you are putting your entire investment portfolio at risk. In addition, I discuss how if you put more than 65% in the stock market, then you are also putting your entire investment portfolio at risk. When you combine the two, like for example, holding 50% in one stock (think Bank of America or GE) and the other 50% in four of five blue chip stocks, then you are doomed to failure. This portfolio will lose money at the first sign of a recession or bear market.

You have to invest based on the known fact that the stock market will go up and also go down. In my book, I have a plan and a process that you can follow that will help you manage money. Or, you can be one of the many fools who believe that they will make a killing by picking individual stocks.

Let me show you the fallacy of picking individual stocks. Pick a stock. Any stock. Let us choose one that is selling for $30 a share right now. You buy 1000 shares of it to start. Now, when do you sell? Do you sell when it is $35? Or, $40? If $40 is better, then why not $45? If $45 is better, than why not $50 or even $60? Whatever number on the upside we choose, once it hits our target price, then are we really going to sell it at that exact moment? Do we put in a limit order? Or, do we re-evaluate? Do we become a little greedier and raise our target and let winners run? Or, do we get out while the getting is good? These are only the questions related to when the stock goes up.

Now, let us consider the downside. When do we sell on the downside? Do we sell at $25 or $26? Or, do we sell at $27, $28 or even $29 a share? When it does hit our sell target, then what? Do we immediately buy another stock? Or, do we wait until we do some research? How long do we take to do our research? A day? A week? Two weeks? A month? Where do we park the money in the meantime? What if we are suddenly in a recession? What if we are in a bull market?

These are just some of the decisions that you have to make to invest in one stock. Now, imagine that you have to make 30 or 40 independent decisions just like these on your entire portfolio. Another point that I make in my book is if I pick 30 or 40 stocks, then I have effectively made my own personal index fund. The performance of my personal index fund is going to match the performance of the stock market. You cannot pick 30 or 40 stocks and they all be winners of 50% performance of higher. Some will win. Some will lose and the end result is that you will have built your own personal index fund, like I said. More than likely, you will have done a bad job at it, too.

If you follow the principles in my book and become a KYATMA follower, then you will have a plan and process that will give you more of an opportunity for success. There is one catch, however. You have to read my book.