Fokas Beyond - Investing in the Stock Market The Smart Way [Part 5]

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Welcome to Part 5 of this multi-part series of
blogs where I will teach you a better way to
invest in the stock market. Come back every
fortnight for the next instalment. Or, to ensure
that you dont miss any part of it, subscribe to
our blogs to be notified of updates by clicking
here Subscribe to Blogs If you have missed
previous parts, please click on one of the links
below to read it Read Part 1 Read Part 2 Read
Part 3 Read Part 4 In Part 4, we
asked you to rethink about how wealth is
generated to put you in the right mindset for
success. Part 5 picks up right where we left off
and we are going to compare investing in
properties vs the share market. Heads up we
will refocus on the strategy from Part 6
onwards. It Takes Money To Make Money It does
indeed take money to make money. You cant make
money out of thin air, at least not legally and
not for long. Ponzi schemes and pyramid clubs
fall apart just like stock market bubbles
eventually burst. If you want to make money in
real estate you need a substantial sum to begin
with, to obtain the mortgage, cover the deposit,
pay the legals and the stamp duty, if in a state
where it is charged. It is not something you can
do with, say, five thousand dollars. You do have
the equity of the property, or rather its value.
If you buy a 500,000 property and it remains
worth that much, then when you pay it off you
have the property less what it has cost to buy
and own it mortgage interest, taxes, fees,
rates, maintenance, insurance and so on. Real
estate usually increases in value and in
Australia this has historically been between 3
5 per annum depending on location.
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You can do the sums and factor in the increase in
value against the cost of owning the property
and more than likely after ten, twenty years you
will be ahead. If you invested the same amount
of money in the stock market, most experts will
assert you would have made around the same gain,
8-12 per annum. There would have been some
periods of loss, perhaps even great loss, but
overall and over time the result would be pretty
similar if not better on the stock
market. Whereas you can get into property with,
say, 50K on a 500K property, allowing 10
deposit and all your other expenses taken care
of, 50K of blue-chip stock isnt going to get
you to the same place ten years down the track.
This is one reason many people dont just buy
and hold stock, they speculate with various
strategies such as Forex, Commodities, E- minis,
Bitcoins, CFDs, Futures, Options, puts, calls
and all sorts of risky products. They gamble, in
other words. If you used that 50K the way I
would, you can reasonably expect to bring in on
average 20 40 per annum in ROI. Yes, thats
10,000 on 20. The next year you invest
the 60K, generate approximately 20 40 per
annum, 20 will increase your 60,000 to 72,000
at the end of your second year of covered calls.
86,400 in year three. 103,680 in year 4. As
you can see you have the potential to double your
money in 4 years. Meanwhile, your sibling who
bought that fixer-upper with their 50K is still
having tons of fun with the tenants, the repairs
and the repayments but hey, they cant lose.
Theyre in bricks and mortar, right? Your other
sibling, the one that knows everything about the
stock market, lost their 50K within a few
months on some options, forex or bitcoin that
didnt work out. Hey, thats the markets,
right? Before you close this browser window in
disgust, let me explain about the 20 ROI. That
is just 1.7 a month, every month. If you make
2 on 50,000 in a month, thats 1,000. Do that
12 times a year and you have 12,000, or 24 of
50K. The numbers dont lie. Of course, some
months you might not make 2. You might make 4
but I doubt you will make more even though I do
see it with my members around the world, it
depends on supply and demand. You can achieve
somewhere between 1.5 4, a month most
months. You either tell Money where to go, or
wonder where it went!
Lets Look At The Bottom Line In this case, by
the bottom line, I mean the lower ROI, 1. Lets
compare and look at 30k, not 50k. One percent
of 30K is 300. If you make that every month, in
a year you will have made 3,600. 12 ROI, the
average upper limit most experts claim you can
make from real estate or buying and holding on
the stock market. Investing in covered calls the
way I teach, you are more likely to make the 2
4 than the 1 and even if you average it out
at 3, a month, that is an annual ROI of 36!
10,800 in your first year. If you put that back
into the kitty, the next year your 40,800 will
bring in 14,688.
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The best thing about this method of making money
is that you dont have to slave away at that
second job! Your investment in time is minutes a
month and there are no tenants to worry about,
no rates to be paid and no repairs to be
authorised and paid for. If you do take that
second job and put away 260 a week it will take
you a little over two years to get your 30K
together but the great thing about this method is
you dont need that much to begin with. You can
begin making a second income with just five
thousand U.S. dollars. Five grand these days
isnt much. I know it is a lot of money if you
dont have it but if we look at this rationally,
what does five grand get you in 2021 dollars?
Anyone with a credit card is likely to have a
limit larger than 5,000. You can borrow that as
a personal loan for, say holiday expenses and it
will cost you maybe 10 to repay, lets call it
5,500 all up over 12 months. If you were making
3 ROI, you would make the interest payable on
the loan in just over 3 months. Then you have 9
months to make some money for yourself using
other peoples money (OPM) and at the end of the
year, sell off the stock (preferably for a
profit) and repay the loan. 3 of 5,000 is
150. In the 9 months the stocks are working for
you and not whoever loaned you the five grand,
you will make 1,350 (less brokerage of course).
An additional 1,350 a year for say, twelve hours
work for the year, isnt bad and once you are set
up it shouldnt take more than an hour every
month to manage your investments. That works out
at a rate of 112.50 per/hour. That hourly rate
worked out at 40 hours a week over 48 weeks in
the year delivers a gross annual income of
216,000. To earn that kind of income you would
need an investment of 600,000 earning the
average 3 ROI a month. The rental income on a
600,000 property would be around 500 per week,
depending on where the property is located
about 26k per year before you pay the rates and
all the other expenses incumbent with real
estate. Article continues after the Masterclass
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Real Estate Risk or Covered Calls? So if you had
600,000, which would you rather invest in? A
house requiring tenants, rates and repairs or
stocks that can be managed an hour a month and
bring in ten times the income? If you put it
into the stock market, would you be happy making
a steady 1-4 (3 average) or would you listen
to your broker and go for the big money, the 30
or more ROI per deal gamble through puts, calls
and whatever else he can charge a fee to broker
for you? Maybe you want to try bitcoin because
the expert on Facebook who has no long term
track record told you to jump in.
BEWARE! Stockbrokers make their money every time
you make a transaction on the market. They
charge a brokerage fee for every sale or purchase
they handle on behalf of their clients. In
Australia, that fee ranges from around 40 to
over 100. In the USA, where there are more
brokers and more transactions on more boards, the
fees are a more reasonable 8.95 25 or so. If
the broker has one hundred clients on his books,
he needs to have as many of them buying and
selling every day as he can. He wants them to
play the options game and buy puts and calls,
trade options and securities and especially day
trading. He loves people who spend their every
waking hour online, monitoring the minute
fluctuations of stocks trading the
markets. Remember, 95 of people who invest in
the stock market do so in one of two ways. They
buy stock and do nothing with it, known as buy
and hold. This is fine, to a degree. If you
choose the right stock it will certainly increase
in value over time, most stocks do, fingers
crossed though. Good stock, known as blue chip
stocks, are pretty much always going to increase
in value over time. Of course, some blue-chip
stocks can crash and stay down but if you have a
good, well thought out portfolio you can minimise
the risk considerably. The other way people
invest is to speculate, or gamble. They play the
options trading game and buy puts and calls and
work the odds and the angles, as if they have
some special insight into the vagaries of the
market. Like gamblers the world over, they win
some, they lose some. Some win a lot for a long
time, others tend to lose from the outset, and
most do a little of both. The only people who
win when an investor speculates and gambles on
the market are the brokers. They make their
money whether you win or lose. The good ones do
try to help you win more than you lose but it is
not being overly cynical to suggest that is
because the more you win, the more youll have to
spend with them. The same can be said about real
estate agents. They work for both the vendor and
the buyer, so surely there has to be a conflict
of interest inherent in the relationship right
from the start. You can see why some people use
their own agent to look after their interests
when buying a property, someone who has nothing
to do with the vendor and is paid by the buyer.
An agent who lists the property wants to sell it
for as much as they can because the more they
get for the vendor, the bigger their slice. How
can they be working in the best interests of the
buyer? There are other trips and traps of the
game that irk me, like the vendor bid used in
some states when auctioning a property. The
vendor (i.e. the seller), doesnt like how
little is being bid for their property so they
put in a vendor bid. Now the bidding has moved
up and the silliest thing is this tactic often
works to get bidders going again!
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In the stock market, there are brokers who
educate their clients, but most prefer to have
them rely on them for advice and expertise and
that is understandable. Many brokers have
invested a lot of time and money in educating
themselves and deserve to be fairly compensated
for this knowledge, just as any expert or
consultant should be. Some, however, do exploit
the lack of education in stock market matters of
many investors and neglect to tell them of their
full range of trading options, such as covered
calls. My argument over many years has always
been that if a fund manager really knew how to
make money, what are they doing in a
job? Getting The Wrong Kind Of Stock Market
Education While I was going through this
situation with the bank, deeming me worth lending
to for properties 1, 2, 3, 4 and 5 but not
for 6, I had one of those light bulb moments. I
was on the train going into work and next to me
on the empty seat was that free magazine they
handed out back in the 90s called, Nine to
Five. Something drew me to the back page, or
perhaps I just picked it up back to front,
however it happened, there was a full-page ad on
the back page that headlined with, Come to our
event, learn about the stock market and cash
flow! I remember thinking, this is brilliant!
It was exactly what I was looking for, because I
needed more money and I knew it was better to
work smarter than harder, and there was no way I
was taking my dads advice and getting a second
job. I knew, even back then, that most people
simply dont do anything. They bemoan all sorts
of issues and problems plaguing their lives but
do they do anything to change things? No. They
procrastinate. They make excuses, what I call
excusitis. They will happily find one hundred
reasons why something wont work rather than just
one way it will. Like the 95 of stock market
investors being nothing more than
speculators/gamblers, the same ratio applies to
taking action and changing your status quo. 95
of success is simply turning up. Doing
something, anything, taking action. That leads to
change and, while sometimes it might be the
wrong change or the wrong action, so long as you
keep taking action you will eventually get where
you want to be. At the very least, you will no
longer be back there in the middle of all those
problems! So I took action. I called the number
on the ad and I made a reservation for the
training seminar they were offering. Not only
that, I actually attended. It was huge, a
three-day event with numerous powerful,
motivated and motivating speakers up there on the
stage, extolling the virtues of the stock market
and how you can make huge fortunes if you learn
what to do. They assure the audience that anyone
who undertakes their training program can make
20, 30 ROI overnight! Some even showed examples
of how they made 100 and more, overnight! I was
going to be rich! A millionaire. Overnight. Well,
not quite. I had to buy the program, then learn
it and of course, most importantly of all, apply
it. Do it, in other words.
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We Will Do Nothing To Avoid Failure Once again
the 95 rule can be applied, because I imagine
95 of those who attended the seminar never
bought the program. They would have gone home to
speak to the spouse, parent, sibling, friend
whoever. They would have dreamed themselves
unworthy of success and denied themselves the
chance to make their dreams come true. It is so
much easier, so much less risky and so much more
certain to not try, to not take action and to not
risk failing and just not do anything. If you do
nothing, thats not failing, surely? You can only
fail if you try and we are conditioned from
early childhood that failure is bad. So we fear
it. You can look at yourself in the mirror when
you make a decision to not do something and feel
good about yourself, however you havent solved
the problem. It is a maxim of Neuro Linguistic
Programming (NLP) that we will do more to avoid
pain than to receive pleasure. Failure is
programmed into us as being pain and it is more
of a stimulus than the pleasure of success.
Hence we will do more to avoid failing than we
will to achieve success. By simply not doing
anything, not taking any action at all, we
avoid failure. I know, we succeed at not failing
by not succeeding it is bizarre but that is
human nature in a nutshell. For most of us. For
95 of us. But when we take action, we join the
other 5. As I have already said, taking action
is better than doing nothing, but that doesnt
guarantee the action you take will be the correct
action. What you do need to realise is the
biggest risk in life, is doing nothing at all. I
spent 10,000 in 1999 and began learning all
about the stock market and how you can make a
fortune. I was hooked on learning about this
sure-fire way to make money. I was so hooked,
I signed up for another event. Then another, then
another. In less than six months I had attended
four major stock market training seminars and
invested 40,000 in training. I then went ahead
and applied all I knew and lost 70,000 in the
first twelve months of trading. Basically, I
had purchased a very expensive education in how
to lose money on the stock market. I was being
trained to speculate, to gamble and so that is
what I did. I gambled my money away. I traded
options, Forex (foreign currency exchange) and
commodities and I lost the lot. At this time I
was building a house and in the process of
getting married, so you can easily imagine how
impressed my future wife was with my stock market
activities!
Sound Advice Finally Makes Sense What finally
dawned on me was that I was doing what someone
very wise in the ways of the market once told me
most people do I was trying to predict where the
stock would go when I should have been
creating the market. Sound advice I had been
given some time before finally made sense.
Rather than react to what had already happened
and try and guess what that would do going
forward, I needed to put myself in a position
where I created the market for my stock. Let me
explain.
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I had met Rene Rivkin through my job and attended
seminars where he presented information about
making money, mostly through the stock market.
There is no doubt in my mind Rene was one of the
sharpest business minds this country, if not the
world, has ever known at the time. There was
some controversy at the end of his life but I for
one refuse to judge this man on one incident,
but rather on a lifetime of achievement and
philanthropy. Rene said that approximately 95 of
the people involved in the stock market are
speculators. They speculate the stock will go up
or down and then gamble accordingly. What you
needed to be, if you were to make money from the
stock market, was one of those that made the
market. By that he meant, you create the options
for others to speculate on. You buy good stock,
create an option and then sell that option. You
make your money on the sale of the option
regardless of what happens to the stock itself.
You make the market. You profit from the entry,
not the exit. I realised, at last, what he was
telling me and it made perfect sense. I had my
epiphany after the fourth seminar I attended
and paid big money for. This one offered
attendees all sorts of great support and advice,
but the reality was we never got to talk to the
guru. Like all courses, all we got was a 1-300
phone number and the direction to call them only
after we had read all the material and educated
ourselves on the system. Basically we were made
to feel all excited and special, then fobbed off
to a call centre where people who knew less than
I did, read off a script for all I know and
pretty much told us nothing worth a fraction of
what we had paid. You can imagine then, the
reaction of my wife to be when, after another
train journey to work and another copy of Nine
To Five, I discovered a fifth training seminar I
just had to attend! This one was written
differently, used different fonts and colours and
said Cashflow, come to our seminar, learn about
the stock market. By the time I got to work I
couldnt wait to pick up the telephone and
register for the event to be held in two weeks
time. When I got home that evening I asked my
fiancée what we were doing in 3 weeks time. She
asked me why. I explained I have 2 tickets to
another seminar. You can just imagine the anger
building up when she heard that. I had been to 4
seminars, outlaid 40,000 to lose over
70,000 within 12 months. Her response was Over
my dead body! I persuaded her to let me go.
Honey! This is different! I just want to do
this. Okay, but promise me one thing. Whats
that, honey? Promise me youre not going to
invest in anything. Honey, I promise. When I
arrived at the seminar it was all singing, all
dancing with highly energized speakers leaping
around the stage selling speculative strategies.
The same old, same old in other words. It was
while I was sitting there, on day 2 at this event
with 3000 people in the room like me from 9am in
the morning listening to all different speakers
wondering what was right for me if any. At 10pm
on day 2 Rene Rivkin got up on stage with his son
to discuss the markets and what he had to say
made crystal clear sense. Forget trying to guess
what was going to happen, create the market. Own
the stock people want to option and get paid for
creating the market with options no matter what
happens to the stock. It was another investment
I made in myself, 10,000 for another educational
program.
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I raced home to tell my fiancée that night how I
had had an epiphany, a lightbulb moment. I
knew what I had to do and how I had to do it, and
I was going to begin the very next day. She was
not impressed to say the least. I made the
decision to do it. No one was going to stop
me. I invested 10,000 and bought some stock,
then I created the options and sold them. I made
the market. That was in late 1999 and by 2003,
now married and just 28 years old, I semi-
retired. In the four years in between, I still
had my regular job because I knew this was going
to take time to do properly. I knew this time
round slow and steady will win the race. I still
had to eat and keep myself and my wife, and
pretty soon our kids, fed, clothed, housed and
happy. I also invested in other businesses to
diversify my income streams and build my various
pillars of income. Some Truths About
J.O.B.s Dont get me wrong. Jobs are a good
thing. We need people working in the public
service. We need people in private enterprise.
We need everyone doing what they do to make our
world turn, to keep our society working as it is.
Everyone has a role to play and we need to keep
very much in mind that whatever it is that person
next to you on the train does to earn their
income, someone thinks it is important enough to
pay them to do it. As an employee, what you do
must, in some way, is contribute to the success
of the company. If you dont, then it wont be
long before you lose your job. Lets face it, if
the role you fulfill isnt helping, it must be
hurting. You are a cost to the business and
therefore you need to justify that cost by
contributing to revenue, somehow. It is clear for
some sales people can quantify their
contribution by how much they sell. Even factory
production line workers can claim they are
contributing to profitability based on how many
items they make every hour, or however their
productivity is measured. Your tenure is not
something you have complete control over. You
might make five times the number of widgets per
hour than anyone else, but if the other workers
arent doing their job, it could come back and
bite you. If the sales department isnt selling
enough or the market simply moves to a new
product from a competitor, you could be laid off,
made redundant, down-sized, whatever term they
use out of a job. It is a dog eat dog world,
after all. If you are not contributing to profit
then you are an expense. Even if you are
contributing to profit, something might change
and your services become no longer affordable or
cost- effective through no fault of your
own. Think about all the manufacturing companies
in this country that no longer exist because
they have been moved offshore. It is cheaper to
make the products overseas and freight them back
here than it is to manufacture in Australia.
Corporations look at the bottom line and decide
if they are making enough profit or not. If not,
they are only too happy to restructure
operations to get back into the black, despite
what that means to you, the loyal employee.
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Fear of the Unknown Makes You Risk Averse If you
learn how to invest your surplus income to
generate more value (make you some money in
other words), then your J-O-B becomes a pillar of
income. It is one income source. The returns on
your investing the surplus income from that
pillar form another pillar. In time you can have
a third pillar when you, say, buy an investment
property and rent it out and so on. Nowhere does
it say you have to get a second J-O-B, but you
can if you really want to. Not because you have
to. Now perhaps you can see the value of an
education that teaches the value of a dollar and
how to earn lots of them. A lot of people with
high paying jobs are time poor. While my kids
are at school they have a J-O-B school. They are
professional school children and their job is to
learn as much as they can and to be a proficient
and diligent employee (student). If they want
multiple pillars of learning, Ill get them a
tutor. If they want another pillar of income
then they can get that J-O-B at McDonalds. But is
that the best way for them to earn extra income?
Sure they will learn a lot about life, people,
working for your living and many more of lifes
lessons working there. They will be trained to
take orders and fill them, follow a system and a
program and they will be rewarded for their time
and effort. But I thought, instead of having to
go work at McDonalds for 8 an hour and get
abused by people like me, how about I teach them
how to invest on the stock market? Dont get me
wrong, Ive got nothing against children working
at McDonalds or any other fast food chain. If
theyre getting off their backsides to do
something, thats good, but its not the only
solution, nor is it the best one. In fact I
started teaching my son when he was 12. For 1
year he paper traded and learnt the education I
have been providing all around the world since
2005. When he turned 13 I opened up a live
trading account, put a small amount of money in
it and I said to him, you invest it as per the
education, follow step by step the system and
over the first 12 months was earning someones
monthly income in 10 minutes clicking 10 buttons
to enter the market. For the rest of the month he
was at school and he built an income stream that
others are working 40 hours a week for, in 10
minutes of his time because he educated himself.
The agreement I had with him was, he will touch
non of the profits until he turns 18, he will
compound the profits and when he turns 18, he can
either take the profits out or reinvest it and
at 18, I will get my 100k capital back that I
invested originally when he was 13. Is that a
good deal for a 13 year old? I thought, instead
of me going out to other countries and doing
anything outside of Australia, lets educate our
own kids here in our own backyard. And thats
what this is about and that is what Im doing
right now. I am starting with the parents because
if I can get the parents to see the value and
truth in what I am doing, then I will have their
support. If I have the support of the parents
then there will be no problem teaching the kids,
because they will get the message reinforced
from Mum and Dad when they go home. If I can get
this message of mine out there to the current
generation and the next, there is surely a great
deal of hope and positive thinking for our future
in so many ways, and not just economically.
People who have little fear of losing their job,
getting ill or being in an accident that
prevents them from working and of being unable to
afford to live in retirement, are far more
positive and productive throughout their lives.
They will achieve more simply because they are
more willing to take risks. People living in fear
tend to stick to what they
10
know wont cause any more harm or hardship rather
than do anything that might change their
situation for the better. It is human
nature. Fear of the unknown makes you risk
averse and that is a sensible survival based
strategy. If you have a job you hang on to it,
even if the boss is exploiting you and not paying
award rates. You know if you spoke up he would
pay you then never give you anther shift because
he can hire a hundred people happy to work for
less than the minimum stipulated wage. Having
just one pillar of income leaves you vulnerable
to such exploitation. If you are armed with
knowledge and the ability to generate income
through multiple pillars, such as investing on
the stock market, you are more confident you can
find a better paying J-O-B and you can leave
that exploitative employer to his fate. Are We
Ready To Investigate How We Do This? Hopefully by
now you will have formed the opinion that you
need to educate yourself on how to make multiple
pillars of income and that one way is through
sensible investment on the stock market. You
accept that income from a single J-O-B is not the
best option and that by educating yourself as to
other ways to make a living you are giving
yourself freedom. Freedom to build your wealth
and be able to make choices. Choices that simply
are not available to anyone who is chained to a
single source of income, a J-O-B. You want
options, but you realise trading and speculating
on the markets trying to predict which way it
will move, is NOT the way forward. I think we
have you on the right page now, so let us get
into the strategy in the next blog. Greed Isnt
Good Or Bad, Its What You Do With It Greed is
one of the driving forces of human nature. It is
present in all of us to some extent and in
varying aspects. We are all greedy to an extent
about something, and greed is not necessarily a
negative thing. It is, as with everything, what
you do with it that counts. How you apply your
natural greed makes all the difference. Some of
us are greedy for a better world and do all we
can to help others while making sure we dont do
any harm, or at least as little harm as
possible. Greed is a relative of ambition, which
in turn knows determination, motivation and
persistence. Some people are ambitious in ways
that are self-centred and all about whats in it
for them. Others are altruistic and do what they
do for the good of others. Most of us are
somewhere in between. We neither have the
ambition to be in power like a prime ministerial
hopeful, nor do we want to save the world and
live in a Third World drain pipe while helping
the sick. Moderation is the key, and there is
nothing wrong with being ambitious, or even
greedy for success and improvement so long as
you achieve your goals ethically, morally and
without harming others. Congratul
ations if you reached this point! You are
determined to put in the effort to make it. I
will make it worth your while. We are going to
refocus on the strategy from the next part
onwards. Click here to read Part 6