Treat Your Trading Like a Business

Have you ever wondered how in the world large businesses or corporations such as GM or IBM just manage the small day to day tasks of operating and managing such huge concerns? It is just mind boggling to think about the millions of little details which have to be handled just to keep the doors of such complex corporations open! I’m not a CEO or CFO type and I certainly have no training or expertise in those areas, but I have spent a lot of time talking to folks whose job it is to run large and medium sized companies in an effort to understand how to better run my own, comparatively tiny business. What I found was truly amazing, if not totally refreshing!

What my searching uncovered was really encouraging in that it showed me that their businesses, no matter how large or complex, all have basically the SAME three requirements. The details are a bit different to be sure, but they all depend primarily on effective management and sound decisions in three areas; cash flow (or income), a source for stabilization of that income, and long term growth. I describe this a ‘encouraging’ in that my small business … in fact ALL businesses … have the same needs in the same areas, no matter the size of the concern. Let’s take a quick look at all three of these areas.

The first and most important of the three is the need for consistent, sometimes daily CASH FLOW. This area is prioritized above the others because it is here where the money is made to meet expenses of continuing in business. Face it .. business have bills to pay. General Electric must meet it’s obligations just as surely as we must in our family’s daily existence. AT&T has daily obligations … IBM and Microsoft face an overwhelming amount of daily expenses … YOU and I are no different! We just operate on a different scale … thankfully! To the extent that a business is able to meet it’s expenses – pay it’s bills, if you will, it should, all things being equal, remain a viable business concern. The instant a business fails to generate these very short term funds is the instant it begins to go out of existence!

STABILITY in cash flow generation is almost as important but is prioritized down a notch. The main reason for the ‘downgrade’ if you will is the nature of the need for cash flow. The expenses must be met, even if on a ‘hit or miss’ basis. Consistently generating that money is ‘stability’, crucial in need but behind the actual ‘generation’ in position. It is important to be sure as stabilizing at a level LOWER than necessary to meet expenses is unacceptable, for obvious reasons!

This stability is achieved in most business by keeping a ‘pipeline’ full of forthcoming business, designed to provide regular cash infusions periodically. In other companies, stability can be achieved by … well, just having a ton of cash on hand! Perhaps one of the best examples of this is Microsoft. During the recent onslaught of government or regulatory attacks accusing the software giant of monopolistic practices, fines in the millions of dollars were tossed about as potential ‘punishment’ for these alleged violations. Can you imagine how LITTLE would be the impact of a $10 million “fine” on a company that has $50 BILLION ‘unattached’ in the bank??!

The final area of consideration is long term GROWTH. Once a company has developed it’s business plan to the point that it can remain a financially viable entity, it must then concern itself with the concept of getting bigger. While specific growth is different for everyone the fact remains that you can’t just ‘stand still’ in business. You’re either growing or dying! The easiest way to grasp this QUICKLY is to think back to the first job you had. Focus on the INCOME that job provided and now try to imagine existing today on that income. The same principles exist for businesses as well. You can’t stand still there either! They must meet (and beat) the competition, so research and development are necessary. Technological advances come along and the number of employees must be increased to handle the new jobs these advances create. We could spend volumes on this aspect, but I think you probably get the picture!

So, all businesses, large or small have these same three areas of concern; cash flow generation, stability and growth. Now, let’s try to pull these concepts down to a level where we might be able to see a direct connection to our trading businesses.

We are traders. Trading is our business. Let’s agree that we have needs for cash flow, stability and growth in order to manage our trading business more effectively. Trading is not just throwing money at the stock market in some ‘willy-nilly’ fashion. We have to define our trading business in such a way that we can apply sound business principles to insure that we truly have a ‘going concern’. Here’s how I do that in my business and how I teach others in the trading labs to do the same thing. Lacking both the time and room for a detailed description let me summarize what we do…

First, my cash flow is a function of my daily, short term trading. This is not day trading by design. Rather, I use one of several strategies designed to get into a trade and then back to cash in a 1-5 day period. Trade only the journey the stock normally takes each day, being content with SMALL (daily) profits. Here are some givens:

  1. You will NOT be profitable on every trade.
  2. Your business does NOT depend on the success of your next (or your last) trade, so EMOTION has no place on the trading floor!

Stability in trading comes from the same place for us as for any other business; either a full pipeline of pending business or CASH in the bank. We can overcome a shortfall in COH (cash on hand) with successful medium term trades (30-90 days in length). I like to use covered calls and/or spreads to provide that regular cash infusion providing a leveling effect in the short term account.

Growth comes from successful long term (greater than 90 days) trading. For this, my favorite strategy is selling naked puts on high quality Blue Chip stock (however you define ‘blue chip’). A quick trip down this lane shows us picking out ‘chippers’ on weakness, selling puts having strike prices just below earlier PEAK values. The operative here is that we don’t really care if the stock regain these earlier values … just moving toward them will give us most of the profit we seek!

So there we have all three management aspects of any successful business; cash flow, stability and growth. Treat your trading like a business and it will treat you like royalty! Make it a great day!

Bob

What’s the Best Way to Save Money to Invest?

You don’t necessarily have to be frugal to save money, but you should definitely learn to manage your money. Get familiar with the concept of cashflow. It’s the failure to understand this simple concept that causes many professional athletes to go broke within two years after retirement. Investors that got rich by implementing passive residual income strategies truly understand that cashflow is also important to creating wealth.

Knowing how to keep your money is a lot more important than knowing how to make passive residual income. All the money in the world means nothing if you are constantly spending above your means. Look at Mike Tyson, and Michael Jackson as two prime examples of people that made multi-millions annually but yet they had to declare bankruptcy.

In addition to understanding the concept of cashflow, here are some specific things to look into.

Shop wisely

Never buy new cars. I paid $15,000 for a sports car that normally costs $45,000. Cars depreciate $5,000 just from you driving it off the car lot and most cars rapidly lose value over time. Everyone wants to buy brand new cars but you can get some huge deals if you buy low mileage used cars. I remember once a dealer was willing to knock $3,000 off the price of a car simply because it had 3000 miles on it.

Don’t try to “keep up with the Jones’” by getting the latest trends.

Shop during the off season and look for clearance sales. Buy your winter clothes in the summer and buy your summer clothes in the winter. Look for clearance sales when companies are looking to get rid of their inventory in preparation for the new season. You can get discounts of up to 60% and sometimes more by following this method.

Look at all the ways you’re spending money now and find cheaper alternatives.

Shop around for cheaper car insurance.

Most insurance companies raise rates every year simply because they can. If you make a point to shop around for a new carrier every time your policy is up I guarantee that you will get a competitive rate that is better than your current one.

Cheaper cell phone plans. Do you really need 5000 cell phone minutes for $140? Could you do with 1000 for $40? Also there are a lot of phone plans (MetroPCS and Boost Mobile) that offer unlimited minutes for as low as $40. You just have to shop around.

Cancel memberships you don’t need or are not using. If you are not making use of your $20 per month video game subscription, cancel it. If you live in a complex that has a gym, or if you can work out at home, then you can consider cancelling your gym membership as well.

Finally

Set up a separate account and set up an automatic transfer of a fixed amount of money to that account every time you get paid. Once you have a decent amount of money in your investment account you will be well on your way to making passive residual income.

Today, Filing Bankruptcy Might Be A Great Investment

Spending money to file for bankruptcy almost sounds counterproductive, but it could be the best investment your family ever made. In today’s economy, banks are only paying barely 1% for money in one’s savings account. The volatility of the stock market makes it a terrible investment for anyone that needs a long-term return. Today, most Americans are buried under a mountain of credit card debt and are continuing on making the minimum payments just to keep those accounts open. Most people think that taking money out of a savings account to pay off credit card debt is off the table even though they are probably paying 26% interest on a credit card and receiving 1% interest on the savings account. Most people understand the whole concept of protecting what assets you have for a rainy day. That’s why, if there is no way out of debt, filing bankruptcy should be considered.

Back in 2010, the Wall Street Journal reported that the average American household had approximately $40,000 in personal debt. This is a substantial amount of debt that is next to impossible to pay off considering the interest rates being charged. An easy test for a person to take is to add up all their credit card bills and budget a monthly amount that is affordable to pay on the debt. If the debt cannot be paid off in six years if there are no more charges to the account, a bankruptcy filing should be considered. Filing bankruptcy can be a way to regain control of an individual’s life and pocketbook. Doing nothing, might seem tolerable and safe, will keep the individual in bondage to those debts for life. Most people have to weigh the positives against the negatives before deciding to file for bankruptcy. The easiest way to do this is to drop in on a bankruptcy attorney and have them take a look at the individual’s financial situation. The other way is to just do some research on the Internet.

If someone is on the fence and having trouble deciding on filing bankruptcy here are a few things that might sway their decision:

  1. Right now is a good time to file for bankruptcy because the economy is down and the value of the individual’s property is much lower making it easier for the bankruptcy attorney to protect more property with the bankruptcy exemption laws.
  2. Eliminating the stress is probably the best reason but usually not considered in the beginning. Stopping the creditors from constantly calling and threatening an individual can ruin a person’s health and marriage. Protecting one’s health should be at the top of the list.
  3. Not filing bankruptcy because you’re worried about your credit report is foolish. Usually when a person gets to the place where bankruptcy filing is on the table, the person’s debt ratios and late pays have probably already destroyed their FICO score. After the bankruptcy discharge, the individual can quickly start rebuilding their credit putting the bankruptcy far behind in the rearview mirror.
  4. Depending on the age of the individual filing for bankruptcy, a person should not wait until they are ready to retire. Facing bankruptcy head-on will allow the person to recover before retirement.
  5. With the large number of families facing foreclosure, filing bankruptcy will eliminate any liability on a piece of property that the individual might want to surrender back to the creditor. It also can help an individual avoid foreclosure by eliminating all the unsecured debts that in many cases will free up enough money to make the mortgage affordable.
  6. Filing bankruptcy will stop foreclosure. Filing Chapter 7 bankruptcy will stop foreclosure at least temporarily. Depending on the situation, the creditor has the right to file a relief of stay allowing them to restart the foreclosure process. Filing Chapter 13 bankruptcy is a better option when the individual is filing for bankruptcy for the reason of protecting a piece of property. All individual’s situations are different and should be discussed with a bankruptcy attorney as the results very.

For those in debt, inaction or pecking away at it slowly will solve the problem. People in this situation should consider discussing the matter with a bankruptcy attorney to see if filing bankruptcy will work for their situation. Many people find out that the facts they thought they knew about bankruptcy are more based on myths than understanding.