- December 12, 2021
- Posted by: Robert Brown
- Category: Investing
I still wanted to learn more Options winning trades to add into my arsenal. When I was at MPH bookstore, I saw a Rich Dad Advisors book called “Stock Market Cash Flow” by Andy Tanner. I remembered Robert Kiyosaki always emphasized about cash flow in any investment compared to capital gains. I decided to flip the book to find gems. I only bought the book on the second browse after I found that I could learn and practice some of the concepts taught.
To be a great investor, we must first be a great student to learn all there is about an investment in order to be an expert. This is the first time I am being introduced to two learning measurement systems; 1) The Education Continuum helps us to measure how well we had learned and applied the concepts of our financial education. The levels are Ignorance, Awareness, Competency and Proficiency. 2) The Cone of Learning, developed by Edgar Dale, shows how much we retain through different ways of learning, be it active or passive learning. With these two measuring systems, we can measure how good a student we have been in investing.
Andy introduces us to the four primary classes of assets. They are business, real estate, commodities and paper asset. He gave a good comparison of the different asset class to allow each individual to assess which asset class is best suited given their circumstances. Since this book is about Paper assets, Andy gave more reasons why an investor should consider having Paper assets in their investment portfolio.
Next, Andy introduces his 4 pillars of investing. The subsequent 4 chapters dive deeply into each pillar. Personally, I find the 4 pillars very useful and guide the investor, no matter which level he/she is in, to make better decisions. The 4 pillars are:
· Pillar 1 – Fundamental Analysis
· Pillar 2 – Technical Analysis
· Pillar 3 – Cash Flow
· Pillar 4 – Risk Management
Fundamental analysis allows an investor to determine the strength and value of an entity (sovereign, corporate, personal) by understanding its financial statement. Basically, how the financial statement will look for each entity is governed by the policies implemented. Policies need to change in order for the fundamentals to change. One of the best investors of our time, Warren Buffet, is a guru in determining the fundamentals of any company. Gurus like him have a set of important fundamental ratios to rely on in order to determine if the company is worth investing in. His company Berkshire Hathaway has implemented excellent policies that have seen his company achieved huge growth and exponential increase in his company stock prices. Andy has provided similar ratios (and definitions) for investors to make stock comparison. I find them really useful and have used them in my stock analysis.
Technical analysis help investors determine the strength of the market based on supply and demand of price movement. The stock chart is used by investors to see if there is a trend created by the historical price movements. This trend or pattern that is identified by the investor will tell him the likely movement the stock will take. Andy gave a pretty good introduction to technical analysis, explaining the essential basics like Trend types, Support and Resistance and a few commonly used chart patterns. I found that, this is all you need for any investor to get by if they really become proficient at them.
Cash Flow helps an investor better position themselves in the market. Andy uses the concept of Options to illustrate this point and emphasizes the opportunity how this instrument allows the investor to profit in any market direction. Andy explains the many properties of an Option contract. Understanding the basics of a Call/Put and combination of both options allows the investor to have many ways of positioning themselves in the market.
Risk Management teaches us three ways to deal with risk, 1) Avoid risk 2) Take risk 3) Manage risk. Risk is related to control. An investor with more control in his investment will have less risk. The same is true when an investor have less control in his investment will have more risk. Those with no control are gamblers. It is also wise to know the maximum risk in an investment.
How we end up in future all depend on the choices we make today and who we surround ourselves with. How good a student we are today will determine our financial future.
I thoroughly enjoyed this book as Andy is a great teacher, explaining the concepts in very simple language. This allows me to understand and retain better what was taught. Hope you get a copy of his book and be enlightened.