David’s Journal

Okay, so I learned a lot from the stock investing seminar I took, plus I’ve been studying a lot on my own. I even have a successful, experienced investor friend who’s helping me analyze why I’m picking which stocks, giving me pointers and tips, and offered to take a look at any stock I want to invest in before I plunk down the money.

I want to trade in stock options for three main reasons: 1) they’re lower, controlled risk; 2) they’re highly leveraged instruments; and 3) they require less capital to start investing with.

I have a Scottrade account, which I opened a couple years ago. The basic account lets me buy and sell stock, set stop losses, limit orders, things like that. I could open a margin account if I wanted to, but I don’t feel confident enough in my skills yet to do that. But I do feel confident and educated enough to start doing some very small, very simple options trading.

I’m talking like buying 1 or 2 contracts at a time, making investment decisions based on technicals, fundamentals, trends, volatility, volume, Stochastics, MACD, timing, and several other factors. I realize that options are contracts that expire after a set time, and potentially, I could lose my entire investment. So I wouldn’t risk more than I was comfortable losing in any particular trade. And I know enough about options to use them intelligently and not put myself in a naked position.

If all that sounds greek to you, don’t worry. Just know that I know what I’m doing enough to keep myself out of trouble.

So I requested that my Scottrade account be authorized to trade options too. I read the whole legal disclosure, signed the application, and mailed it in. A couple days later, they e-mailed me to say I was authorized to do covered calls, but that’s all.

Reason? I have insufficient income, net worth, and/or liquid assets.

I.E., back to that same old phrase, “you have to have money to make money.” This is why the rich keep getting richer. Because their wealth enables them to participate in better, stronger, higher-return investments.

For example, the SEC requires that anyone wanting to invest in a startup company (venture capital), needs to meet certain financial requirements first. You need to make at least $200,000 annually in income ($300,000 if filing jointly) and have a net worth of a million dollars or more. Otherwise it’s illegal. Why? Because venture capital is an extremely high risk investment. 9 out of 10 startup companies will fail in their first five years! And when startup companies are raising capital, they often sell you shares in blocks of 1o’s or 100’s of thousands… at just pennies a piece. Meaning, often, your minimum investment just to participate can be $50,000 or more.

That’s a good chunk of change to put at such a high risk. So the SEC is trying to protect the general public from losing all their life’s savings on one bad deal.

Of course, at the same time, a high-risk investment like that is also one of the highest-return investments. I read a statistic that said overall (including the 90% of the time it fails), venture capitalists typically make a 40% return on their investment.

Imagine owning 500,000 shares of a company at $0.10 a share. You would’ve invested $50,000 in this startup company you believed in. Well, imagine that company was successful and then went public. Stock is now trading at, oh, say only $10 per share. If you were to sell, you’d make Five Million Dollars on that $50,000 investment. But what if you held on… what if you invested in Google, and decided to sell at, oh, $300 a share. lol. Your $50,000 initial investment would now be worth $150,000,000. That’s One-Hundred and Fifty Million. Dollars.

You see why the rich get richer?

When’s the last time you bought a stock and made such an obscene profit?

The fact is, once a stock goes public, it’s already too late. Sure, you can still make “a lot” of money on it. But nothing like the pre-IPO investors could.

It’s almost like the system is rigged to keep the poor poor, the middle-class average, and the rich to get even more and more wealthy.

But it’s “designed” that way to “protect” us. Often, poor people are poor because they don’t handle money well. Not always the case, but often true. The middle-class are where they’re at because they’re making some money, but make different buying and investing decisions. They have some education, buy a house with a mortgage, pay lots in taxes, and invest in the stock market and hope for the best. They may make a little money, but nothing like what’s possible.

The rich on the other hand… they’ve got the education, training, experience — and most importantly — the cash to participate in the much better investments and opportunities… adding more and more wealth to them.

The best investment of all, though, is something we all have access to:

Starting your own business.

A business is the best possible asset or investment. It’s better than real estate. Better than stocks. Even better than pre-IPOs (because you’re the one who created the business, created the stock, that you’re selling to the investors in the first place!) :)

A business is truly the way to create wealth out of nothing more than a good idea and a little work and perseverance.

Businesses can generate return rates of 100%, 500%, even 1000% or more on your investment.

Luckily, this nation is set up to allow almost anyone to start up their own business, big or small. This country is full of opportunities to get into an existing business and run it like your own too — such as franchises and MLMs.

And now with the Internet, computer software, and emerging global community… it’s even easier and cheaper than ever to start, build, and explode your business into a huge success.

Take a look at today’s young millionaires and billionaires. “Tom” from MySpace… didn’t he start that website to help promote himself and other small independent bands? And how much was his site bought for? $580 Million.

Or the guy who created Facebook.

Or the guys at Google or Yahoo.

What did they create? A freakin’ website. They took an idea, or a better way of doing things, and shared it (cheaply, I might add) with the world. And the world responded, by the millions, and their little idea became worth billions more.

This really is the Information Age.

Which is good. Because information is free. It’s intangible. It exists only in the ether — in our minds, in a book, on a website, at a seminar… Anyone can have it and anyone can share it. Or sell it. Or buy it or trade it or copyright and license it, or whatever! :)

But we’re already on information overload. And I predict that in the coming years and generations ahead, it won’t be the person with the best idea or best information that wins. It’ll be the people who can market themselves best, and the people who build networks and relationships with others best. Those will be the future billionaires and one day trillionaires.

It gives me pause to think about my own life and plans for the future.

With that, I say,
thanks for reading, my friends!

Namaste, love,
David Michaels

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