Wednesday, December 14, 2005

Money Management and Investing

I've been doing a lot of thinking the last couple of months about money management and poker and investing and the like. In July I started dumping all excess funds, including a large portion of my playing bankroll, into Ameritrade and buying stocks. I bought Google and Apple and made over 40% on my money in about 5 months. So naturally I was feeling like I had a bit of stock picking talent and was getting fired up about investing, and then I started doing more research on it. I've read several books on the topic recently and spent quite a bit of time on a couple of trading forums. If there is one thing I have learned from my studies thus far, it is that I don't know squat. I got lucky. I bought into the Google hype and took a tip from a friend who got his tip from yet another friend. Either of these could have easily gone south on me and the fact that I made any money at all was attributable only to luck and my own ignorance.

I have since closed out my positons and have gone to cash. ING Direct is giving 3.75% right now and thats better than the -ROI I probably have if I trade the market, so I'm going with that. And I'm going to feverishly keep studying the markets.

I credit Ed Miller (the 2+2 author) with being the main catalyst for this change in strategy, and for opening my eyes. He went to MIT and worked at Microsoft before becoming a professional poker player. He is an author and one hell of an intelligent person. He told me that he is completely in index funds now because HE doesn't know enough yet to be in the market as a winner. He's right, there are a ton of very intelligent people who devote their entire day picking apart companies and news stories etc etc etc. The average man putting his money in the market without a great deal of study is doing not much more than a guy in Vegas putting it on black.

My main concern here is my long term well being and that of many other poker players who I know that are making an extraordinary income for their age bracket, or for any age bracket. One friend is putting a huge chunk of his funds with a currency trader he has never met. Another is buying a condo (in this market!). I've heard of another keeping 6 figures in cash because he is afraid of paying taxes on it. Another has a blog dedicated to 'Rediculous Expenditures', shedding light on the spending habits of some successful poker players. The list goes on and on and on.

Yes this boom is paying off fantastically well for many people, but we need to collectively get our financial IQ's up and make smart decisions. I'd sure like to make the right moves and retire on passive income at a far too early age. I think many others have the ability to do this as well, but they also have the chance to have nothing more than a cool story to tell and a failed college degree to show for this period.

Reccomended reading:

Rich Dad Poor Dad: Kiyosaki
Teaches how the super rich view money and investments, and the
mistakes the poor and middle class make. Excellent, excellent book.

The Millionaire Next Door
Washes away many of they myths about how 'rich' people behave.

The Intelligent Investor: Graham
Investment classic. Warren Buffet called it the most important
book on investing he ever read. Need I say more?

How to Make Money in Stocks: O'neil
Despite the cheasy cover, its a great book on valuing stocks and companies.

Thanks for reading, now get back to MAKING MONEY!!!

Wild Bill