Rules of the Game

So, you have decided that you would like to increase your positive cash flow and you’re doing it for various reasons such as to offset the negative cash flow, get better quality vacations, put away for that nest egg or safety net, hush money to Stormy Daniels, whatever your heart desires you which can be achieved with more money. But how do you do it without giving up more? You already have a job and another job would be just too much. Besides, what’s the point of bringing in extra income if you don’t have the time to enjoy and one of the main things most people is the free time to do what they desire whether it be recharging or defusing. The point of living is to live. So what can you do?

One thing you can do is to have others earn it for you. This has been the backbone of economies such as Feudalism or Capitalism (I would have included slavery as an economic system but both of these are forms of slavery.) You invest either through subterfuge, brute violence, or the infusion of capital which can come in many forms such as expertise, financial, resources, or vision. You gain control of a resource on which others are dependent and use the labors of others to turn it into what is needed on the consumer level while you sit back and enjoy the wealth flowing in from your investment.

But there is a problem; first of all you need a lot of resources under your control to do this. Who are you that a business should bow to you or listen to your input? What resources do you have that the company would be interested in letting you tell them what to do? Chances are unless you are some type of Wunderkind or an heir to some large resource there is little you can do to get their attention.

But this is about increasing your income through investing. If you had enough to get their attention then you wouldn’t need this article. Investing on the secondary market provides many with the opportunity to also cash in on the wealth being controlled by the very wealthy. Thing about it is you don’t have to make a big splash or have connections. In some cases the most you need is the right investment application and at least $7 a month to start. But you might say that $7 a month which includes up to a $2 subscription fee doesn’t seem like too much and how would you ever earn back the $24 for a year’s worth of subscription fees? And you would be right to be hesitant especially considering that not only do you have that costs to overcome but there is also the labyrinth of making your way through the market and understanding what is happening. Then there are the stories of everyone losing everything in the market.

I’m not going to lie, there are risks and I have studied economics for decades and still have much to learn. But what if I were to tell you that there is a way to use small amounts of money and to greatly reduce your risks for extraordinary returns? There is and I have used it successfully many times over and over. But first you must master the rules of the game as I call them and you will find that investing can be safe and extremely rewarding. So, let’s go over the rules of the game.

1. Don’t Panic—most people lose money on the market because of panic. Their investments drop and on paper they have lost money and it is only on paper that they have lost the money until they do something foolish like panic and sell. Then they make the lost on paper incredibly real. Reality is that if you listen to the rest of the rules of the game you can turn drops in prices into real potential.

2. You want to pick an investment application. I would suggest one which allows you to buy partials and trade easily. I prefer Stash which has all of the features I seek and is perfect for this investing technique.

3. Choose several companies. You will want to look for four or five well-established companies each in a different industry. You want to look for companies in which while some may be up as far as their stock prices go others will be down—this is where the magic takes place. I recommend going with companies which you are familiar.

4. Familiarize yourself with the 52 Week High and Low of your various companies’ stock. There is no set limit as to how high or low a stock may go. However, the 52 Week High is the highest price the stock has traded for in the past year while the 52 Week Low is the lowest price the stock has hit. Again, these aren’t written in stone and they are not absolute limits of what the stock will do but it does give you a reference for when to buy or sell your shares.

5. Buy stock when it is close to its 52 Week Low. There is no guarantee that the stock price won’t sink lower than the 52 Week Low, but as long as it is closest to its 52 Week Low that is the company whose shares you should be buying. When buying at or around the 52 Week Low you are actually buying more shares with the lower price. This brings your average cost down increasing your potential for when it goes up again. Well-established companies tend to have trends of ups and downs especially when they have recalls, strikes, or need a more enlightened CEO which all cause investors to be nervous. When the issue is addressed and confidence is regained investors drive the price up. For example: Let’s say your initial cost in purchasing this company’s stock was $10 and you used $25 this would mean you have 2.5 shares at a cost of $10 each. Now let’s say there is a major fine leveled by a federal investigation or class action suit. The price is driven down by nervous investors dumping their shares. It drives the price to $5 a share and you purchase 5 shares for $5 each giving you a total of 7.5 shares at an average cost of $6.67 each. If the price drops to $2.50 a share and you buy 10 shares with your next $25 this will give you 17.5 shares at an average cost of only $4.29 a share. This means that when the issue is resolved or blows over and investors gain confidence in your company again they will drive the price back up and if it hits $5 a share you will have made $12. If it rebounds to $10 you will have made $100. Name of the game is to buy as many shares as you can for the lowest price.

6. Sell or Hold Stock when it is near its 52 Week High. Seems quite forward. You desire to buy low and sell high but it is amazing how many people don’t because they panic when a stock drops in value but yet as explained in Rule #5 dropping prices can be very good. Just as good as rising prices. Even as a price is rising when you buy shares you are buying more shares at lower prices than you do at higher a price which brings the average cost down. For example you take $25 and buy stock that is valued at $1 and you receive 25 shares with an average cost of $1 each. On the next time you reach your set purchase time you buy the stock and it is at $5 a share. You receive 5 shares at an average cost of $5 a share. But when you include that with your previous purchase you have 30 shares total which cost you $50 all together or an average cost of $1.67 a share. Not to mention that those 30 shares are valued at $150 which you purchased for $50. Again, a 52 Week High is not carved into stone and there is nothing which says that the stock can’t go even higher. More than likely I wouldn’t put more money in a stock which is at or above its 52 Week High—I would just hold or sell. But which is the right answer?

7. Sell when it makes sense. One key indicator which tells me to sell a stock which is at or near its 52 Week High or even setting a new 52 Week High is if I have another stock or mutual or commodity even which is near its 52 Week Low. I cash in the one which is at its high and transfer the funds into the one at its low thus purchasing all the shares I can at the bargain basement price. Then when the one which was at its low starts to rebound and gets near its 52 Week High, then I’ll do the same to it. All the time putting my set schedule investment in the shares which are near their lowest. There have even been times when a stock is not at its 52 Week High but is up within the top half of the 52 Week Range between the Lowest and Highest and I have cashed out to take advantage of another investment I have which is near its 52 Week Low.

8. Never let anyone pressure you into something. It is your investment; you decide what you need to do for you. If the person doesn’t have a vested interest in you which is to say what you do with the investment has no effect on the one giving the advice, then they don’t decide what you do. You can listen to their advice but in the end it must be you.

9. Explain to those who do have a vested interest in what you do. When a spouse or other immediate family has a concern about what you are doing by all means take the time to explain it to them so that they understand what you are doing. This serves several purposes which includes calming them down which removes pressure from you. Main reason is in your explanation of what you are doing and why gives you a chance to learn more about yourself and them as well as to think and learn about what you are doing.

10. Don’t use money to which you are emotionally attached. Name of the game is to think clearly and calmly about what you are doing and this cannot be achieved if you panic. I have heard horror stories of individuals who have taken money which was meant for their education, rent, insurance, car payment, mortgage, life savings, or some other necessity whether real or need for sanity and placed it on a hunch whether in the market or the lottery only to lose a significant amount of it. First of all if you place money you needed for something else which you need in the market it will cause you stress and possibly to panic causing you to make incredibly poor choices which will only compound the problems. Use money which you would have just blown on day to day items such as candy, snacks, coffee, or other drinks. I set my limit at $25 a week which is what I have usually blown on everyday things such as snacks and drinks as well as lost as change in sofas and not verifying my change when at the store.

11. If you have a large some of money put it in a conservative investment. Conservative investments would be a savings, money market, government bonds, and certificates of deposit. In other words you want to put it in something which will earn you a return though the return on most of these don’t even cover the rate of inflation as well as the taxes you’ll pay on those returns. But it is a safety net which can reduce the chances of you becoming emotionally attached to the money you have invested and possibly panic.

12. Feather money into your investments. This is not talking about the funds which you already have invested it is the money you are feeding into your investments. If you do have a large sum you would like to invest such as $500 or more don’t do it all at once. If you do it all at once that price is what you must work with. When you feather it in such as $25, $50, or $100 a week or whatever you determine you will because of the increases and decreases in the price end up with an average cost which is lower thus creating more potential.

13. Don’t obsess about the investment. I check mine once in a while just to see if there are opportunities. This is maybe once or twice a day. I don’t get wrapped up in the ups and downs but just look to see if one investment is near its high while another is near its low for a possible transfer of the high into the low. For the most part I just really look into the investments when it is the morning of the day I have scheduled to add more money to my investments and it is a quick check to see which ones are at their lowest or at least lower than my average cost.

14. If it is your scheduled time to add money and nothing is near its low. This happens sometimes. I get to Friday morning when I make my choice as which investment to add this weeks contribution and find that all are doing quite well and aren’t near their low. If I am looking to increase the scope of my portfolio such as add a stock from a different industry I will just find an established one which is near its low. If I don’t want to add anymore companies or investments because what I have is enough I will look through my existing shares and find any which has a current price which is below my average cost—purchasing these shares will help to reduce my average cost and increase potential.

15. Don’t go overboard with your portfolio. Keep it simple for you. If you can only handle four investments then only do four until you are confident enough to handle more. Of course the more investments you have the more you will have opportunities of finding one which is near its 52 Week High to transfer into one which is near its 52 Week Low. But don’t over do it. Too many investments can be overwhelming and possibly lead to confusion and panic and again making poor decisions. Once you gain a true understanding and gain the confidence from this understanding then you can expand your portfolio to the level you are still confident that it won’t overwhelm you.

16. So what if you make a poor decision? There are times you are going to miscalculate. It may be that you sold when an investment was near its 52 Week High or you bought and it went even lower. Or you picked a company or mutual which is just sitting there and doing very little. It happens and in the beginning it may happen a lot. Don’t obsess over a mistake but then how is it a mistake if you still made money or reduced your average cost? Remember, any loses or gains don’t really exist until you turn them to cash. You’ll have other opportunities to cash in on a big gain or low cost. As far as the investment just sitting there—well, you can either believe or just dump it for one which does have potential. Thing is learn from what you did and move on and keep moving forward.

17. Talk to others who are investing. There is a wealth of knowledge to learn out there. Not to mention this individual may have saw an opportunity you missed and because of the information you were able to capitalize on it. I have always had several buddies I could go to about investing. We share notes, talk about mistakes, share victories, and most of all learn from one another’s experiences. None of them know the difference between a Beta and a Quick Ratio but they have made a lot of money just knowing the current price and the 52 Week Highs and Lows as well as keeping track of their average cost per share which most applications calculate. We are also able to keep an ear or look out for any opportunities and share them with one another. If we have the same investment we can all look out for any developments with it.

18. Most of all have fun. If you aren’t enjoying it and if it is stressing you out then perhaps it is not for you and you should stop. I have found that others and I have made the most amounts when we weren’t stressed out and worrying about things. When we were just having fun. Our minds were clear and we were cool, calm, collect, and most importantly in control and were not being ruled by our fears or emotions. One stock I was chasing dropped over $30. It was dropping because speculators were speculating and others were panicking. I kept systematically investing a certain amount in it each time it was time to invest. I followed that stock all the way to the bottom which it bottom out at about $13 at that time my average costs per share was $16 even though my first purchase of shares was over $40. Within a month it had rebound to over $20 and kept rising over the next few months back up to over $35. That is $19 a share profit. I wasn’t panicking and just steadily followed the rules of this game and had fun. My friends were cheering me on and when I cashed in I told them that that was how it was done.

19. Hang in there. If you’re not stressed out and are remaining cool, calm, collect, and in control and perhaps even having fun opportunities do arise very much in the market. Even if your investments are dancing up and down that much you are still slowly building up your portfolio and will be ready when opportunities do arise.

20. Investing isn’t a rocket science. It is a discipline. Sure, $5, $10, $15, even $25 or $50 may not seem like that much. But by setting a goal of say, putting $5 a week every Friday into an investment or perhaps $5 every third Monday of the Month it builds up. If you stick to the rules of this game you may become surprised at how fast $5 a week or even a month can turn into tens of dollars; tens into hundreds of dollars; hundreds of dollars become thousands of dollars and on to tens of thousands, and on and on to your fullest limits. Even if your entire investment strategy is just to put $5 in the cookie jar every week on payday that can grow to $1,300 in five years.

21. Don’t Panic. Again, follow the rules of this game. Stay calm, have fun with it. Don’t use money you need or to which you have an emotional attachment, do only what you can handle. If you are stressed out then you shouldn’t be doing it. Don’t obsess over the money or investments. Definitely don’t obsess over mistakes. Make decisions and continue to move forward—if you obsess over your decisions you could start questioning yourself and clouding your judgment opening you up to double guessing and panicking which could cause you to make mistakes.

22. Remember it’s not a loss or a gain until you cash it. Once I told someone who was panicking about his 401K dropping in value that I would put more money in it to get even more shares at a lower price to reduce my average cost. He wanted to transfer it to another account which was going up a little. I warned him that the little it had gone up was already over—he should have put his money in it before it went up and he would only realize the lost if he was to do the transfer the fund that was down. He told me to prove it and I did exactly what I told him to do. The 401K started to rebound and I made over 38% while I found out that he did panic and transferred the money from the account which was gong down and placed it in the one which was up—he lost about 10%. Only time you should ever move money from one investment to another is when the one you are taking money from is up and placing it in one which is down. If you do the opposite of this you will suffer a hit.

So, those are the basic ideas and rules of the game as I call them for investing and doing well. I know you can and hopefully you will try. You never know, You just might surprise yourself. Well, stay calm, follow the rules, and have fun.