Passive Income Type Two: Investment Income

This is the fifth and last article in this week’s series that began March 26, 2007 with the article entitled “Active vs Passive Income”.

If you gave money to someone else in exchange for getting a set of procedures that anyone can follow to generate income from trading/investing, then you have investment-type income. A basic feature of this type of income is that it flows regardless of whether you do any work. As with business income, there is the possibility of loss too.

Traders/investors who purchase trading alerts or investment newsletters written by other people have investment-type income.

The book Cash Flow Quadrants says that this is one of the two types of income that lead to financial freedom.

...Gone for Spring Break until April 16, 2007 ...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Passive Income Type One: Business Income

This is the fourth article in this week’s series that began March 26, 2007 with the article entitled “Active vs Passive Income”.

If your method of trading/investing involves spending time creating a set of procedures that anyone else can follow to generate income from trading/investing, then you have business-type income. A basic feature of this type of income is that it flows regardless of whether you do any more work after you create the set of procedures. Of course, there is the possibility that your set of procedures results in losses instead of profits, but at least you didn’t spend any of more of your time causing that to happen beyond the time put into creating the set of procedures.

Traders/investors who create automated or semi-automated systems have business income.

The book Cash Flow Quadrants says this is one of the two types of income that lead to financial freedom.

continued tomorrow ...

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Active Income Type Two: Self-employment Income

This is the third article in this week’s series that began March 26, 2007 with the article entitled “Active vs Passive Income”.

If your method of trading/investing requires you to put in time doing anything to generate income and you only get paid when your gross profits exceed your losses, then you have self-employment-type income. A basic feature of this type of income is that it flows only when you spend your time doing something and the flow immediately stops when you stop spending your time doing something. Another basic feature is that you could be spending a lot of time doing something and still not get paid.

Hands-on day traders have self-employment type income. They have to be doing something to get income. When they stop doing it, their income stops. Also, despite putting in long hours, they still might not get paid (when their gross income is less than their losses).

The book Cash Flow Quadrants says that self-employment income is the second worst type. But surely, it’s worse than employment income because it depends on turning a net profit and because of the lack of perks.

continued tomorrow ...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Active Income Type One: Employment Income

This is the second article in this week’s series that began March 26, 2007 with the article entitled “Active vs Passive Income”.

If you get paid by someone else to trade/invest regardless of whether you make or lose money, then you have employment income. Actually, this is a pretty good deal provided your employment continues.

Traders at banks, pension funds, insurance companies and similar institutions get to have employment income. Often there are perks like paid vacations, insurance, bonuses, etc.

The book Cash Flow Quadrants says employment income is the worst type. But David, what about the perks? And the fact that the income arrives regardless of profit or loss from trading/investing? Surely, the perks and disregard for profits/losses elevate this type of income to being the best type that traders/investors can get!

continued tomorrow ...

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Active vs Passive Income

If attaining freedom is a result you want from trading or investing, then you need to be acquainted with the idea of passive income.

There are many ways to make and to lose money trading and investing. Some of them do not lead to freedom.

Also, since it’s personal income tax return season, a review of the different types of income would be timely as they are taxed differently.

David Kyosaki says, broadly speaking, there are four different categories of ways to make money. He describes them in his book Cash Flow Quadrants.

continued tomorrow ...

Copyright 2007 Raymond T. Lee. All rights reserved.
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End of the NOFD

This is the fifth and last in a series of articles that began March 19, 2007 with the article entitled “Alien Abduction”.

Finally, test yourself in real time. Notice what you do and feel the next time you see a stop loss event. If the New Orleons Flexibility Drill worked, then you felt an urge to exit at the stop loss event and actually did so easily, effortlessly and without any stress whatsoever.

To learn more about alien abduction, check out these URL’s:
http://en.wikipedia.org/wiki/Alien_abduction
http://www.ufocasebook.com/alienabductions.html
http://www.abduct.com/


To learn more about the New Orleons Flexibility Drill consider these URLs:
http://www.richardkrijgsman.com/main.php?view=nlpsyllabus/neworleans
http://forum.hypnosis.com/archive/index.php/t-1938.html

Here’s a book that has information about the New Orleons Flexibility Drill:
Basic Techniques Book Ii: Introductory Level NLP Workbook
by Wright, Clifford (New Orleans Flexibility Drill #1, page 78 and New Orleans Flexibility Drill #2, page 80).

I first learned about the New Orleons Flexibility Drill from Tony Robbins in his home study audio program entitled “Get The Body You Deserve!” (tape 10A), a weight loss program. I thought it was excellent, especially after losing 65 pounds and gaining an amazing energy level!
http://www.tonyrobbins.com/Solutions/ProductsDetail.aspx?ProductID=623&SubCategory=Multimedia
or on eBay
http://lifeexcellence.stores.yahoo.net/toroboyoudec.html

back next week ...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Out of this world advice

This is the fourth in a series of articles that began March 19, 2007 with the article entitled “Alien Abduction”.

Next, imagine the role model accompanying you throughout your trading day advising you whenever appropriate to exit at stop loss events. Fire off your anchor as you watch stop loss events appear so that you feel the urge to exit at the stop loss events.

Next, imagine the role model accompanying you throughout your trading day watching you exit at stop loss events and congratulating you for doing so successfully, providing plenty of praise which you appreciate receiving. Fire off your anchor as you watch stop loss events appear so that you feel the urge to exit at the stop loss events.

Next, imagine yourself going through your trading day consistently exiting at stop loss events, easily and naturally without any help from the role model, eventually doing days without the role model anywhere in sight. Fire off your anchor as you watch stop loss events appear so that you feel the urge to exit at the stop loss events.

continued tomorrow ...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Body Snatcher

This is the third in a series of articles that began March 19, 2007 with the article entitled “Alien Abduction”.

Here’s where the New Orleons Flexibility Drill gets interesting and resembles Alien Abduction.

Find a role model or make up an imaginary role model who easily exits trades at stop loss events.

Imagine watching the role model exit trades at stop loss events, doing so easily, effortlessly and without any stress whatsoever. Fire off your anchor as you watch this happen so that you too feel the urge to exit at the stop loss events.

Next, imagine the role model taking over your body. Feel your body going through the motions of exiting at stop loss events. Fire off your anchor as you watch stop loss events appear so that you feel the urge to exit at the stop loss events.

continued tomorrow ...

Copyright 2007 Raymond T. Lee. All rights reserved.
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New Orleons Flexibility Drill

Continued from yesterday.

This is the second in a series of articles that began March 19, 2007 with the article entitled “Alien Abduction”.

Let’s say you want to be able to consistently exit your trades without hesitation the instant your stop loss price is hit and that you want to do this manually (as distinct from programming your computer to do it for you).

The starting point is to install an anchor associated with the feeling of an urgent need to exit your trade at your stop loss event.

An anchor is something that reminds you to do something without having to consciously think about doing it. For example, the famous Russian scientist Ivan Pavlov noticed that whenever he put food in front of dogs, the dogs would salivate. Then he noticed that if he rang a bell while putting food in front of dogs that he could later just ring a bell and get the dogs to salivate without putting any food in front of them. The bell served as an anchor for the dogs to salivate.

Applying this to our example of stop loss execution, you could associate the sight of the stop loss event with a feeling of an urgent need to exit your trade.

continued tomorrow ...

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Alien Abduction

Did you ever wish aliens would take over your body and cause you to trade profitably?

If so, then the New Orleons (aka "Orleans") Flexibility Drill is what your need.

That’s going to be the topic for this week’s series of blog articles.

The New Orleons Flexibility Drill is a psychological technique found in the Neurolinguistic Programming school of thought.

It’s purpose is to enable you to replace one type of behavior with another type of behavior. For example, traders would want to replace the behavior of over-staying in a losing trade with the behavior of immediately exiting a losing trade at a predetermined event (the "stop loss event").

continued tomorrow ...

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Play, Put Up & Shut Up

…Continued from yesterday…This is the fifth and last in a series of articles about the 23 winning investment habits of the world’s wealthiest investors including Warren Buffet, George Soros, and others that began March 12, 2007 with the article entitled “Habits of the World’s Master Investors”.

VI. Make Your Work Your Play

1. Relate investing to satisfaction of your personal values (likes, dislikes, and priorities), not merely for the money (20).
2. Love the process of investing, not the particular assets purchased (21).
3. Live and breathe investing 24 hours a day (22).

VII. Put Up And Shut Up

1. Invest and trade your own money. If you are managing other people’s money, put your own money into the pool along with your clients’ money (23).
2. Keep as a secret your open positions and intended investments. Avoid telling other people about them (17).

continued next week ...

Copyright 2007 Raymond T. Lee. All rights reserved.
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Concentrate, Learn & Delegate

…Continued from yesterday…This is the fourth in a series of articles about the 23 winning investment habits of the world’s wealthiest investors including Warren Buffet, George Soros, and others that began March 12, 2007 with the article entitled “Habits of the World’s Master Investors”.

III. Concentrate, Don’t Dabble
1. Concentrate your money on a few items; do not diversify in terms of different assets (5).
2. Stick to investing in your specialized area of expertise and understanding (7).

IV. Learn to Earn
1. Accept mistakes as learning experiences (15).
2. Use learning experiences to increase returns and to make money more efficiently (16).

V. Delegate
After you have designed your own investment philosophy, criteria and method(s), delegate most or all of your investment responsibilities to other people who will apply your philosophy, criteria and method(s) (18).


continued tomorrow ...

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…Continued from yesterday…

This is the third in a series of articles about the 23 winning investment habits of the world’s wealthiest investors including Warren Buffet, George Soros, and others that began March 12, 2007 with the article entitled “Habits of the World’s Master Investors”.

II. Create and Consistently Apply Your Own Method

1. Develop and rely on your own investment philosophy, criteria and method(s) (3).
2. Develop and test your own personal system for selecting, buying and selling (4).
3. Wait until your entry criteria are fully satisfied before investing. When your criteria are not yet fully satisfied, refuse to enter into the investment (8).
4. Be patient waiting for investments that fully satisfy your criteria (10).
5. Search only for investments that meet your criteria and do so continuously. Accept only advice from experts you respect and ignore opinions of others (9).

6. Act instantly to enter an investment when you find one that fully satisfies your criteria (11).
7. Hold your investment until your predetermined exit criteria is fully satisfied (12).
8. Consistently follow your investment philosophy, criteria and method(s). Don’t hesitate or second guess yourself (13).
9. Get out of investments entered into by mistake as soon as you notice the mistake (14).

continued tomorrow ...

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Safeguard Money

…Continued from yesterday…

This is the second in a series of articles about the 23 winning investment habits of the world’s wealthiest investors including Warren Buffet, George Soros, and others that began March 12, 2007 with the article entitled “Habits of the World’s Master Investors”.

The numbering in brackets below are the numbers used by Mark Tier in his list of 23 items. The 7 captions and numbering within them are my own drafting.

I. Safeguard and Save Your Money

1. Make preserving capital your top primary goal (1).
2. Arrange your affairs to minimize or eliminate taxes (6).
3. Avoid or minimize risk (2).
4. Spend less than your income (19).

continued tomorrow ...

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Habits of the World's Master Investors

Mark Tier is an author and investor who says he has studied the investing styles of Warren Buffet, George Soros and others among the wealthiest investors in the world. From his studying, he has listed 23 winning investment habits and published them in his book “Becoming Rich: The Wealth-Building Secrets of the World's Master Investors Buffett, Icahn, Soros”.

Twenty three items are too many to mentally process at one time. Psychological studies have demonstrated that normal people are able to handle only about 7 bits of information at a time. This week's series of articles will be my list of 7 habits based on Mark Tier's 23 item list.

continued tomorrow ...

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Nothing is official until officially denied

...continued from yesterday...

This week’s series of articles was about dealing with risk through diversification.

While reading the following, bear in mind that nothing is official until it is officially denied.

According to a recent news article at
http://www.traderdaily.com/news/item/4715.html
“Federal Reserve governor Kevin Warsh expressed confidence Monday (March 5, 2007) that recent market turmoil doesn't pose a threat to overall stability. If anything, he implied at a Washington conference of the Institute of International Bankers, it may be useful in reminding investors about a sometimes forgotten four-letter word: risk.”

Thanks for the official denial Kevin.

Back next week ...

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Diversify with non-correlated systems

Cont’d from yesterday…

Another way to diversify is to concurrently trade types of systems that are not correlated, even using the same asset to do that with. An example would be trading an asset (such as the S&P Futures) concurrently with a trend following system and a trading-range system because those two types of systems are generally not correlated. Prices are either moving persistently in a single direction or they are stuck in a range, but not both at the same time.

A trend following system is one that attempts to profit from price tending to move over time either up or down. The moving average crossover system mentioned in yesterday’s article is an example of a trend following system.

A trading range system is one that attempts to profit when prices are stuck between two numbers, the upper number called Resistance and the bottom number called Support. An example of a trading range system is one that buys when Stochastic readings are under 20 and sells when Stochastic readings are above 80.

continued tomorrow ...

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Diversify by parameters

...continued from yesterday...

Here’s a few more methods of diversifying that are not commonly known. You can read more about them in Richard Weissman’s book entitled Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis. Or you could just read the following.

If you have a math based trading system you might consider diversification in terms of different parameter settings. For example, let’s say you have a math based system that buys when the 10 period moving average crosses above the 20 period moving average. You notice through computer testing of your system that it works almost as well when you buy as the 6 period moving average crosses above the 12 period moving average. If you trade both versions of the system (10 crossing 20 as well as 6 crossing 12), you are diversifying in terms of parameter settings.

continued tomorrow ...

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Diversify by asset name

…cont’d from yesterday…

When people hear diversification, most think about different asset names. For example, instead of putting all your money into just one stock, you could divide your money among 5 different stocks. That’s an example of diversification by asset name.

A variation of diversification by asset name is dividing your money among different types of assets such as stocks, bonds, options, real estate, etc.

continued tomorrow ...

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Diversification

This week’s series of articles is about different ways to diversify your investing and trading.

Many leading traders disparage extreme diversification. For example, Peter Lynch in his book Beating the Street calls extreme diversification “diworsification” in that going to an extreme with it gives you worse results.

The benefit of diversification is avoiding or diminishing drawdown at any given point in time. It’s based on the hope of not having all your investments go down at the same time, hoping that some of them will be going up (while others go down).

With the stock market now in a severe crash mode and with almost all futures/commodity markets going down last week, now seems to be a good time to consider diversification.

continued tomorrow ...

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Unfit to trade - active antidotes

This is the fifth and last in a series of articles that began with the article entitled “Are You Fit To Trade?” dated February 26, 2007.

Abstaining from trading when you’re not fit to trade is a passive way of carrying out the task of “self-examination”, one of the ten tasks in Van Tharp’s model of successful investors & traders.

Abstaining from trading is often the best choice you can make when you conclude after self-examination that you are unfit to trade. Another choice is to proactively do something to change your “unfit to trade” state.

One solution is to trigger yourself back into an emotional state that enables you to trade properly. That solution is described in this blog in an article dated Thursday, June 29, 2006 entitled Profitable Financial Trading In 1 Second A Day.

A second solution is use breathing to alter your emotional state, putting yourself into a state that enables you to trade properly. That solution is described in this blog in a series of articles starting with the one of Monday, February 12, 2007 entitled Better Trading by Better Breathing.

back next week ...

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Skip trading during infra-structure issues

This is the fourth in a series of articles that began with the article entitled “Are You Fit To Trade?” dated February 26, 2007.

More environmental reasons for skipping out on trading is when your equipment and your trading infra-structure are not fit for trading.

Refer to my series of articles entitled Profit By Skipping Out that started July 11, 2006.

It’s better to skip out on trading than to continue trading when you’re in the middle of equipment and infra-structure issues such as the following.

The exchange where you trade is not operating normally.

Your order entry equipment is not operating normally (unless you have backup alternative equipment that you can use). Such equipment could be your:
-telephone
-computer
-internet service provider
-broker’s trading software

continued tomorrow ...

Copyright 2007 Raymond T. Lee. All rights reserved.
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