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Prologue

What you’re about to read is not your typical kind of investment advice. Many will find it controversial or shocking. The financial world will hate it and they’ll probably call me a heretic for writing it.
For over 39 years I’ve been a professional investment advisor on Wall Street. There’s not too many things I haven’t seen, done, or heard about in the financial world. Most of it’s not pretty but what you’re about to read is all true.

This report is not going to answer all your questions about investing. But it’ll make you question a lot of what you think you know about investing.  Hopefully, it will open your eyes to what really goes on behind the scenes on Wall Street.

So, if you’re looking for tips on “how to make 19,243% from one
special stock” (who do you know that’s done that?) then you should stop reading now.

You’re not going to find lots of fancy charts, graphs or statistics (they’re confusing and hard to understand).  But you will discover practical, actionable and valuable solutions to help you avoid costly mistakes. And they’re written in plain, easy to understand English (not the awkward Wall Street jargon).  You’ll also see how Wall Street uses its unfair advantage to prey on the
average investor…And, more importantly, how not to get hustled by the pros.

Understanding the Opposition

To get the most out of this report you must accept some basic realities about investing.  First, we all make mistakes…especially when we’re not prepared.  Second, most people end up victims of their own fear and greed because they don’t understand who they’re up against.  Notice I said “who” you’re up against.  The term Wall Street covers a broad spectrum. But the heart of the financial world is run by a small group of insiders we’ll refer to as “The
Club” (more on that later).

They count on you not being prepared…and they lay plenty of traps for the average investor.
There’s an old saying “If you’re going to walk through a mine field,
follow someone”.
This special report contains vital information based on the experiences
of a 37-year Wall Street veteran, me.
So, think of it as a road map to help you navigate the mine fields of
investing.

And it’s not just a map for experienced investors who want to improve
their win/loss ratio. It’s also for the new investor who wants to put
their hard-earned dollars to work but they’re afraid to start.
There has always been a “game within the game” on Wall Street. But
before you learn the secrets to winning you must first learn how to
avoid the most common mistakes.

Why People Make Mistakes

Have you ever said (or heard someone say) “Every time I buy a stock it
seems to go down” or “I just can’t figure out how the stock market
works so why bother?”
At one point in time we’ve all probably made those comments.
Most people make mistakes simply because they’re not aware of some
very important unwritten rules about investing:

RULE # 1: Wall Street is NOT your friend
RULE #2: “The Club “controls, makes and changes the rules at
their discretion
RULE #3: …”and you ain’t in it” (paraphrase from George Carlin)
There are many other unwritten rules on Wall Street (too many to
cover here). But understanding these simple ones gives you a
“yuuuge” advantage over the average investor.

It’s Business, not Personal

Most Wall Street firms are experts at complicating investing. It’s how
they make money at YOUR expense. And they use the presstitutes in
the financial media to lead you down their twisted path.
They all try to convince you that without their “extensive market
research” you don’t stand a chance. It’s also how they justify charging
outrageous fees.

Before diving into the most common mistakes investors make, you
need to see what goes on behind the curtain of the investment world.
The following example is a sad, but true, reality of how “The Club”
advises (Cough! misleads…Cough!) their investors.
On Wall Street, a financial analysis/report works like this…The
management says to their top gurus, “We have a certain conclusion
about (XYZ Company) that we want to defend. Can you back it up”?
(Right away you can see that they’re not concerned about integrity and
objectivity)

Is essence what they tell their analyst is: “Here’s the conclusion we
want to defend and if you like your FAT paycheck and lovely
mega-yacht on the Hampton’s coastline, you’ll do the
following…”

At the same time, they’ll tell you how great they are at serving the
needs of the investment world.
To illustrate my point, during the 2008 meltdown the CEO of a
famous Wall Street firm (which created AND sold many of the bad
mortgages products that caused the housing market to collapse) said
they were “…doing God’s work.”
Remember, despite all their claims, Wall Street doesn’t care
about you. They’re only concerned about their bottom line and yearend bonuses.
So, having started on a cheerful note, let’s look at how they trap you.

Misleading: It’s All About the Money

It’s easy to mislead someone when you have a major mouthpiece doing
the work for you.
Wall Street uses the Financial and Mainstream media (MSM) outlets
to influence public opinion. This allows them to profit regardless of
which way the markets are moving.
Let me give you an example:
1. A company puts out a report stating “…XYZ stock is our top pick
for the next 12 months…’back up the truck,’ buy it…blah, blah,
blah!”
2. The Gurus make a compelling case (as they were told) for you to
own this stock
3. The sales force (backed by the presstitutes) goes all out
promoting the stock
4. The price and volume of shares goes up. *Note: Increased
volume from new buyers allows large sellers to get out
5. At the same time, the company making the recommendation
uses this opportunity to unload their institutional shares to the
public
Volume and price eventually slows down and surprisingly (sarc) the
company announces a bad earnings report or some unforeseen
problem happens and BAM…the stock gets crushed.
It’s the oldest trick in the book. They use the power of the media and
their sales force to get you buying while they simultaneously sell the
same stock for their institutional clients.
Joe average is stuck holding the bag again…and clueless as to what
happened.
And it happens all the time.
It’s like the instructions on the back of a shampoo bottle: “Wash,
Rinse, Repeat”.
Okay, now that I’ve REALLY brightened your day, let’s look at the four
most common mistakes to avoid.

Mistake #1: Failing to “Ring the Cash Register”

One of the best traders I’ve ever known happened to be a client and a
friend. His instincts and timing were uncanny. His approach to
investing was fearless.
Unfortunately, he lived a tragic childhood. As a teenager, he was
forced into one of Hitler’s Nazi war camps in Poland. And he was the
only one of his family to survive.
On rare occasions, he’d share fascinating and heartbreaking stories
about the day to day survival mentality he was forced to live under.
He invested with the same mindset.
One day he explained to me why he never hesitated to take a
profit. He said (in broken English) “Mine friend, you must allvays
remember to ‘RRINNGG ze cash register’ because ze profit you have
one day may be gone ze next.”
Those simple words of wisdom can save, and make, you a lot of
money.
********
Not taking a profit comes from the naïve mind-set of “set it and forget
it.”
We fall into this trap with excuses like “not wanting to pay taxes.” Or
we just hope our stock continues to go up.
It’s a very subtle mistake…and consequences are often severe.
To illustrate my point let’s look at a typical 401k investor.
Your company’s 401k plan offers you numerous (and confusing)
options for investing. Legally they can’t tell you how to allocate your
money. But the plan sponsor offers pre-packaged investments ready
made for the lazy investor.
They’re supposedly based on age, risk tolerance, and
diversification. Some plans have maturity dates to coincide with your
retirement age. (Sounds easy enough so far, right?)
You, the trustworthy employee, accept the packaged plan and forget
about it.
Here’s the problem. The prepackaged “safe” plan is locked into certain
investments and, although it’s managed, they don’t change when the
market changes.
What happens if you bought into the package at the top of the
market? (Hmmmm?)
Eventually the market corrects or even crashes.
No one calls to tell you to get out.
You suffer through months of a painful decline.
While your account is dropping 10-20-30%, you stop paying attention
to it.
Eventually you reach the point where you “can’t take it anymore” and
THEN you desperately call your plan sponsor and say “get me out.”
Congratulations. You’ve completed the cycle by selling when “The
Club” is buying.
Wash, Rinse, Repeat.
CONCLUSION: Don’t be afraid to “RING the cash register.” This is
especially true in a retirement account where you don’t pay taxes on
your gain.

Mistake #2: Fighting the Trend

The four most dangerous words in the investment world are “This time
is different”.
I can’t begin to tell you how often people fall into this media induced
trap.
But let me counter this by telling you it’s NEVER different.
Financial history proves how the markets move in cycles and
trends. Ironically it also proves how people are suckered into false
beliefs about trends.
Trends don’t change because we have a new president or we’re in a
new year. Important long term trends take a long time to develop and
even longer to reach a turning point.
During a steady rise in the market you’ll hear “The markets are
irrational”.
But you must understand that the markets can remain “irrational”
longer than you can remain solvent.
A classic example of this happened in December 1996. The Federal
Reserve Chairman, Allen Greenspan, declared that the market was
showing signs of “irrational exuberance”. Remember that one?
I can still remember the talking heads panicking when the most
powerful man on Wall Street indicated that the markets were “too
high”.
Many investors went against the rising trend and sold into fear. Those
who stayed in experienced one of the biggest three year runs in
history.
The DOW Jones Industrial Averages (DJIA) nearly doubled going
from 6,348 to 11,723 The S&P more than doubled going from 758 to
1,552. The NASDAQ nearly quadrupled going from 1,256 to 5,048.
During the last few months of the upswing the sheeple decided to get
back in only to be slaughtered by the “Tech-Wreck” in March 2000.
Despite Greenspan and his minion’s irrational exuberance claim, the
trend continued up.
Wash, Rinse, Repeat.
CONCLUSION: The trend is your friend. Everything else is noise.

Mistake #3: Getting Advice from Cousin Eddie

It never ceases to amaze me how often investors make this
mistake…And it’s usually a sign that the market has peaked.
We all have a “Cousin Eddie” or that one annoying friend who loves to
brag about how much money they make in the market, right?
Beware! They’re often more dangerous than the MSM.
Let me explain.
During a bull market run, stocks climb what’s called “a wall of worry”
(WOW—another annoying acronym).
A Wall of Worry is when fear of a crash causes most investors to stay
on the sidelines. Consequently, they miss most of the upside move.
Here’s where “The Club” uses people like Cousin Eddie to set the trap.
After seeing his portfolio go up every month, Cousin Eddie (as if on
cue) will brag about all the money he’s making in the market. This
isn’t a result of his investment skills. He’s simply benefitting from
favorable market conditions.
After getting sick and tired of hearing Cousin Eddie boast about his
success, most investors decide that now is a good time to get in. (This
is what’s called the “herd mentality”)
Perversely, the market will reinforce this action by surging another 10-
20% in a very short time. This reassures those who are late to the
game how smart they are for finally getting in.
Picture this scenario:
1. Fear keeps people on the sidelines while the market climbs the
“Wall of Worry”
2. The market grinds up 20% (or higher) frustrating the masses
3. The MSM (prompted by “The Club”) cheers the surge and tells
you to get in
4. When the late comers get in, “The Club” sells into the increased
volume
5. The additional 10-20% surge is what’s called a “blow-off” or top
6. The market hits a wall and crashes
The next thing you know you’ve lost 20-30-40% and you can’t
understand what happened…And, of course, Cousin Eddie will tell you
that he got out at the top.
Wash, Rinse, Repeat.CONCLUSION: Don’t base your decision upon what everyone else
(especially Cousin Eddie) is doing.
Footnote: I run a column in my monthly newsletter that covers “How
to choose the right Financial Advisor for you”. You can find it at
www.financialsmatter.com

Mistake #4: Following the Advice of the Media Experts

(If you only take away one thing from this report, make sure it’s this
point. It will save you a fortune)
The Club owns the media, the courts and the regulators…and they’re
NOT your friend. Therefore, you must learn to filter everything they
say.
What we used to refer to as legitimate financial news has today
become a digital three ring circus. And it’s loaded with clowns, court
jesters, snake oil salesmen and lots of bells and whistles…literally.
Most of these talking heads are highly overpaid actors who have very
little understanding of how the markets work.
They say what their Wall Street overlords tell them to say. And most
of the time they’re reading from Teleprompters. They focus on the
“hot topic of the day” because it sells advertising. (It’s what keeps
them in business)
Right now, I’d bet many of you are thinking, “But they seem so smart
and sincere”.
Of course, they’re sincere. It’s their job to convince you about what
“The Club” wants you to hear.
Have you ever noticed that when the market is making new highs
they’ll cheer and encourage you to buy more? But when the markets
are crashing they’ll say, “…don’t panic, it’s normal for the market to
have minor corrections…In fact, now is a good time to ‘average down’.”
Sound familiar?
But when the talking heads finally start using words like “capitulation”
it’s too late to sell.
To avoid this trap, you should follow the advice of Warren Buffet…” Be
fearful when others are greedy and greedy when others are fearful”.
CONCLUSION: Stop paying so much attention to the Talking
Heads. Do your own research. Or find a trustworthy advisor (not
cousin Eddie).

One Final Point

The public is unaware that most professional money managers
(including mutual funds and hedge fund managers) fail to beat the
historical returns of the market. It’s a fact rarely reported by the
media.
So why do the Gurus have a tough time beating the S&P 500?
It’s simple. They become victims of the “herd mentality” and make the
same mistakes outlined in this report.
Ironic, isn’t it?
But I’m not saying you should buy the indexes and forget about
them. (See Mistake #1)
You must always remember who (and what) you’re up against.
By avoiding these simple mistakes you’ll invest with discipline and not
be a victim of fear and greed…and you’ll be able to beat the crap out of
the “experts” while you laugh all the way to the bank.

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