Wisdom of Rich Dad

In recent years, there has been a tectonic shift as Wall Street brokers leave their big firms to set up shop on their own. Generally speaking, such a move is bad news for the biggest clients as they are able to participate in hot IPOs and other transactions, and they may lose that access when a broker jumps ship. But for the rest of us, this transition is good news, as the newly independent broker can simply focus on your needs and not the big brokerage’s needs. Big firms won’t always act in their client’s interests. As we recently saw with Goldman Sachs (NYSE: GS), when there is a conflict of interest, the house always wins.

To make sure your broker is watching your back, keep an eye out for these pitches.

1. “My analyst loves this stock.”

If your broker is pushing a stock idea on you, it’s at least a few days old, and perhaps a lot longer than that. The best ideas are first shared discreetly among the firm’s most favored clients, and even more egregiously, with the firm’s proprietary trading desk. Ever wonder how these internal trading operations seem to make money, even when their clients lost money? Now you know. And sometimes, a firm decides that its traders hold too much of a certain stock. And guess who has been told to help get rid of those shares? The broker. The solution: work with folks who have zero conflicts of interest.

2. “We got this stock at a great price for you.”

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According to the Cashflow quadrants by Robert Kiyosaki, I will need to switch to either a business owner or an investor to become wealthy. If I were to choose the path as an investor, I realized that there are certain responsibilities that I need to fulfill.

What are the responsibilities?

To answer this question, let use the example of Investing in mutual funds.

As we all know, fund managers managed mutual funds. They are expert and more qualified than the average investor in stock investment. Thus they are in a better position to make money from the Stock Market.

Another advantage of mutual funds is that there is diversification to reduce risk. The amount of money is pooled to invest in different stocks, thus achieving diversification. These are the two selling points of investing in Mutual Funds.

When I initially started to invest in mutual funds, I never do any detailed research. Like most people, I simply invest in a mutual fund that I think it will make money. The decision is usually purely based on the information presented by the sale persons. Happily, I invested and forget about it. I felt that since the expert fund manager is managing my investment, I had nothing to worry about. And I never really monitor the performance of the mutual funds.

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A stock’s yield is calculated by dividing the per-share dividend by the purchase price, not the market price.

Price and yield move in opposite directions. As stock prices rise, dividend yields go down. As stock prices fall, dividend yields rise.

Let’s look at an example: A fictitious stock trades for $100 a share and pays a $5 dividend. You don’t even need a calculator to determine its yield: It’s 5%.

Conventional thinking is that if the price of this mythical company rises, say to $200, then its dividend yield will fall. And indeed it will — it will be cut in half. $5 / $200 = 2.5%. But that only applies to investors who bought the shares at the new price. The investor who bought at $100 is still earning a 5% yield.

But here’s where things get interesting — and profitable. If the share price moves in the other direction, down, and it drops to $50, then the dividend yield will rise: $5 / $50 = 10%.

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Every investor starts out believing he has the secret to success. That he is just as smart, if not smarter, than 99% of the other investors out there.

It generally doesn’t take long for him to discover that he’s one of the 99%, not one of the 1%.

The most successful investors of all time — Buffett, Lynch, Templeton — knew from the very beginning that what stands between mediocrity and greatness is the ability to think with the head, not the heart, and to stand by one’s convictions.

No one starts out thinking, “Gee, today I’m going to make all the mistakes in the book.” But when the markets start roiling, only those with an iron constitution can prevent their emotions from taking control. Humans are hard-wired to react emotionally, especially when it comes to money.

As the greats already know, the emotional response is almost always the wrong response. But if you train yourself to recognize when your feelings take over, you can take positive action to keep them at bay.

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If you’re like the majority of investors, I’d bet you have a negative view of stocks trading on the “pink sheets.”

Most people conjure up thoughts of risky penny stocks that are more gambles than investments. In fact, many brokers provide warnings to customers before they purchase these stocks, and some won’t even let you buy them.

But there’s a change coming in the market, and it’s good news for dividend investors.

In a bid to clean up their act (and their perception among investors), Pink OTC Markets Inc., who provides the system for trading pink sheet and over-the-counter stocks, is now slapping warning signs on some of their stock listings.

These include yield and stop signs to let potential investors know that the company has limited or no information. There is even a skull and crossbones for companies that are highly questionable. The idea is to warn investors to look before they leap into a company that doesn’t provide adequate disclosure.

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As an investor, you should always know what your objectives are. One of the biggest traps investors fall into is buying a gold position that has little or no relationship to his or her objectives. Gold is not for everyone. Buying gold is usually used as an insurance policy in case other investments such as stocks go down.

Gold is in a bull market right now because its core fundamentals are so outstanding. It is also doing well because the stock market is tanking. You see, that is the “insurance” part of gold. When stocks go down, gold often goes up. A position in gold will often offset your losses in the stock market in troubled times.

The price of gold may jump up to thousands of dollars per ounce in the current rally or it may struggle and fall lower. No one knows for sure even if they pretend to. One thing is for sure: if the stock market continues to fall, things will look good for the gold investor. Gold is the ultimate alternative investment because it is tangible.

Many people, including the die hard stock investors, often still see gold as the most undervalued asset group in a standard portfolio mix. In general, gold becomes more desirable in times of banking failures and tough economic times. Also, like all investments, gold becomes more attractive to more people the higher it goes. People don’t seem to want to miss out and that is why both gold and stocks tend to go up too high before they fall back.

Before you invest in gold, you should carefully consider what percentage of your overall portfolio you wish to risk in gold-related investments. If you are thinking about investing in gold, it is worth giving the same consideration to your purchase as you would to any other investment. When you buy gold investments, you lower risk in your investment portfolio.

As more investors realize that gold is a great way to profit in today’s uncertain climate, more fund-makers have been happy to supply the means with which to buy gold. There is a whole world of excellent alternatives out there for investors who wish to invest in gold. Just be sure you understand what your gold objectives are before you allocate too much of your portfolio towards it. Gold can be a great addition to any portfolio but only in the right amounts. Putting too much of your net worth into gold would be the same as gambling.