A lesson everyone must learn is the need to persist when it is difficult. When we experience defeat and rejection, the easiest and most logical thing to do is to quit, but the successful have learned to persist.

Mark Victor Hansen and Jack Canfield

Before Mark Victor Hansen and Jack Canfield became the bestselling authors of the Chicken Soup for the Soul series, which has now sold over 100 million copies, they were rejected by 140 publishers and told by their agent, “I can’t sell this book—I’m giving it back to you guys.”

The Wright Brothers

Before the Wright brothers became the inventors of modern aviation, they had thousands of failed experiments and glides. Orville Wright wrote, “Our first experiments were rather disappointing. The machine . . . at times seemed to be entirely beyond control” (Wilbur Wright, Orville Wright, Octave Chanute, and Marvin Wilks McFarland, The Papers of Wilbur and Orville Wright: 1899-1905, (McGraw-Hill, 1953) p. 75).

Stephen R. Covey

Stephen R. Covey, author the The Seven Habits of Highly Effective People, created one of the largest leadership development companies in the world. Before the company was worth $160 million, the company endured 11 straight years of negative cash flow. The company had nothing in the bank, they were totally extended on their accounts payable, and their credit lines were maxed out. Their “debt to tangible net worth” ratio was 223 to 1. Over the next two and a half years, the company value grew to a worth of $160 million (Stephen M.R. Covey, The Speed of Trust, (New York: Free Press, 2006) p. 109).

Sam Walton

Before Sam Walton founded Wal-Mart, he lost his first store, a Ben Franklin variety store, after 5 years of hard work. Sam Walton wrote of the experience, “It was the low point of my business life. I felt sick to my stomach. I couldn’t believe it was happening to me. It really was a nightmare. I had built the best variety store in the whole region and worked hard in the community — done everything right — and now I was being kicked out of town. It didn’t seem fair. . . I’ve always thought of problems as challenges, and this one wasn’t any different. . . The challenge at hand was simple enough to figure out: I had to pick myself up and get on with it, do it all over again, only even better this time. . . I had a chance for a brand-new start, and this time I knew what I was doing” (Sam Walton, Sam Walton, (New York: Doubleday, 1992) p. 30-31).

Walt Disney

Walt Disney suffered a devastating setback in 1928; a blow so harsh that his career seemed about to disintegrate. He lost his first successful cartoon creation, “Oswald the Lucky Rabbit,” because he had naively signed away the ownership rights. Emerging empty-handed from the debacle, Disney didn’t quit. He continued to work and his next creation was Mickey Mouse (Daniel Gross, Forbes Greatest Business Stories of All Times, (New York: John Wiley & Sons, 1996) p. 123).

Colonel Sanders

Before Kentucky Fried Chicken (KFC) was one of the world’s largest restaurants, Colonel Sanders drove all across the country from restaurant to restaurant cooking batches of chicken for restaurant owners and their employees looking for someone willing to purchase his chicken recipe. Colonel Sanders persisted through 1,009 rejections until he got a ‘yes’ (Anthony Robbins, Unlimited Power, (New York: Simon & Schuster, 1986) p. 14). After his first ‘yes,’ his franchising idea began to take off. By 1964, at age 74, Colonel Sanders had more than 600 franchised outlets for his chicken in the United States and Canada, and he sold his interest in the U.S. Company for $2 million ($13 million in 2006 dollars). KFC now does billions in sales each year and serves millions of customers daily in over 13,000 restaurants in 80 countries.

Sylvester Stallone

Before Sylvester Stallone was a famous writer and actor, he was rejected by over 600 casting agents and was unable to sell his first 8 screen plays. In 1975, Stallone saw a fight between Muhammad Ali and Chuck Wepner in which Wepner was a 30:1 underdog. Inspired by this fight, Stallone began developing the Rocky screenplay. The script was purchased by United Artists and opened in theaters on November 21, 1976. Rocky took in $117 million ($389 million in 2006 dollars) in U.S. box office sales, with Stallone making more than $5 million ($16.6 million in 2006 dollars).

Conclusion

There are no failures in life, only those who quit before success. Failure is a part of learning. The formula for success is trying until you succeed. If you give up during the struggle, you will never experience the victory.

This is a guest post by Cameron C. Taylor, author of the book Does Your Bag Have Holes? 24 Truths That Lead to Financial and Spiritual Freedom. Find out more at www.DoesYourBagHaveHoles.org

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Since then, I have bought and sold many stocks. Some I have turned over only after holding them for a few days, like those I bought through Scottrade recently, to make a few quick bucks. Some I have been holding for years and have no plan to sell, such as China Life Insurance (LFC) and Visa (V). For all those trades, I applied little, if any, technical analysis in determining when to buy. While timing doesn’t really matter too much if I want to hold the stock for years, it has been proven deadly for some stocks that I never had intention to keep. Then I never seriously learned anything on technical analysis either, except reading pieces of information here and there. The book, Come Into My Trading Room, A Complete Guide To Trading, by Alexander Elder, is the first book I read on technical analysis.

Alexander Elder’s book is really eye opening for me and I wish I had read it early, not until now. Though I ever wanted to be a trader and won’t become one, I do want to improve my trading so my trades can be more profitable. Dr. Elder’s book offers insights from a very successful trader, from whom I can learn a lot. In the book, the author shared what he called the three M’s for successful trading: Mind, Method, and Money, which are described in the book as the trading psychology, trading method, and money management. Dr. Elder spent a lot of time discussing technical analysis in the book.

In the trading method part, the author explained in great details on how to read stock charts and how some widely technical indicators work. Though there are many tools a trader can use to make trading decisions, Dr. Elder cautioned against using too many indicators. If 5 signal can’t make a trader feel confident about a trade, 5 more aren’t likely to help. So in the book, the author focused on 5 indicators: moving averages, channels, MACH-Histogram, Force index, and one from several candidates such as Elder-ray and Stochastic, etc. The goal, of course, is to help a trader develop confidence. Among the five indicators, Force Index is actually Dr. Elder’s own secret weapon, which helps identify market’s turning point by putting price change and volume together.

Though the book has been published for nearly 7 years and the author claimed that Force index has been adopted in many technical analysis tools, I wasn’t able to find it in a few that I am using. So I have to plot it myself to see how it looks and how to use it. I have written a small MATLAB program to do my own analysis using Force Index (the red line in above plot) and other indicators.

In addition to trading method, Dr. Elder also spent a good deal of time discussing trading psychology and money management, two essential pieces of being successful in stock trading beyond the trading techniques. One of the method he suggested every trader do is recorder keeping (write down the purchase price, print out the chart, etc). As a trader learns from the stock market, he/she needs to constantly go back to his/her trades to identify errors so they won’t be made again in the future.  He also recommended dividing the trading account into several parts such that the whole account won’t get hurt too badly if one part doesn’t do well.

I am still absorbing some concept from the book and trying some ideas myself, but so far I think the book is a good read.

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The following is a guest post from Dr. Bonnie Eaker Weil, author of the book, Financial Infidelity: Seven Steps to Conquering the #1 Relationship Wrecker. Dr. Weil has been an internationally acclaimed relationship therapist for thirty years. New York magazine named her one of the city’s top therapists and Psychology Today named her one of America’s best therapists.

It’s imperative to talk about money in some capacity – your opinions, views, habits, etc. early on in the relationship, hopefully before you even cement your relationship by having sex! That may seem extreme, but who wants to go down the road to sexual intimacy only to have it torn apart by a struggle in the realm of financial compatibility?

This is why I’ve created the “Smart Heart Dialogueâ€? to help you share your financial history with someone you’re becoming intimate with. Many of these conversations can be triggered by a transition in a relationship – use that transition to be open and honest in finding out what you can about the other person’s view of money. Understand that a person’s money habits can be ingrained in them from a very young age, and therefore are usually held to pretty tightly, even if that person doesn’t realize it!

As you transition through a relationship there are a few scenarios that lend themselves to talking about money. Here are a few:

Q: If we move in together, do we split all the bills?

A: This can be a good time to talk about expectations for how to deal jointly with finances outside of a marriage. It’s not usually best to combine everything right off the bat, and a good way to deal with this question can be to suggest having a “fundâ€? that you both do contribute to equally, that can be used for your fun activities – then, you can make joint decisions about that fund.

Q: I overspent while we were on vacation, can you lend me some money?

A: The person asking for a loan may not take money and budgeting as seriously as you do. Or maybe you overspent too. Whatever the case, you need to evaluate how you deal with money, leisure activities and “spur of the moment� purchases.

And if you’re in a committed relationship where you’ve had some of the more basic talks there are still ways that money conflict can manifest itself in ways you weren’t expecting!

Q: Do you have to review my credit card bill each month?

A: The person asking this question may feel like a child in the relationship – always being checked up on. If that’s the case, as a couple you need to work hard toward sharing the “powerâ€? of the checkbook. One person shouldn’t feel like they’re less-informed or less-involved in the process. This can lead to contempt and revenge spending.

Q: We can’t afford to go on vacation with your family (or our friends) again this year if they’re going to invite us as their guests, then make us pay for our share of everything.

A: You need to lay out expectations for big ticket items and expenses at the on-set. Together, decide what you can afford and if necessary inform the other party, and present it as a unified decision.

By being honest and respectful you can get through these dialogues and relationship transitions and grow with your relationship as it continues to change over time!

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Anyway, while I am still trying to finish up the book (too many things to do and too little time), I got the following financial IQ quiz from Jeff yesterday that I would like to share with everybody.

What’s Your Financial IQ?

1) Which of the following is not an asset?

1. Gold
2. The Corvette you bought for your 40th birthday
3. A business
4. Wheat

2) On average, Americans save how much of their income?

1. Enough to buy a new flat screen TV
2. Why save when you own a house?
3. They don’t save. They owe.

3) A retirement plan that is paid for by your employer is known as a:

1. Defined benefit plan
2. A miracle
3. Both

4) What kind of income is the hardest to protect from financial predators such as taxes?

1. The dividends that just got cut from the financial stocks you bought
2. The $50 and rocking CD collection you inherited from your uncle Craig
3. The forty hours worth of cash your company pays you for sixty hours of work

5) What is the best way to create a budget surplus?

1. Cut down on expenses by buying a fuel efficient car
2. Get a higher paying job to make more money
3. Saving and investing before paying your bills

6) An example of leveraging your money is:

1. Putting money in an interest bearing savings account
2. Buying investment real estate with a bank loan
3. Going to a local casino.

7) The best way to invest is in a diverse portfolio of stocks, bonds, and mutual funds. True or False?

8 ) The key to becoming wealthy is:

1. Only having two scotches per night
2. Buying high and selling low
3. Selling the CD collection you inherited from Uncle Craig
4. Increasing your financial intelligence

What are your answers?

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The book is actually an autobiography of a young man, Tim Skyes, and how he became a millionaire by trading stocks in the late 90s and early this decade, which had turned his $12,415 trading account into a fortune of $1.65 million in just 3 years. After finishing the book, I have no doubt that Tim is very successful in picking and trading stocks and making money out of them. His experience is quite inspirational as not a lot of people can make a ton of money and start their own hedge fund at the age of 22. However, I didn’t find too much value in this book, partly because I am not a trader. In fact, for an average Joe or Jane who would rather take a get-rich-slowly approach to their money, then this book doesn’t offer many insights on the fundamentals of investments.

The majority of the book was devoted to details of how Tim traded stocks during the dot com bubble. Starting to follow the stock market at 12 when he bought his first stock, Tim discovered what he called “patterns” of how the stock prices moved and believed that he could make money from what he observed. And indeed he did. What I noticed the major theme from his trading days when he was then a college student was the pattern. The pattern that guided him to make the buy and sell decisions.

During the early days as a trader, he bought penny stocks whose prices were almost entirely driven by “press release,” whether there was a business or not didn’t matter at all. Like many people were just crazy about hot tech stocks, Tim spent his school days scrolling through news sources, discussion forums, and bulletin boards to find stocks he could profit from. Later, he shifted his focus on IPO tech stocks and kept testing and applying new trading techniques while watching his money grew. At that time, it was not rare to see prices of internet stocks doubled or even tripled in the first day of trading, though those companies never made a penny. This paragraph from book could best describe what was happening in the peak time of day trading:

The actual business execution was irrelevant. Traders didn’t care about the fundamentals of these companies; their only concern dealt with these companies’ ability to issue press releases that would influence other traders to bid the stock higher.

That could be true back then. However, I am not sure how the techniques that helped Tim make his first million could be applied to today’s market for investors like me who prefer buy and hold. The market has changed and lessons have been learned.

I have read quite a few books on finance and investing and this book is different from all the others. Though in the book Tim used quite some examples to demonstrate how he made, and sometimes lost, his money, not much was talked about investing. If that’s what you are looking for, then you will have to look something else.

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In his latest writeup, Mr. Bogle uses a chapter to discuss exchange traded fund (ETF), which he describes as “a fund designed to facilitate trading in its shares, dressed in hte guise of the traditional index fund.” In arguing the difference between classic index fund and ETF that tracks an index, Mr Bogle gives us a table

to make the case that

after all the selection challenges, the timing risks, the extra costs, and the added taxes – typical ETF investors have absolutely no idea what relationship their investment return will have to the return earned by the stock market.

However, with some exceptions, Mr. Bogle seems to agree that “all-stock-market ETFs are the only instance in which an ETF can replicate, and possibly even improve on, the five paradigms of the original index fund listed earlier. But only when they are bought and held for the long-term.” On the other hand, for sector ETFs, Mr. Bogle thinks that

whatever returns each sector ETF may earn, the investors in those very ETFs will likely, if not certainly, earn returns that fall well behind them. There is abundant evidence that the most popular sector funds of the day are those that have recently enjoyed the most spectacular recent performance, and that such “after-the-fact” popularity is a recipe for unsuccessful investing.

If ETFs are really as bad as Mr. Bogle can describe, why they are introduced in the first place? Well, the answer is very simple: because “ETFs are clearly a dream come true for entrepreneurs, stock brokers, and fund managers.” But what about investors who poured billions of dollars into ETFs?

Is it too much to ask whether these index fund nouveau are an investor’s dream come true? Do investors really benefit from being able to trade ETFs “all day long, in real time”? Is less diversification better than more diversification? is trend-following a winner’s game, or a loser’s game? Are ETFs truly low-cost when we add brokerage commissions to their expense ratios? Is buy-and-sell (often with great frequency) rally a better strategy than buy-and-hold? If the classic index fund was designed to capitalized on the wisdom of long-term investing, aren’t investors in these index funds nouveau too often engaging in the folly of short-term speculation? Doesn’t you own common sense give you the obvious answers to these questions?

Are you going to invest in ETFs?

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The article, “John Bogle Says ETFs a Mistake for Many Investors,” cited Mr. Bogle, founder of Vanguard and pioneer of index mutual funds, as saying that with a flood of new ETF offerings, investors are “performance-chasing” by investing in ETFs that are lack of broad market coverage. In his previous comments on ETFs, Mr. Bogle said that “the newest ETFs have focused more and more on narrow segments of the markets rather than the stock and bond markets as a whole.” And these ETFs are “just disasters waiting to happen.”

The article also published some of Mr. Bogle’s remarks that touched on various issues from mutual fund industry to indexing to ETF investing. The following are excerpts from the article that I think carry Mr. Bogle’s word of wisdom:

Indexing

It is so clear that the more you speculate as a mutual fund investor the worse you do. It’s a mathematical certainty that long-term investing is better. Think about it this way: The market has half long-term investors and half short-term investors. The long-term investors don’t trade any of their stocks so they get the market return. The short-term investors trade back and forth. They will have to lose.

Target-date funds

The target-date fund is the single best alternative to indexing. But target-date funds are all over the lot in terms of the ways they do things. In no case do they fail to reduce equities as age goes on ….. (but) target funds with very aggressive managers are going to be anathema and funds with high costs are going to be anathema.

ETFs

the fees have been great for financial entrepreneurs like Barclays and PowerShares and WisdomTree. It’s great for brokers since there are a staggering amount of commissions. And it’s great for advisors because it allows them to do something with their clients’ portfolios. But is it too much to ask that these products be good for investors?

Mr. Bogle is having his sixth book, The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns, coming out tomorrow, March 5, 2007. According to the article, the book reserves a whole chapter for Mr. Blog’s harsh words on ETF. I just ordered a copy of the new book and can’t wait to see what Mr. Bogle has to say about ETF since I have invested quite heavily in ETFs, though I don’t do active trading. If you are interested in getting the book for your own reading, I found two places to pre-order the book [Affiliate links]:

• Buy.com: $13.56 plus $3.30 shipping, total $16.86
• Amazon.com: $13.57 plus $3.99 shipping (free shipping for $25 or more), total $17.56

Barnes & Nobel also has the book for $13.96. I usually buy from Overstock.com since their price is lower than what Amazon.com charges and shipping is always $1.40. But they don’t have the book at this moment.

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