Personal-finance

I had the chance recently to read "A Fool and His Money" by the same author, and enjoyed it: he described a comic series of mishaps as he sought to replace employment by investing. (A similar book about a pilot investor losing all in a few years appeared around 1960).

I tend to be a bear by now, so I thought I would agree with this book. The surprise for me was the anecdote-filled journey through markets of the last century - the ups-and-downs come alive in this book. He has a wry chapter where he points out that "Profit from the coming collapse" books appear every year or two, rain or shine, for the last 15 years; in that sense 1998 is more of the same. The author is a Harpers/Atlantic type journalist who aims to be erudite and entertaining at the same time.

No, he doesn't have secret advice on how to make a killing by shorting stocks now (he covers the most recent bear funds like 'Prudent Bear' of David Tice). He explains why hedge funds may not work, may soak huge commissions, and why bears & shorters are tax-disadvantaged.

Another witty chapter is "Where are the Bears' Yachts?" - even the brightest consistently pick the sorriest guaranteed future losers and win millions by shorting them.

Bonds
1. Bonds are profitable as interest rates are dropping, if a capital gain can be realized. A capital gain occurs when the seller has bought a bond with a high yield rate and the sells when the market yield has dropped. The difference in yield creates value because the seller's bond is preceived to be more value because of the difference in the yield cash flow. The perceived value translated into a higher selling price, for the seller. Price is a function of the cash flow difference in the yield. The positive difference in buy and sell bond price is the capital gain.

2. When interest rates are climbing, investor money moves back into security, treasures, funds which take advantage of the higher interest rates.

Stocks
1. 15 percent growth is a 20th century phenomenia
2. Stock before 1950 averaged 6 percent. The author is not impressed with Stocks nor their long term performance.
3. Stocks can fluctuate 50 percent in price in a given year. This can lead to mixed signal of buy high and sell low rather than buy low and sell high.
4. Market timing to buy and sell a stock creates massive numbers of losers
5. Buying and Selling Stocks always makes the Brokerage House the winner. The experts have 100 to 1 the advantage.

Gold
1. Gold doesn't earn interest. Gold costs to store. Gold is a safety against the dropping value of cash.
2. Increases during inflation. Inflation increase as the government prints more money

Cash
1. Cash is the most desired medium. Cash is liquid and readily exchangable for goods and service. The decision to buy company stock or build a new company is based on the replacement value of the company.
2. The Federal Reserve controls the inflow and outflow of the money supply
3. The money supply effects the interest rates. As money becomes more difficult to lend the interest rates go up. As money becomes cheap the interest rates go down.

New Bull High
1. All the bear advisors must capitulate
2. 80 percent of the market must be bullish
3. The market must be in a recession
4. Money must be moving out of mutal fund

Bull Assumptions
1. Bulls are very optimistic
2. During a Bull market very little attention is given to Bear advise
3. Global events, earthquakes, wars, oil shortages, etc have immediate impacts on Bull momentum.

New Bear
1. Prices are deflating
2. The price to earning ratio are moving higher or have reached new price levels
3. The yield curve is inversed. Deflation cause bond activity and bond sell off in a bear helps investor take a profit.
4. Deflation, P/E, and Inverse yield hit the market only once in the 1930s
5. Deflation has not be a factor since the great depression
6. The best bear predictor in the market has been an astrologer. The author this Russell was pretty lucky. Averages, statistic, genetic algorithms, and simulators have not been able to find an market equation.

Bear Assumptions
1. There is no known scientific way too predict a bear trend. At best Artifical Intelligence system can mimck the behavior patterns of one expert in a simulation.
2. Bear markets cycle about every six and half years, however, there is no way to predict the cycle is reliable. Some of the worst bailouts came because of leverage billions of dollars hedged against a downturn in the market, a downturn that didn't happen on time.
3. Bear warnings such as six months of downward price pressure is inconclusive proof the market will move into a bear market.
4. Company can be performing excellent and demonstrate increasing earnings; however increasing earning does not guarentee higher prices. So, a doubling in earnings one year does not mean a doubling of price, also, only the market's players desire too move the price higher will cause higher prices. Some have tried to model market player emotions/expectation with little success.
5. Contratrism will not always work and in many cases increases the pain and carnage. Going against the pattern of the crowd goals is too find bargins during cycles of fear and greed.

1.Greek leaders had a huge federal payroll too meet and many bureaucratic mouths to feed, on top of expensive wars and costly road building and drainage.
2.Three escapes: a. raise taxes b. fire bureaucrats and cut government spending c. spend at the usual carefree pace, but put less precious metal in the coins.
3.The continental colonist could not pay for their revolution with taxes. They financed the war with a huge print run of "Continentials" sent to troops and suppliers as payment for their services. Nothing of substance was backing the new currency. When merchants began to refuse the new currency the revolutionist made it a crime to refuse the new currency.
4.The Continential congress issued new paper worth twenty of the originals. The new money quick lost its buying power. By issuing sham currency, the Revolutionary government had imposed what amounted to a 97.5 percent tax on the recipients.
5.By the late 1700s paper money was discredited and the United States along with other countries put themselves on the Gold standard. Banks could issue notes redeemable in gold. The Gold standard created the first reliable cash in human memory. It created problems because banks could only distribute notes proportion to the gold they had in their vaults. Congress did not renew the Bank of the United States charter; the second bank of the United States came under political attack and its demise caused the panic of 1819 and a third bank was not created until 1913. After the panic of 1819 the gold standard was relaxed and state banks appeared to take advantage printing more notes than they had tangible assets to cover.
6.In the mid 1800s, the federal government force banks out of the money business by imposing a huge tax on their cash. Every since the U.S Treasury has had the monopoly on money.
7.The U.S Treasury created a huge supply of greenbacks to finance the Civil War and terrible inflation made the greenback as worthless as the continental. Two World Wars and the Vietnam War were financed in similar fashion.
8.To fight inflation the central bank raised interest rates. The remedy was too create a recession.
9.Sep 1944, politicians and bankers from the Allied nations met at Bretton Woods to devise a new system of fixed exchange rates.
10.Each currency was assigned a price range within it could trade, in relation to the US dollar. So for example if the Swiss franc was too expense, the Swiss Central bank would enter the market and sell francs and buy dollars. This action would push the Swiss franc down and the dollar up. If a country refused too devalues, other countries would amass the non-conforming countries currency, approach the country's central bank and demand a swap for gold. The choice remained devalue or deplete. The pressure to devalue was considered the lesser of the two evils.

This book is very limited and superficial. Options are not even discussed, and the author endorses the thoroughly discredited buy-n-hold strategy which always leads to huge losses in bear markets. Much better books are: Charles Caes "Tools of the Bear" (well worth the hassle of buying used), Sy Harding's
"Riding the Bear" and Scott Fullman's options book.

I bought this book about thee years ago, read it and tossed it aside because we where in the midst of a raving BULL MARKET.Then last spring with the NASDAQ at historic highs, Feds raising rates (one of the factors that could trigger a Bear Market acoording to Wade in this book) and a lot of "bubble going to burst" talk, I dusted off this little book and decided to apply some of Wades techniques.On page 90, Wade says that in a Bear Market do the reverse of what you normally would do in a Bull Market. If you normally buy calls, now buy puts. I bought puts on the NASDAQ 100 Tracking stock-QQQ and rode the Nasdaq down. I also sold some of my growth mutual funds and moved into a Value Fund and the Pro Funds Ultra Short Fund.I reduced my positions of the high tech flyers like Yahoo, Dell, Msft and Cmgi and started writing out of the money covered calls on the positions that I held on to. Some of these stocks I have held through multiple splits and had in different accounts. My one regret is that I didn't dump all of my shares of CMGI. Oh well, nobody is perfect. I did buy puts on CMGI which more or less made up for the loss.I think every broker should give a copy of this book to everyone who buys stocks. The problem with negativity is that it breeds upon itself. Almost everytime I mention to someone that I'm in the stock market, the response I always get is "How much did you lose?" When I tell them that I turned a lemon into lemonaide they want to know how and I refer them to this book.I also suggest "Beating the Street" by the great Peter Lynch.When you are armed with the right knowledge, you can make money in any market.Buy this book and earn.

I ahppenedby this board a few months ago and was taken back by the near hysteria and bullishness for this old book by Wade Cook.

Like others, I watch CNBC and read IBD. Last fall, there was a lot of pessimism about the markets. Mr. Tice, a notorious short was calling for Dow 4000 and NAZ to drop down to under 1000. Got to love those shorts. Bless their hearts. Don't know a stock from a rock and do everything to create fear and it always backfires.

As I was saying, I read all of the positive reviews here and went out and bought a copy of Bear Market Baloney. I also bought Wall Street Money Machine Vol. 1 and Red Light Green Light. What a run it has been! Wade's advice really works. Far better than listening to those stupid brokers.

Thank you Wade and thank you guys for sharing your thoughts here which persauded me to listen to winners like Wade instead of those stupid shorts like Mr. Tice.

In Bear Market Baloney, Wade discusses the strategies to use int he event of a bear market. Wade also correctly predicts that despite Greenspans cries of "Irrational Exuberance" and the mild "selloffs" that some people were calling a "bear market" back in 1998, that the market is healthy and should continue to move up to higher peaks before a bear market would occur.

Good book and good advice by Wade Cook.