These essays were originally published as booklets that fit in a shirt pocket. I am especially indebted to The Elements of Style (William Strunk, Jr., E.B. White), Zen Mind, Beginner's Mind (Shunryu Suzuki), and The C Programming Language, (Kernighan and Ritchie) for lessons in caring and clarity.
Fine art expresses what matters to an artist. Often the work is as much exploration as statement. Fine art is fresh; it does not copy other work or repeat itself. For this reason, it is not usually commercial. Buyers prefer the familiar. The work can be simple, complex, elegant, or crude, the range reflecting the entire population from which artists come.
There are no formulas for fine art, but there are forms and techniques which can be learned and practised and which serve as useful starting points.
Writers are most productive working in the forms that come most naturally to them. Some happily write both poems and stories; most—usually after experimenting—focus on one or the other.
Story tellers live in time the way painters live in light. Poets would just as soon stop time (or slow it down). In a restaurant, a poet might stare at a woman and then spend weeks trying to express her presence in that moment. The story teller at the next table is speeding around in time: that guy she's with—impossible! Does she look like her father? What caused that small scar at the corner of her mouth? Will she have a child with that jerk?
Poets probably have more in common with painters than musicians. Storytellers are the reverse, although the comparison cannot be pushed far. Poems have musical elements even if based (today) more centrally on image. Novels move through time on tracks of theme and story but are filled with images.
A form gives shape to its contents. Forms in fiction and poetry have evolved for reasons. They work. The writer begins with a general structure, and the reader knows what to expect.
A novel is a form that differs from a short story (another form) in more than length. A haiku and a contemporary lyric are best suited for different kinds of content. At the beginning of a project, one of the most useful questions a writer can ask is: what do I have here? What form is best suited for this content?
You can just jump in, perhaps rewriting a story over and over until it dawns on you that it should be a novel. It's a slow way to proceed,but it does work (ask me). You will save time if you ask the form question early on.
Poetry is to writing as dance is to music; it is the writing most able to speak with the whole body. Poems are like pasta sauce in that almost anyone can make one. Many cooks make good pasta sauce, but a fine, knock you over, I didn't know it could be this good sauce is rare. Poetry began as song and has traveled through many centuries and forms to its present state, one that does not require classic rhyme schemes, one that seems formless and easy, but isn't.
Modern poetic form is self-defining. Each poem coheres through an organization of its own. It may rhyme or not. Sounds may repeat at rhythmic intervals. The writer's voice may be near or far. Image, sound, thought, and feeling work together to create the poem's effect.
Poems are best when they are focused, direct, and intense. These days, shorter is usually better. Attention begins to wander after a page or two. How do you know when a poem is done? For me, it is when a poem "rings." That is, when the poem coheres; all its words contributing to a sound that, to my ear, is clear and telling. Each poet finds his or her own standard.
Poems are often read aloud. Even read silently, the words tend to echo more loudly than do words in a story. The rhythm of the words is determined by their sounds and by the pauses between them. Poets choose different methods to indicate these pauses. The number of spaces between words can vary; lines can be broken into small word groups meant to be said together; prose punctuation can be used; lines can be shifted varying lengths from the left margin; extra line breaks can be used. As long as a poet is consistent, the reader will adjust. Once again, there is no right way.
Every poem is a battle against style. It must not be written the way you (or someone else) wrote another. A poem must be its own answer to its own challenge.
Significant story is the heart of fiction. The meaning of a good story is inherent, entwined with the characters and what happens to them. It is hard, for instance, to discuss Anna Karenina without shaking your head and saying, "Ah, Vronsky."
A writer may begin with a character or a place or an idea, but soon (the sooner, the better) must ask: what is the story? What happens and why does it matter?
The relationship of story to what we call "truth" can be confusing. If a story is based on remembered events, is a writer lying when the story diverges, leaving some things out, adding events that never happened, changing the looks of a character? In short, no. A story is not memoir or biography (forms that do not smile on invented facts).
The truth of a story is to itself and to life as the writer knows it. Stories are built from bits and pieces of the writer's experience—this face, that mountain. The integrity of the story arises from the "reality" of these pieces, but its truth rests in its design—how and to what end the writer has stitched the pieces together. Fiction is a patchwork quilt made of the writer's experience and imagination.
There is no marked border between story country and novel country. Novels are usually longer than 60,000 words, stories shorter. If, as you begin a piece, you are uncertain whether it should be a short story or a novel, ask which is more important—the characters or what happens to them. If the characters are foremost, you are probably heading toward a novel (or at least should try that form first). If the events are more central, try a short story. There is no guarantee that your story won't expand into a novel, but, if it does, fine. Writing is full of surprises. If your finished piece is longer than a story (more fleshed out, as it were) and shorter than a novel, perhaps more focused, call it a “novella.”
The element of voice presents more challenges for storytellers than for poets. The voice in a poem is almost always that of the poet speaking directly to the reader. Who speaks in a story?
We read a story to find out what happens, to be entertained and/or instructed. On a more subtle level, we read to keep company with the author. Some writers have beautiful voices; we don't want the story to end; the voice will stop. Other voices don't affect us much one way or another. A neutral voice is fine—if the story is interesting.
If the story is told in "third person" (he said, she thought, etc.), the author is the narrator. The author's voice tells the story. Occasionally, an author will present a character who proceeds to tell the story in third person. The character's voice is then somewhat removed from that of the author, who may or may not reappear in the last pages. This device for telling a story is referred to as a "frame."
Third person stories can present a single character's point of view or that of many. Readers must adjust when the writer jumps from one character's consciousness to another’s, so it is best to limit these jumps to as few as necessary. It is one thing to describe a character, to quote her, and to watch what she does, it is another to portray, from inside her, what she thinks and how she feels. A writer's experience is not unbounded. Characters can begin to seem less like themselves than variations of the writer if too many are presented from the inside, if there are too many points of view.
If the story is told in "first person," one of the characters does all the telling. You see and hear with that character’s eyes and ears. You know what he or she is thinking, but you can't be inside the mind of any other character. First person narration is simpler, more direct, than third person, but it is more limited. The narrator, the "I" in the story, should be fairly close to the author in interests and background. In long first person stories especially, the differences beween the author and the narrating character become more obvious, the character less believable, the story weakened.
The choice of voice and point of view is crucial. Try not to be discouraged if your first page takes a long time. Keep starting over and over until you get it right. Gabriel Marquez said, "When you have your first page, you have solved half the problems of your novel".
When I showed my list of recommended reference books to Eleanor (Eleanor Lincoln Morse, novelist, sweetheart), she said, "They're all written by dead white males." Hmmm. There are many good reference books for writers. It is probably best to browse and buy those that make sense to you. I strongly suggest that you spend whatever it takes to buy an excellent (big) dictionary. It is the one book that you will use every day.
A two year MFA program offers much in a convenient package. You will be required to write regularly and to read a great deal. You will interact with professionals on a regular basis, teachers who can remain mentors for many years. You will make friends with other writers who share similar interests. Writing is a solitary occupation. It is encouraging, especially at the start, to know that you aren't the only one out there.
Ultimately, all an artist has to offer is himself or herself. Any education that broadens and deepens is positive and will contribute to your work. In particular, read widely. Read the classics and everything contemporary that interests you. You will learn a lot, and the immersion in good writing will help you to see passages in your own work that can be improved.
If you can't afford a university writing program, study The Shirtpocket MFA and start writing. Rewrite each poem or sentence until you can't improve it. The process may seem endless at times, but eventually you will have a finished book, a great accomplishment.
When your writing is done, it is up to you to see that it is published. Writers are not finished until their work is in the hands of readers, delivered, so to speak.
Publishing has changed greatly. It is nearly impossible to get a good book taken on by a commercial publishing house, even if you are lucky enough to have good connections. Fortunately, technology has come to the rescue. Self publishing has become inexpensive and straightforward. E-books, meant to be read on computers, palm pilots, and other handheld readers, are distributed on the internet. My own books have been downloaded in e-book format, at the time of this writing, 22,000 times (www.memoware.com). I release them for free under the provisions of the Creative Commons Copyright (which protects the work from alteration, plagiarism, and commercial exploitation).
“Print on demand” publishers use a computer file of a book to produce copies as they are ordered. The publisher ships directly to customers and sends you a royalty check. The initial charge to set up your book is very low, as the publisher’s profit is made when the book is printed. If you are unable to lay out the book yourself (prepare the required computer file), you can pay someone else to do it. The job shouldn't take a professional more than a day. I make my books available from POD publisher: www. lulu.com.
Eleanor prefers to pay for printing a few hundred copies of her novels. She gives away some and sells the rest, making enough to pay for the printing. We publish under our own imprint, Fox Print Books.
There are many ways for you to get your writing out there, but you must take responsibility for making it happen. There is a huge difference between having an unread manuscript on a shelf and handing someone a finished book. It is well worth the effort it takes to close the loop between you and your readers.
Finally, the writer’s life (if you need to live it) is hard but rewarding. If you lose your way, remember the Zen teaching: It is the drawing of the bow that is important, not the target.
In every country there is at least one place where stocks, bonds, commodities, and currencies are bought and sold. Some have people behind counters; some are self-service through computer terminals. Collectively, these places are known as the market. Separately, they are called “exchanges.”
Exchanges are regional. Generally, a French stock is bought and sold in Paris, an Indonesian stock in Jakarta. Large brokers are able to buy and sell in foreign exchanges. Some stocks, bonds, commodities, and currencies are traded globally and are widely available at busier exchanges.
The market is vast and evolving. Companies go in and out of business; countries go in and out of existence; cultures rise and fall—the market continues. Society needs places for the orderly exchange of financial assets.
Overwhelming as it is, the market is surprisingly accessible. It doesn’t care if you are young, old, a member of a minority, or speak with a stammer. You can buy Swiss Francs, sell General Electric, option coffee beans, or buy Danish treasury bonds just like anyone else. The market is open for business, open to you.
Money is a medium of exchange. We trade our time at a job, say, for money and then trade the money for groceries and rent. Paper money has no intrinsic value. It makes poor note paper. It isn’t much use in an outhouse. But it is very useful in allowing us to earn here and spend there.
Many things have been used for money: shells, tobacco, huge stones in Micronesia, precious metals, and not so precious metals like lead and copper. Gold and silver have been the most durable monies. It is said that an ounce of gold has always been enough to pay for a suit in London. The suit was better in some centuries than others, but at least you could wear it.
The important point is that money is only worth what it can buy (can be exchanged for) in the present. A money’s purchasing power can change drastically overnight or stay stable for long periods. In the United States, a bushel of corn was the same price in 1900 as in 1800. During the next century, the dollar lost 95% of its purchasing power; a nickel in 1900 bought what a dollar did in 2000.
Money can do so much for us that it is easy to think of it as an end in itself, as something reliable and enduring. It isn’t. Money is slippery stuff.
Occasionally, a currency appreciates—the yen buys more in Japan in 2003 than it did ten years earlier—but this is usually short lived. In the long run, currencies tend to depreciate until they are worthless.
At the least, taking almost no risk, you can make more than enough to maintain the purchasing power of your money. The very best investors earn 20% or more annually on their investments.
If you reinvest the money you earn, you then make a percentage on the earnings as well as on the original amount. The investment is said to be “compounding.” Dividing 72 by the percentage at which an investment is compounding gives an approximation of the time it takes for the investment to double. If you earn 12% annually and reinvest the earnings, your money will double in six years (72 divided by 12). In thirty years, you will have doubled your money five times, multiplied it by 32!
The power of compounding over longer periods is surprising. You might do the math to see what happens if you add a thousand dollars to your investments each year for X years compounding at Y percent. You can begin with small amounts of money and do very well.
The best investment is the one that suits you the best. Self knowledge is as crucial as market knowledge in finding the best investment.
Do you naturally look far ahead or do you focus on the present? Are you cautious, or drawn to risk, or both, at different times? How much money can you invest? How much time? How much loss can you tolerate? What interests you most out there in the world? How is your self control? Your own fear and greed, amplified by other investors, wait to stampede you into poor decisions. Top investors are as disciplined as samurai.
As you learn about various types of investments, you will find yourself more interested in some than in others. Your feelings are a good guide. The investments that interest you the most are likely to be the most productive; you will find them easier to learn about and more fun to monitor; your judgements will be more solid. There is no best way to invest for everyone, but there is a best way for you. If you begin by looking for that way rather than by focusing on profits, the profits will follow.
A stock represents ownership of a corporation. If you own all the stock (also called shares), you own all the assets of the corporation. If you own 40% of the stock, you own 40% of the assets and have a 40% vote at the shareholders’ meeting. Big corporations have millions of shares outstanding and are owned by millions of shareholders.
Stocks are traded in the market at prices determined by supply and demand. Corporations go in and out of favor; prices rise and fall. Benjamin Graham, an eminent analyst, said that, “In the short run, the market is a voting machine; in the long run, it is a weighing machine.” In the long run, stocks trade at reasonable prices. If a company prospers, so will its shareholders.
When you buy shares, you are buying a piece of a corporation. It may be located on the other side of the world; you may not be able to put your piece of it on a shelf; but it is nonetheless real. You should ask the same questions that you ask before buying anything. Is it what you need? Is it a good value? Can you afford it?
The value of a stock changes continuously. Like money, it is worth what someone will give you for it. How do you know whether a particular stock is cheap or expensive?
If corporation Q has a million shares outstanding and the share price is $10, the market is saying that Q is worth ten million dollars. This amount (the number of shares times the share price) is known as the “market capitalization” of a corporation. It is a good starting place for evaluating the share price.
If corporation B has a share price of $50 and has 200,000 shares outstanding, its market “cap” is also ten million dollars, the same as that of Q even though their share prices are very different. You must know how many shares have been issued in order to know what the market thinks a corporation is worth.
Why do corporations have different numbers of shares? For one thing, they can begin with different numbers; it doesn’t matter—however many were originally issued, they represented 100% of the corporation’s assets. Over time, corporations can issue more stock in order to raise money or to reward employees who have been given stock options. If share prices rise greatly, corporations often “split” their stock, halving the share price and doubling the number issued at the same time. There is no change in the market cap, but investors prefer trading lower priced shares. A growing corporation may split its shares over and over again.
The number of shares outstanding can be found on a corporation’s balance sheet. Publicly traded U.S. corporations are required to file reports, quarterly and annually, that include their balance sheet, an income statement, and other information. The 10Q (quarterly) and 10K (annual) reports are available from the corporation or from the Securities and Exchange Commission (the SEC), where they are filed.
The balance sheet is a list of a corporations’s assets and liabilities on the date of filing, a numeric summation of the corporation at that moment. The assets (everything owned by the corporation and any accounts receivable) add up to one sum. The liabilities (accounts payable and any short or long term debt) add up to another. The difference, subtracting liabilities from assets, is called the “shareholder’s equity.”
Dividing the shareholder’s equity by the number of shares gives an estimate of what each share would be worth if the corporation shut down, sold its assets, and paid its debts. The shareholder’s equity can be compared between corporations and to earlier periods within the corporation. Is the shareholder better or worse off than last quarter or last year? If you were to buy a share, how much of the price would be for equity (real value in the present) and how much for the expectation of future earnings?
Earnings are shown on the income (profit and loss) statement. The income statement is a history of cash flows during a quarter or a year. Corporation Q spent this and this and sold that during a period. If sales were greater than expenses, there was a profit. The cash at the beginning of the period was X; at the end of the period, it was X plus the profit. A loss diminishes the corporation’s cash. The income statement allows you to compare sales in different periods and to see whether profit margins (the percentage made on each sale) are growing or shrinking.
The profit divided by the number of shares gives the earnings per share, a number often called “the earnings.” If you read that Hawaian Electric earned $3.28 last year, it means that Hawaiian Electric earned $3.28 per share. The share price divided by the annual earnings per share gives a number called the P/E ratio (price/earnings) or the “P/E.” This number is often used to compare corporations and to evaluate share prices.
The average P/E of the U.S. market as a whole during the 20th century was about 15, meaning that a $15 stock earned a dollar per share, a $60 stock earned four dollars per share, etc. The P/E of the U.S. market has ranged from 5 to 30, to use round numbers. To look at the price/earnings ratio in another way: a corporation with a P/E of 5 will earn back your investment in 5 years; one with a P/E of 30 will take 30 years.
Briefly, then: the balance sheet shows what a corporation has at the end of a period; the income statement shows what happened during the period. But, balance sheets and income statements do not tell the whole story. A corporation may have lost money for five years in a row and be deeply in debt, but it might be on the verge of getting FDA approval for a drug that will save many lives and earn millions or billions of dollars. A corporation may look great on paper, but the original management may have sold out to promoters who have a record of running corporations for their personal gain rather than that of the shareholders.
When you study a corporation, using annual reports and any other sources of information you can find, you are doing what is known as “fundamental analysis.” There is a completely different approach to evaluating stocks, “technical analysis,” which looks only at price movement and trading volume. Some investors concentrate on one or the other approach. Many use both: deciding what to buy or sell through fundamental analysis and when to buy or sell it through technical analysis. The “when to buy” and “when to sell” answers at the end of this book discuss technical analysis.
However you go about it, you invest to make a profit. Where does that profit come from?
Investor profit comes from dividends and from capital gains made when buying and selling stock.
Profitable corporations usually distribute part of their earnings as dividends to shareholders. These dividends can be spent or reinvested. Some corporations, like power generating utilities, distribute a large percentage of their earnings. Others distribute less, choosing to use more of their earnings to finance growth.
The annual dividend divided by the share price gives a percentage known as the “yield” of a stock. It is usually included in newspaper stock listings along with price and trading volume information. Dividends are distributed in fixed amounts. For example, Q might pay .08 per share, quarterly. If Q’s share price rises, the .32 total annual dividend becomes a smaller portion of the share price. Yields move up and down with the share price and with increases and decreases in the fixed amount distributed.
Over time, through the power of compounding, dividend reinvestment can contribute half or more to the growth of a stock portfolio.
Capital gains are made in two ways. You can buy a stock and then sell it for a higher price. This is known as being “long” the stock. The difference in price is yours, along with any dividends that were paid while you owned the shares.
You can also profit from the decline of a stock price. The method is more complicated but just as profitable. You borrow shares from your broker and sell them immediately. The money is deposited to your account, and you are obligated to replace the shares at some time in the future.
When you buy the replacement shares, you make a profit if the share price has dropped since you sold the original borrowed shares. This backwards method—selling before you buy—is called “shorting.” If you borrow and sell stock, intending to replace it later, you are “short” the stock. When you buy it back, you are “covering” the short. You owe any dividends distributed while you have borrowed (are short) the stock.
A bond is an IOU. When you “buy” a bond, you are lending money to an organization. The amount of the loan, called the “face value,” is normally $1000. The organization promises to repay the loan on a fixed date, the “maturity date,” and to pay interest until then at a fixed rate. The rate does not change during the life of the bond.
The interest, known as the “coupon,” is paid at regular intervals—usually semi-annually or annually. Zero coupon bonds pay their interest all at once on the maturity date. Some bonds are “callable;” the issuer has the right to pay the buyer back early. Other things being equal, callable bonds are less desirable.
Federal government bonds are known as “treasuries” or “T-bonds” (10-30 year maturities), “T-notes” (2-10 years), and “T-bills” (90 days—1 year). Bonds are sold by governments, states, counties, cities, corporations, and other organizations worldwide. The bond market is huge, much larger than the stock market.
A bond’s interest rate reflects both the general interest rates at the time of issue and the risk involved in lending the money. You will get a higher interest payment from a developing corporation than from the state of Florida; Florida is less likely to go out of business. General interest rates fluctuate gradually from low single digits to as high as 20% on rare occasions.
The interest rate on a given bond never changes. What happens to the value of that bond when general interest rates and the credit rating of the issuer change?
Bonds are often sold before they reach maturity. Bond prices rise when general interest rates drop, and vice versa.
For example, if interest rates drop after a bond is issued, the bond’s value increases (assuming no change in the credit rating of the issuer). Why? Because, the owner of the bond is receiving larger coupon payments than new buyers of bonds that have the same face value but a lower interest rate. In the open market, increased demand for the older bond with its higher payment drives its price up until the new and old yields are in balance. The coupon paymentamounts remain fixed and different on the old and the new bonds, but since a buyer is paying more for the old bond, its effective interest rate has dropped, bringing it in line with the general interest rate.
To further complicate the comparison, the secondary buyer of the old bond will receive the face value of the bond on its maturity date, not the price the buyer paid for it.
If you deal with bonds on a regular basis, the relationships of price, interest rates, and yield are easy enough to remember. Otherwise, every so often, you might have to step back, take a deep breath, and reason it through again. Bonds are fixed agreements; the world is constantly changing. The variable price in the market keeps them in sync.
Bond prices are quoted as a multiple of face value. For example, a $1000 bond quoted for sale at .97 will cost $970 (.97 times $1000) plus commission; a bid of 1.12 means that the bidder is willing to pay $1120. A bond quoted at 1 is said to be at “par.” The buyer is paying par (face) value.
Bonds are normally bought for their dependability. Owners know how much they will be paid and when. Treasuries are probably the safest of all investments.
Bonds are also traded for capital gain. An investor might decide, for instance, that the future for a country is bright, that its economy will strengthen, that its interest rates will eventually drop, and its older government bonds will rise in value. Or, a crisis in a corporation might cause its bonds to sell so cheaply that, if the corporation recovers, any buyers at that level will make a fortune as other investors regain confidence in the corporation and interest rates drop to normal levels.
In general, bonds offer a safer return than stocks, but less chance for capital gain. Portfolio advisors recommend a mix of both—more bonds than stocks for the retired, more stocks than bonds for the young. Once again, the proportion must suit you.
Some investors prefer all stocks, some buy only bonds. An interesting strategy for the patient and thrifty is to save and to invest only in treasuries, a little more each year. U.S. treasuries can be bought directly from the government, paying no commission to a middle person (a broker). Waitresses, house painters, administrative assistants, and marine engineers have quietly achieved financial independence in this slow but sure way. There is a saying in the country—“It’s not how much you make; it’s how much you keep.”
Commodities are raw materials. Corn, coffee, cocoa, cotton, copper, crude oil, (to name a few beginning with “c”), almost all the materials needed in bulk by society, are bought and sold in what is known as the “futures” market.
Future contracts are for fixed amounts of a commodity to be delivered in regularly scheduled months. In the U.S., cotton futures are for 50,000 pounds, delivered in March, May, July, October, or December, depending on the contract. Crude oil futures are for 1000 barrels and trade for delivery in all months.
In addition to contracts for raw materials, futures are traded for bonds, currencies, and various market indices. These futures also have standardized amounts and delivery dates.
Buyers and sellers of futures use them to lock in prices ahead of the delivery month. Investors trade futures for capital gain. They sell the contract they bought (or buy the contract they sold) before its delivery month. These investors make the market more liquid for the producers and users; sometimes they even make money.
Commodity (futures) speculation is a deceptively high stakes game that is best left to professionals who have plenty of money to back them. If you have a strong interest in a commodity, you grow soybeans, say, or you are a foreign currency expert, if you have a sizeable amount of risk capital (50-100% of the value of each contract traded), and if you are drawn to high risk / high gain short term investing, you should learn all you can about the futures market and begin cautiously. Otherwise, you will do better elsewhere.
Options confer the right (but not the obligation) to act within a period of time, usually to buy or sell something at a fixed price. In the market, options are traded for stocks, bonds, and futures.
A “call” is an option to buy. A “put” is an option to sell. The price at which the underlying asset can be bought or sold is called the “exercise” price, the “strike price, ” or just the “strike.” The expiration date is the last day on which the option can be exercised. The “premium” is the price paid for the option.
Puts and calls are sold in lots of 100. A quote of $2.50 for a March Q call with a strike price of 60 means that you will pay $250 for the right to buy 100 shares of Q for $60, good until the end of the expiration date in March.
Options, like futures, are used to lock in prices for a period. Short term investors trade them for capital gains. When you buy or sell an option, you are guessing not only the direction of a price movement but also the time in which it will happen. Compared to just buying and selling the underlying asset, this is like moving from two to three dimensional chess. Option trading strategies are complex and, for some people, very interesting. Prices are volatile; money can be made or lost quickly.
In general, unless you are strongly attracted to the challenges posed by options and have a fair amount of time as well as money to invest, you should leave option trading to others.
A mutual fund is a collection or pool of assets professionally managed for its shareholders. A fund’s total value divided by the number of shares outstanding gives the “net asset value (NAV)” of the fund.
When you invest in a mutual fund, your money is added to its pool and you are issued new shares at the NAV price. The total fund assets and the total fund shares increase in the same proportion; the net asset value per share is unchanged. When you sell your shares, you receive the current NAV per share. If it has risen, you make money.
Mutual funds exist to make investing easier. Funds point out that one check buys diversity and professional management. Diversity is good, to a point. Studies have shown that the benefit (decreased risk) of owning more than one stock, bond, or commodity rises sharply as the number increases to five or six and then less sharply until, after twenty, there is little additional gain. Most funds have many more than twenty holdings. The professional management is expensive and usually mediocre. The majority of funds, after paying management and trading expenses, do worse than the market as a whole.
There are thousands of mutual funds, specializing in every segment of the market. If you want to invest in the biotech industry and don’t have the time to learn about individual corporations, you can buy shares in a fund that invests only in biotechs. If you are convinced of the prospects for India, you have a choice of funds that invest only in Indian securities (stocks and bonds).
If you wish to invest some fraction of your money in stocks, but you aren’t interested in learning about various corporations, you can buy what is called an “index fund” that holds every stock in an index and automatically mirrors that index, the Standard & Poors (S&P) 500, for example, or the Dow Jones. If you buy the same dollar amount of this fund every month or year, the cost over time will (by definition) be average; you avoid the possibility of buying only when the market is overpriced. This technique, “dollar averaging,” is reasonable for a passive investor. Index funds have lower operating costs than other funds, and the quality of management is taken out of the picture.
Some mutual fund investors monitor a large number of funds on a daily or weekly basis and switch from top performer to top performer using various switch triggers. This can be a profitable strategy, but it requires constant monitoring. The rules change for how often different funds allow in and out trading, how expensive it is to switch, etc.
The best use of mutual funds is for those situations (another country) which are not practical for you to invest in directly.
Brokers handle the mechanics of buying and selling. An account with a broker is the most convenient way to invest.
Opening an account is simple—fill out a form and send a check for the amount that you wish to have available for investment. You can add or withdraw money at any time. The broker will provide you with a toll free telephone number and an internet site to use for placing orders and following your account. You will receive a monthly statement and, usually, a mailed confirmation of each trade.
The financial newspapers and magazines are filled with ads placed by brokers who want your account. You can write to them for information and/or visit their web sites. Costs and extra services vary widely. Brokers tailor their operations to fit different types of investors. An options trader will choose one broker; an investor who trades very low priced shares will choose another (whose commission is per trade rather than per number of shares traded).
It is quick and easy to change brokers. You do not have to sell your holdings, transfer cash to the new broker, and then re-buy everything. Your holdings are transferred directly to the new account. If you don’t like the broker you have chosen, or if your investment style develops in a direction catered to by a different broker, switching will cost you only a minor fee and loss of trading access for a week or two.
Given the ease of switching, it is best to begin with less expensive brokers. You will not get a plush branch office where you can relax and be persuaded to buy more stock by well mannered arm twisters—I mean, customer representatives. You probably will not get an international debit card. But, you will be able to buy and sell independently, at the lowest cost, at any hour, using your own judgement. The money you save can be invested and work for you, not someone else.
When you choose a broker, unless you have a good reason to do otherwise, cheap is the way to go.
Security prices cycle up and down, even within long term trends. If you plan to hold an investment for years, you will be less concerned with the daily, hourly, even minute by minute price moves that are crucial to the short term trader. Even long term investors, however, should monitor prices, perhaps on a daily or weekly basis, so as to add to their positions when prices are lower in the cycle.
Price and volume charts are the most helpful guides to understanding these cycles. The closing price for each successive time period is plotted, left to right. The vertical scale gives the price, from lower to higher. Some charts also show the opening price and the lowest and highest prices during the period.
The jagged line which connects the closing prices shows the stock to be climbing, falling, or moving sideways. If you compare hourly, daily, and weekly charts, you will find similarities, echoes, in the patterns of price movements. Technical analysts focus on these patterns, believing that the market has already evaluated the fundamentals of a security and that history, while not a perfect predictor, is the best guide to what’s coming. They invest in patterns.
Each stock, bond, future, or index has its own trading rhythm. A chart captures this best. If, after you buy a security, you plot its daily chart (by hand on a piece of graph paper or by using a computer), you will become sensitized to its rhythm; you will know when it is trading normally and when it is not. This feel for your investment will make its normal ups and downs less stressful.
Volumes (numbers of shares traded during a period) are usually represented beneath the prices by vertical lines rising from a common base, higher lines for higher volumes. Price/volume charts have an urban, city skyline, look.
Volume is an important technical indicator. Increasing volumes together with increasing prices is a good sign. Increasing volumes with decreasing prices is a bad sign (unless you are short).
If you want to buy more shares of a stock whose price is falling with large volumes of trades, you should probably wait until the volumes decrease significantly. This usually indicates that the selling pressure is lightening. Conversely, if you want to sell a stock that is rising on increasing volume, you should probably wait until the volume lessens, indicating that the stock is running low on buyers and that the price is likely to level or drop.
You will have noticed the “probablies.” Nothing is sure in the market. There is a saying that, “No one but a liar ever bought at the bottom and sold at the top.” If, on average, you can buy in the lower third of a price cycle and sell in the upper third, you will do very well.
Analysis helps, but trades rarely work out just as you expect. Uncertainty and imprecision are ever present. Some investors live with this naturally; most adapt to it; but some want nothing to do with it. The latter should invest in short term treasuries and spend their energies making and saving money in good ways, rather than worrying about the market.
When you have decided to make an investment or a short term trade, you must make an equally important decision. How much to buy?
If you are starting out, you should consider buying an amount that allows you to spread your investment among, say, six securities. It is always a good idea to have cash available for bargain shopping. One of your holdings might take a temporary dip for any number of reasons, and you’d like to be able to add to your investment. Out of $10,000, say, you might want to reserve $2000 or more, dividing the rest evenly among the investments. If you are beginning with $1000 at a time, you should work your way toward a diversified position, investing $1000 in one security, the next $1000 in a second, and so on.
Underlying the question of how much to buy is a more fundamental question: how much to risk?
The most money lost in the market is by investors unwilling to accept initial small losses. Before you place a trade, you should know how much you are willing to lose. If your position loses that amount, you should close it immediately and automatically.
This requires self control. No one wants to accept a loss. Not only do you lose money, but you have been proven (by the market) wrong—a double blow. It is much easier to wait, hoping that the market will reverse and wipe out your loss. Sometimes it does. More often it does not, and you lose more money. Now you feel that you are in too deep; you can’t close your position; you have to wait. Usually, you lose even more. Had you sold at the first level, you would have the money with which to buy back in when the price finally reverses, possibly at bargain levels.
The amount that an investor should risk varies with temperament and account size. Professionals will risk from half of one percent to three percent of their total holdings, rarely more than that. An investor with very limited funds might risk more at first, reducing risks as funds grow.
Let us say that Suzanne’s investments are worth $20,000 and that she is comfortable with risking 2%. She is willing to lose $200, eight times in a row if necessary, knowing that eventually her earnings will be greater than her losses. This is how professionals invest; they strictly control losses and are willing to be wrong on as many as half of their investments. Every so often, they will be wrong and/or unlucky time after time. Their initial risk must be low in order to survive these strings of losses. Hence the .5%-3% range, which might seem absurdly low to an impatient investor.
Suzanne has decided to buy corporation Q as a long term investment. She looks at a price chart for Q and sees that over the last year it has risen gradually from $42 to $48. She draws a line connecting the tops of the highest peaks and another line connecting the bottoms of the lowest valleys. These “trend lines” define a rising channel within which Q has been moving up and down. The width of the channel is about $8; Q seems to cycle $3 to $4 above and below the midpoint of the channel. At the moment, Q is about $3 above the bottom trend line.
Suzanne decides that she will buy Q at its present price of $48, but that if it drops to $43.50, $1.50 below the channel, she will sell and buy again later. Her reasoning is that if Q has been trading in a range (a channel) for a year and then drops out of that range, she doesn’t want to risk further loss.
If she sells at $43.50, she will lose $4.50 per share. $200, her risk amount, divided by $4.50 is 40 with a bit left over. Suzanne now has her plan. She will buy 40 shares of Q at $48 and sell it at $43.50 if the price drops that low. She has limited her risk to 2% of her total funds, and she has picked a sell point that will probably not be reached by the normal fluctuations of Q’s price.
To calculate how much to buy:
1. percentage of total investment to risk?
2. corresponding risk dollar amount
3. buy price?
4. stop loss sell price?
The number of shares to buy = the risk dollar amount divided by the difference between the buy price and the sell price (buy price minus sell price).
A short sale would use a similar calculation—(3. would be a sell price; 4. would be a stop loss buy price).
Commission costs for two trades should be included. In this example, let us say the commissions would be covered by the $20 remaining after buying 40 shares. We can include this in the equation:
— commission cost)
--------------------------------------- = number of shares
(buy price — sales price).
but we don’t need to be too exact. Round numbers are close enough.
Buying (and selling) can be done with “market” orders or “limit” orders. A market order is transacted at the current price regardless of what that might be. Unless Suzanne has an absolute need to trade immediately, she always uses limit orders that specify the top price she is willing to pay (or the lowest price for which she will sell).
Suzanne is willing to lose $200 and willing to admit that she was wrong. She doesn’t enjoy this when it happens, but she has the discipline to stick to her strategy. This is not easy. Suzanne is not only tougher than most investors, Suzanne is going to make a lot more money.
If your security reaches the pre-determined stop loss price, sell immediately.
If you are unable to monitor the price, place a “stop limit” order with your broker to sell automatically (or buy, if short) should the stop loss price be reached. These orders, often called “stop loss orders” or “stops,” allow you to make the decision once and forget about it. They also expose you to market manipulation—share prices can be driven up or down in order to trigger quantities of stop loss orders (often placed on round numbers). Notwithstanding this drawback, stop loss orders are a good idea for all but the most vigilant and disciplined investors.
The question of when to sell is happier for investments showing a profit. Or should be. As profits grow, greed tends to kick in. More is not quite enough. Also, when investors sell, they part with the source of the good feelings that came with their increasing profits, their increasing “worth.” This can be subtly difficult.
Some investors sell and afterwards agonize that they were too soon or too late. Profits that they might have had or did have are gone, as though they had been thrown away. Investors have been down on themselves for decades because they only doubled their money, selling at $8, then watching the price climb to $90, unable to bring themselves to buy back at higher prices a security they once owned at $4. Greed and ego entangle and paralyze. When to sell?
As usual, there are many answers, and investors must find the one that suits them best individually.
You cannot know, on any given day, that a price has topped (or bottomed, if short). If you close a position, it will almost always be too soon or too late. You are, in effect, guessing before or after the fact (of the top or bottom). Generally, it is better to guess after the fact, to wait until trend lines have turned, giving back some profit in order to be more sure.
Here again, on a decline, investors find it hard to sell and much easier to do nothing, hoping for the price to return to its former level. Many investors have ridden positions all the way up and all the way down. Some investors close their positions automatically if they have given back half their profits, a good idea.
Nothing requires you to sell all of a postion at once. Many investors find it more comfortable to sell part, locking in some profit and leaving the rest of the position in play. A common practice is to sell half of a position if it doubles, thereby retrieving the original investment. Investors often move their stop loss orders along behind the price, keeping (they hope) sufficient room for short term fluctuations. They risk being stopped out too soon in a long trend, but their profit is guaranteed.
Some investors have a core holding and a short term holding of the same security. They keep the core holding through larger price fluctuations and trade in and out with the short term holding, capitalizing on their knowledge and feel for the security. This is a good strategy for securities in gradual long term trends—if you can handle operating in two modes at once.
It is famously said, “If you are losing sleep over an investment, sell down to the sleeping level.” George Soros, a hall of fame investor, sells if his back hurts. You must trade in a manner that feels right, that suits your capacity for risk and loss.
To sum up trading strategy: find your own way to follow the best and perhaps the oldest maxim in the market—cut your losses, and let your winnings ride.
“You’ll learn more buying one contract of beans than from a year at Harvard Business School.” (Advice from an old pro to a beginner.)
In the market, experience is the best teacher. Fortunately, excellent information is available to help you avoid the worst mistakes and to make sense of your experience. Every area of the market, options, say, or fundamental analysis, has had at least one fine book written about it. These books are worth their price many times over.
Shelves are filled with books on any topic that interests you. Finding the good ones, however, requires browsing. The best method is to read the first few paragraphs of each. Books are written by people, after all; the writer’s voice can be heard in the lines. You should choose writers in the way you choose friends. Do you trust them? Do you like them? Are they helpful?
Newsletters can be excellent, too, especially for information about specific corners of the market. If, for instance, you have a special interest in oil and gas exploration or biotech research, you can subscribe to a periodical written by someone who has spent an entire career learning about that particular industry. The information is current and provides useful starting points for your own investigation and investment.
Choose a newsletter as you do a book. Be especially wary of any that attempt to convince or persuade. Most newsletters, like most books, are mediocre.
Investing is a lifelong pursuit. You start somewhere and learn as you go, improving with experience. You don’t have to hurry. A book now and then, a monthly newsletter, a few minutes browsing the business section of a newspaper—bit by bit, your vocabulary increases and your knowledge grows.
Choosing the best information is a challenge. In this, as in all market decisions, trust yourself.
who picked me up hitchhiking one bright cold morning 45 years ago, the only time we met. He listened to my story and said with concern, “You cannot wander—aimlessly.”
“Even Kings are old and useless one day.”
Namdol Kalsang Methok (Beautiful Daughter)
The first radical act was a drawing. Someone drew on the wall of a cave, and there was a lion—the way an individual saw it. A unique lion. Consciousness recorded.
The second radical act was to count. The simplest number, 2, say, is abstract. Its truth is independent. With number comes measurement, mapping, science, and technical progress.
The third radical act was to die for others. Dramatically (Jesus), subtly (Buddha), practically (Ghandi, Sister Theresa), inspirationally (Martin Luther King)—the pride of consciousness and the power of thought were dedicated to, subsumed by, a broader identity.
Enlightenment has many names—awakening, satori, born again. Many paths lead to it. But whatever the name or approach, it always involves stepping away from self-centered consciousness. The "I" that was so hard-won, so carefully groomed and maintained, is no longer King of the Hill, the only show in town.
Enlightenment is easy to talk about; for most of us, it is hard to achieve. Why should you care?
Because life hurts.
Enlightenment is not a cure for toothache. It frees you from deep anguish, the pain of loss, loneliness, defeat, and (insidiously) of success that keeps you chasing for more, like a mouse running in a caged wheel. This kind of pain kills people every day. It puts lines in your face. We all suffer it eventually, unless or until we are enlightened.
in front of me
has fine brown hair
that she brushes, first
in front of her right shoulder,
then fanned across her back,
strands of gray and redder auburn,
then over and in front
of her left shoulder, gathered
in one hand, stroked
with the other, slowly,
to spread, glowing,
complicit with sun.
Coffee in Peaks Cafe, one of Lisa's giant muffins, a groove on the radio, backbeat and bass, a singer who feels.
Meditation. Sit still (please) for fifteen minutes, in a chair or cross-legged on a cushion. Keep your back upright and unsupported, but not rigid; rest your palms on your knees or in your lap, one hand on the other, tips of thumbs touching, making an oval. Put the tip of your tongue on the roof of your mouth behind your front teeth. Lower your eyes to a spot a meter or so in front of you.
Take three slow deep breaths.
Let your mind calm. Try to keep your attention on your breath, counting each exhale, up to ten. At ten, begin again at one. Most of us won't get to three before we are thinking about our plans, what someone said, what we should have said back, etc. When you realize that your mind is wandering, start again at one; focus on your breath moving in and moving out.
After fifteen minutes, stop and stretch. Are you calmer? Surprised at how your mind runs around? Your awareness has shifted, very slightly. This is the beginning of awakening.
An athlete "in the zone," Mitsuko Uchida at the piano, Fast Eddy playing pool in The Hustler, a chef at full speed in the kitchen, a Tibetan doctor listening to a patient with total attention, anyone, anywhere, doing anything with complete attention—that is where we are going.
Each of us is born unique. As we grow, we construct an image of ourselves, an I. This I, this ego, is useful; it helps to keep us from being overwhelmed by reality. But we overdo it. We come to identify with our ego, to depend on it. We lean on it to get through life (I am beautiful. Or, I am ugly. I am no good at math, etc.). We defend it fiercely, not realizing that it is only an image. We allow ourselves to be limited by its incomplete truths and partial falsehoods.
Meditating helps you to become more aware of your ego, how much energy you spend maintaining it, and how it controls you. This awareness will gradually spread into the rest of your day, and you will become less self-absorbed, more productive, more alive.
Like a swimmer
to the surface,
incense smoke rolls
face to the sun.
a maple tree,
stepped away from —
on the curb.
If you can, stop drinking. Cut back, at least, to an average of one or two drinks a day. Alcohol is good for numbing pain, but it is a depressant in the long run and is sneakily addictive.
As soon as you can, begin looking/feeling inside yourself for the cause of your hurt. Your pain is your treasure. If you admit it (humiliating) and follow it, you will find the cause of your problem. If you stuff your pain, run from it, you lose your best guide.
At the root of your pain, you will find a bad map—a model or belief that is wrong. For instance:
If you will begin by assuming that your pain is caused by a bad map, an internal mistake, you can find the cause. When you correct the map, healing begins immediately and is assured.
Now, if you have no energy, even for first aid, if you are at the end of the road, well—that's real. Could you remember something you did for someone? Something you feel good about? Could you let a calm and good feeling spread through you? It is never too late for enlightenment.
Teachers are invaluable. It is an adventure finding them. People who can help seem to appear when they are needed; maybe they are there all along, and, when we are ready, we recognize them. They are free, alert, and loving.
over Nova Scotia,
the dharma travels
hand to hand,
eye to eye.
This morning, my mind was all over the place. I couldn't get past five breaths before starting over. Even so, after half an hour I felt better.
Enlightenment is both a state of being and the way toward that state. In terms of practical action, it can be understood as doing your best. It is that simple and that difficult. When you do your best, life doesn't have to make sense; you are making life sensible, for yourself and all around you. Keep at it. The frustrations on the way will broaden your compassion and your smile.
saying almost nothing,
pure horses, sensing.
Both slim, straight,
twenty years old, Tibetan
long black hair, dark eyes.
Between them, sparkles,
a clear smoke,
as of diamonds.
Gray concrete deck,
a few empty tables,
partially obscured by cloud.
Lobsang Toldan, "Tiapala," Nechung Monastary, Wood Valley, The Big Island, Hawaii