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  • Archive for the 'Book Review' Category

    Ramit’s Book “I Will Teach You To Be Rich”

    Posted by Frugal on 31st March 2009

    Congratulation to Ramit first of all on his very successful book “I Will Teach You To Be Rich”. It’s amazing how he has made so far. Success never comes easy.

    I must first make a disclaimer, that I have not read his book. Therefore my following comments can be biased and inaccurate.

    Like most of the traditional advice for personal finances out there, it’s regular saving and investing. Yes, those are just the basics. However, when it comes to investing, I have been shying away from ETF. In fact, my 401K goes pretty much all cash since year 2000 January. And I have never regretted it. In fact, if they offer me a choice of buying ultra-short ETF, I would probably have chosen that. Unfortunately, most of the 401K investment choices are very limited.

    In the Yahoo’s interview on Ramit, he said,
    “The past doesn’t predict the future, but it gives us a fairly accurate view of what’s likely to happen. Whether it returns 6 percent or 8 percent — we can split hairs over that — the question is, do you fundamentally believe the stock market will go up. If you believe that, then invest. If you don’t, where do you put your money? If you only put it in a savings account, it’s not going to give you the returns you need to live on. You have to take risks to get potentially high returns.”

    My personal opinions have always been that it really depends on what timeframe you choose to base your opinions on. For example, many civilizations/currencies have collapsed in the past. Who is to say that USA is not on the same track? Once you expand your historical horizons, things are no longer as easy as “stock markets always fundamentally go up”. The primary reason that stock markets go up “in the long term” or rather in recent modern history is that human population increases exponentially. If human population stops growing at the same exponential rate, or heaven forbids, decreases, then stock markets will NOT go up.

    Why do I keep playing the devil here? Not because I want to earn advertising revenues of less than 0.01% of my net worth, with my pre-hypertension blood pressure going north of 130/90 partially due to excessive working hours. I only have one reason. For anyone who would care to listen, and in the case that I’m right, I hope that people can avoid financial catastrophes from stock markets. I believe that there will be another 40% to 50% collapse from the next intermediate peak in the general stock market going towards 2010 to 2012 timeframe. The credit excess is just not washed out yet.

    Anyone ever wonders why one of the best seller “Currency War” in China was never mentioned in most of the traditional media nor published in USA in English? There is a recent English book “Currency War” on Amazon.com but it’s an impostor. It’s simply inconceivable why any publishers wouldn’t want to publish this book based solely on business reasons. I think if people start to read “Currency War”, US Federal Reserve will go down for good. In the US, there is the freedom of speech unlike China, but then there is the “freedom of press coverage” based on money and power. No wonder Ron Paul only got 1 minute press coverage for his historical “money bombs” raising over 5 million dollars.

    Truth is out there, but you have to go out and find it out for yourself. The big money & power won’t tell you, and they will flood you with other AIG bonus news instead of reporting that Bernanke paid tens of billions of taxpayers’ dollars to Goldman Sach through AIG. Will the American public wake up before Wallstreet robs the future of the next two generations of USA blindly with their partners at Federal Reserve, Senate, and the Congress? This will be an infamy recorded in economic history, only to be expounded in details after maybe 50+ years from now.

    Posted in Book Review | 4 Comments »

    Why Stock Markets Crash (Semi-Book Review)

    Posted by Frugal on 4th August 2006


    It has been a while that I haven’t done a book review.  I want to review this book to lay the foundation for my future discussions on several important topics.  This post is a bit mathematical, and if you are not into it, you can skip the paragraphs forward to the RED sentence, starting after the equations.  The post is less of a review, but more of a discussion on the results from the book.

    Didier Sornette is a UCLA (University of California at Los Angeles) geophysics professor.  For him to write such a book with his arcane mathematical model is almost outright weird.  Such is the inter-disciplinary nature in the advanced studies of scientific frontier.  The scientific frontier here is essentially the studies related to complex systems, not an informative name but descriptive nevertheless.  Mathematicians have not been able to sort out many of the complex systems in nature.  The mathematical study of complex systems is called chaos theory.  Here is a pointer to the introduction of chaos theory.  Many of nonlinear dynamic complex systems have tremendous amount of random inputs and numerous known or unknown rules, and yet exhibiting some simple order or behavior.  Some systems has very few simple rules, and yet exhibiting much more complex results.  One of the better known studies in chaos theory is Fractals.  Within the complex systems, sometimes there exists one or many strange attractors.  I can’t find any good webpages on strange attractors.  Here is from wikipedia.  Essentially, the attractor is (one of) the convergence of the most initial states evolved through time.  There are many books on Chaos Theory if you’re interested.  Lots of math involved, but extremely interesting.  In any case, let me regress to this particular study of the complex system: Stock Market.

    Through Sornette’s study on predicting earthquake and phase changes (from liquid to solid, etc), he applied his knowledge to this critical phenomenon of a stock market crash event.  Here, “critical” carries more of the mathematical meaning of having some orders of derivative undefined (usually the 1st order, which is the slope of the curve) or discontinous.  After such critical event, things no longer behave the same way.  You can pretty much concatenate a different function after that point.  By observing the information network among traders which gives rise to the inherent fractal nature in the stock market price, Sornette was able to come up with a simple model for the behaviors of financial bubbles (equation 18, pg.335), where P(T) is the price of the financial product in time=T:

    log( P(T) ) = A + B ((Tc – T)^m) (1 + C cos(w log((Tc-T) + beta) )) for bubbles, and

    log( P(T) ) = A + B ((T - Tc)^m) (1 + C cos(w log((T-Tc) + beta) )) for anti-bubbles or deflation of the bubble.

    where A, B, C, m, beta, and Tc are modelling constants.  In the special case of C=0, no price oscillation, the equation simplifies to

    log( P(T) ) = A + B ((Tc – T)^m) for bubbles

    For the following discussion, I will only use the simplified equation.  Obviously, for the swing traders, oscillation in the price is extremely important to identify the local peak and valley in the prices for sell & buy points.

    Noting from the boldfaced equation, Tc is the Crash Time.  At T=Tc, the value of 0^m becomes undefined.  If you take the derivative respect to T for both sides, you get

    d (P(T)) / dP = 1 / P(T) = – B m (Tc – T)^(m-1) * (dT / dP) or

    dP / P(T) = – B m (Tc – T)^(m-1) dT or

    dP / dT = -B m (Tc – T)^(m-1) * P(T) or

    dP / dT = b / ((Tc – T)^n) * P(T),

    where both b and n are positive, T < Tc, for a bubble

    Essentially, this is a super-exponential function.  An exponential function has its increase in price proportional to the price (dP/dT is proportional to P(T) ).  A super-exponential function increases even faster than exponential function.  As time increases towards Tc, the rate of increase or dP/dT increases even faster.  The term that is multiplied to P(T) races towards infinity as T approaches Tc.  For obvious reason, no physical processes can have a rate of increase infinitely large.  At such rate of increase, the price P(T) is bound to be busted.

    Let’s plug in some numbers into the dP/dT equation.  Assuming that b=1, and n=2, when Tc-T =1, dP/dT = P(T).  When Tc-T=0.5, closer to crash point, dP/dT=4P(T), or dP=4P(T)dT.  When Tc-T=0.25, even closer to crash point, dP=16P(T)dT.  Putting into discrete terms, the time it takes for the price to double (again and again) exponentially shrinks shorter, or can be expressed as

    dP / P(T) = b / ((Tc – T)^n) * dT

    Alright, I’m very sorry if I have lost all of you.  Just remember this: a Bubble-like behavior is such that the time it takes for the price to double (again and again) exponentially shrinks shorter. By the way, it doesn’t need to do a double to qualify. You can substitute double by any percentage amount of increase, more or less, as long as the time to achieve that multiple shrinks exponentially. In some way, a bubble closely resembles a money-making pyramid scheme. In a pyramid scheme, the late comers funnels their money to the early comers. Since the growth of the pyramid is exponential, that is the growth rate is porportional to the current size of the participants, very soon the pyramid runs out of new participants, stops growing and is unable to bring money to the late participants.

    In the book, Sornette is not that crazy yet to ask readers to go through all of these derivations. The only equation that you will find are the very first 2 or 3 equations. The rest is my contribution (or dis-contribution for more confusion). Now let’s go back and answer this question of Why Stock Market Crash. In the evolution of the bubble, as described by the so-called log-periodic power law equation, the bubble experiences an unsustainable exponential growth. The bubble may collapse earlier due to a help from external factors or events, due to its inherent instability going towards the crashing peak. However, bubble is destined to collapse because of its own weight. Nothing in nature can have a growth rate reaching infinity as dictated by the equation. And nothing can grow exponentially indefinitely when the resource or money to participate in the market is finite. Actually, another term in the technical analysis of stocks is that the price has gone parabolic. I believe parabolic, a 2nd order function, is simply used as an approximation to this super-exponential model. The key observation again is that price increases faster even with less time. Using NASDAQ 2000 bubble as an example, the price for NASDAQ took more than 3 years to double to about 2500, and then it only took about 6 months for another double to complete. Such growth is indicative of the existence of a bubble.

    So don’t blame anyone on any stock market crash. What goes up must come down. That is simply the law of mathematics and physics. That’s the way it works. It is so much better to have a steady growth than an unsustainable growth. However, bubbles are repeated throughout the history, and it is probably inherent in the human nature of greed and fear in the fight of grabbing ever increasing returns.

    Want more predictions from this book. In fact, I will be posting more on the unsustainable human population growth and its derived consequences. In the last chapter of the book, Sornette has applied his model to various other sets of data, and based on the data fitting, the growth era of human may stop at around 2050. What does that mean for the human race as a whole? Read my future posts. By the way, his prediction on USA real estate market bubble is set to peak around summer 2006. I guess that is turning out to be quite close so far. Some may date the peak of this bubble at November 2005. It depends. I personally believe that the current cycle of real estate has peaked already.

    Posted in Book Review, Stock Market | Comments Off

    Reasons for Investing in Gold & Silver Market

    Posted by Frugal on 2nd August 2006

    Gold & silver, or more often referred as precious metals (PM) in general, are one kind of commodity. Investing in pure physical commodity usually cannot be done as a long term investment. A commodity has no other value besides its intrinsic value. It will never increase in quantity nor quality as an investment or product, unlike stock, ownership in a company where the corporate earnings can potentially increase with time. So why am I investing in such stupid and “boring” investments?

    My primary reason for investing in precious metal & its associated mining stocks is for the inflation protection from fiat currency expansion and its relative undervalue. Yes, gold is undervalued even at today’s price of about $630 per troy ounce. On an inflation-adjusted basis, gold needs to exceed $2090 in 2006 dollar to overcome its 1980 peak.

    Comparing to price of crude oil, the price of gold is again undervalued relatively speaking. Oil has almost tripled while the price of gold only doubled since the recent low. Especially with a potential Peak Oil in the global oil production, when oil rises, gold inevitably will rise together.

    Comparing to Dow Jones, the cycle of paper stocks seems to be over while the cycle of tangibles like gold has begun. In fact, if you reference to the chart 13 on pg.18 of “The Return of the Bear” by Martin Pring, the well-known technical analyst, you can see that the trend line of S&P 500 over gold has been solidly broken. No matter how you parse it, either gold goes up or stocks go down.

    You can read more details on the arguments for investing in gold in this gold-eagle.com article by Eric Hommelberg. It has an excellent summary for investing in gold.

    Fundamentals in the Coming Years

    With all the huge US budget and trade deficits, how can the US government still wage wars in Iraq, while promising more drug benefits to seniors? With all the entitlement programs that need to be paid, the least painful resolution for US government is to print money by inflating the monetary supply. While the benefits don’t get cancelled, they won’t get the promised matching increase with inflation either. By essentially diluting the value of $US, the government can also dilute the real value of debts that it needs to repay. Since US consumers are also heavily in debt, devaluation of $US can shift the majority of loss to foreign holders of $US and US bonds, albeit creating more inflation due to the rise of price in the import goods. Such US currency policy, gradual devaluation with empty talk of strong $US currency, is indeed the best for US. It keeps both the US as the debtor and foreign creditors afloat temporarily, so that US can keep its spending spree by borrowing global savings. Creditors in the meantime will not face a sudden huge loss on its bond portfolio.
    The US debt overhang is definitely bullish for gold and fortells that inflation will not go away anytime soon.
    A Technical Picture

    Some people claim that precious metals have made its top in the recent bubble run, and it should be downhill from now on. I disagree strongly. Although the latest run up in PM is quite parabolic (one of the characteristic for financial bubbles), based on the percentage ownership of all market participants, I believe that the bubble has barely begun yet if there is one. At the height of a bubble, not only the news should be making headlines, but also mass of investors should flock and chase right into the top. However, that is definitely not the case. Instead, precious metals have corrected substantially back to the 200 days of moving average (click to see chart), and again is reasserting its bullish trend. While it is possible that gold may retouch the 200 days moving average line again later at the four year stock market cycle near September, the relative strength in precious metal market compared to the general market is simply undeniable (see chart here). I expect that any rally, especially due to a pause in the interest rate hike by Federal Reserve, will be accompanied by a stronger showing from PM market.
    The Case for Silver

    Many may argue that silver is not a monetary metal, but rather an industrial metal. While they may have a valid point, silver nevertheless tracks the price of gold somehow. What’s really amazing about silver is that it has been in production deficit for 60+ years, with an accumulated defict of some 10 billion ounces. The price has not increased but instead has been falling for the last 20 years. A production deficit requires a drawdown in inventory. While some silver usages do get recycled, this sustained deficit is still quite big by any measures. By the way, some people challenge the validity of the silver deficit (for example, Zurbuchen’s article). While I dare not to say how big the silver deficit is exactly, the current gold to silver ratio at about 55 is most likely out-of-lined from the historical average of 31. This ratio is expected to decline in favor of silver as the precious metal bull market continues to unfold.
    According to Theodore Buttler at www.silver-investor.com, the silver naked shorts at COMEX have not covered their 100+ million ounces while the market seems to have bottomed. Physical deliveries of silvers are facing delays of months, showing strain of supply. We will see whether the current situation unfolds as a supply crisis going forward.
    My Own Strategy

    Majority of my precious metal investment is in mining company stocks instead of physical gold & silver bullions. I invest in them for additional leverage, explained in my post on Intro to Investing in Natural Resources. And obviously, with leverage, it also comes with additional risk beyond physical bullions. To learn how to invest in gold & silver, you can check out my post on Intro to Investing in Precious & Base Metals.
    Some Counter Arguments

    No article will be complete without examining some opposing arguments. Here are the two best sources for counter arguments for investing in gold that I have found so far. While both are cautiously bullish on the commodity markets, neither seemed to subscribe to the concepts of Peak Oil or Commodity Super-cycle which are widely believed by commodity bulls. Both are extremely well articulated.

    I have not finished the above book, but it tries to dispel hypes in the commodity investing. I highly recommend anyone to take a look and understand what are the hypes and what are the truths.
    The other source is Energy Mania and Actuarially-Driven Investors & Financial Fads by Bob Hoye at www.institutionaladvisors.com. His last call to get out of precious metal market was right on the money, and made his arguments even more convincing. He doesn’t subscribe to Peak Oil in his Energy Mania article. However, he is definitely a long term commodity bull from his interview and from his own articles.
    More Information

    Here are a couple of articles from the mainstream media that explains why you may want to own gold:

    1. From CNN: Hedging a decline in $US using gold.
    2. From USA Today: How to hedge against hyperinflation using gold.

    P.S. I want to thank Eric Hommelberg at www.golddrivers.com for making all the figures available for this article. I myself is a subscriber to his golddrivers newsletter, and I can attest to the fact that a couple of his recommendations that have truly hit the jackpot (10X return). The volatility can be extreme (+1000% to -90%) for junior mining companies if bought at the wrong time. With the potential high returns, it is always accompanied with high risks. I will not recommended investing in junior minings for any beginning investors.

    Posted in Book Review, Gold/Silver, Natural Resources | 20 Comments »

    My Advice To Preserving Wealth in 30s thru 50s

    Posted by Frugal on 26th July 2006

    At 30s to 50s, if you have put in some efforts in saving up a nest egg, you probably will have a okay to decent size of money, depending on your saving rate and age. At this stage, you probably should start constructing a picture of your networth & portfolio, if you have not already done so. The picture of your networth by market value gives you the idea of where your money is. The picture of your networth by the leveraged total value gives you the idea of how your networth may change per different asset classes that you have. Most people have their networth view as marked to value, but I strongly advise one to always take a look at the alternative picture of the leveraged view on the networth. I won’t go into details of the leveraged view, which you can read more about it by clicking the link.

    With all the money in your nest egg, the most important thing for it is how one can preserve (if not expand) the buying power of the money through time before retirement or the time when you need it. Since the modern paper money is a fiat money backed only by the faith in the government, combating above inflation rate is the minimum goal that every money holder or investor should achieve.

    Investing money is probably the most difficult task for anyone. Every minute, every second, every dollar from everyone is trying to gain the best return on investment (ROI). You can see how much competition is out there. If there is someone (including me) who tells you that he can consistently produce an annual return of 20% above inflation, you can almost be certain that he is telling a lie. Why? Compounding 20% for 25 years will give you 95.4 times back for your money. A mere $1000 dollar will become $95,400. Now if he has such investment knowledge to have such mida golden touch, will he be investing only $1000? He should be borrowing as much as he can and probably invest $100K to get some $9.54 million dollars. And if he has some $9.54 million dollars, I bet that he won’t be talking to you, but probably even making even more money for himself, or retired in some Carribean island. Such outrageous return simply don’t last long, or if it’s true, no one will be telling you about it. This applies to ALL investment, whether it’s real estate, precious metals, or stocks in general. The investing world is pretty much a self-correcting process. Any inefficiency (for investing trick) in the market will be immediately exploited in a short time to the extent that such inefficiency doesn’t work anymore. Every now and then, there will be some inefficiency in the market, but with so many investors and so much capital in the whole world, you can bet on that it will disappear before you know about it.

    Despite the tremendous difficulty in investing, you can be sure that if you don’t pay attention or don’t do it, you will be at the bottom of the ROI (unless by pure luck). There are mainly two approaches to investing: passive and active. Passive investors follows the style of index investing by putting money into the general market weighted by market capitalization. An index investing style believes in the EMH, efficient market hypothesis, that the best current asset allocation is the current opinion of the market, which is expressed through the market capitalization of every stock. Therefore, buying index funds or ETF will give you the best asset allocation. I highly recommend the book Four Pillars of Investing by . It’s one of the most outstanding investment book that one can ever read. The arguments for index investing are so strong that I can barely find any faults in them.

    The other style of investing is active investing, which is my current style of investing. I believe that I still have time to experiment with different investing strategies, and afford to get sub-par returns. But the biggest reason for me to follow such investing strategy is that the reasons for $US dollar devaluation and investing in natural resource sectors are so compelling that I cannot turn my eyes away from it. I will have separate posts on my reasons, but it is known that index investing gives you the average performance. Besides, it is also know that EMH in the most strict sense does not hold, and academics are discovering examples of market inefficiencies here and there (which gets exploited right away of course).

    My own criticism to EMH is that in the entire formulation of EMH, there exists no time element. Obviously, nothing happens instantaneously. The time during which the market digests the information should be full of opportunities for smart people to take advantage. And while EMH claims that there is no market advantage at every time instant, I believe it does not directly translate into a conclusion that when you look out further in time for months or years, there exist no advantages. In essence, I believe that the entire formulation of EMH lacks the very important element of Time. That’s why I believe that by investing long enough (and smart enough), one should be able to harvest the inefficiency accumulated through time, and/or inefficiency projected into the future.

    Of course, I may be wrong in my active investing, but it is for sure, that in every market, there are out-performers and under-performers, and index investing gives you the average performance of all market participants. One of the better books for active investing is the book from the master market technician Martin Pring “The Investor’s Guide to Active Asset Allocation”. It has explanations of how one can use potential knowledge of business cycle to dynamically allocate one’s asset.

    While there is not a lot of concrete advices that I can give you for investing, definitely invest, invest, and invest to at least beat inflation. Also I suggest you to at least read my article on the importance of diversification, which relates directly to preserving wealth through diversification. And I won’t tell you that I know a trick to return 20% every year because I will be flatly out lying as I have explained. I have and will have many more articles on Introduction to Investing in certain asset classes, and Reasons for Investing in certain asset classes, to help you on how-to and understand why. But since I have no magic trick, you will need to make up your own portfolio compositions, and invest accordingly. And if you have time to spare, the following two books will probably increase your knowledge in investing tremendously, whether you choose to invest actively or passively.


    Posted in Book Review, Investing, Miscellany | 8 Comments »

    What is Peak Oil

    Posted by Frugal on 18th July 2006

    If you have never heard about peak oil, then you really should read about it in earnest, RIGHT NOW. Search on Google and read everything that you can about it. If it is real, which I think it is, it is going to change the way we live on Earth. It will be a paradigm shift.

    Peak oil is a theory by Hubbert, a geologist at Shell. It’s also called the Hubbert’s peak. Essentially, it is based on empirical evidences that the production of oil (or any commodities) follows a Gaussian normal distribution or bell-shaped curve. And by all best estimates, the peak of this bell-shaped curve is from 2005 to 2010. In fact, some experts have declared that peak oil is behind us already. Hubbert gave two predictions in 1956, one of them dated that US oil production will peak around 1970s, and the peak turned out to be the year of 1970. US oil production has ever since gone into decline. However, at the time of Hubbert making such prediction, he was ridiculed widely for his opinions.

    You may ask why a normal distribution curve. In fact, this curve is the most sensible curve out of all. In the theories of probabilities, there is a theorem called the Central Limit Theorem. It proves that any sum of MANY independent identically distributed random variables will approach the normal distribution when the number of variables approach very large. Although I never saw anyone tries to make a proof from the Central Limit Theorem to the oil production curve, intuitively I believe that both can borrow the same mathematical framework. One simply needs to treat every small or big oil field as an independent random event, and the final sum approach the normal distribution curve.

    So here is a theory of peak oil that is based on empirical evidences and has been formerly shown to render correct prediction. In fact, not just oil, but many production of basic materials follow such curve. Many other people have tried to date the peak for global oil production. Some dates go as far as 2020. I do know for a fact that because of the technology advancement in secondary and tertiary extraction from the oil fields, most likely the peak can be postponed by a little somehow. But whatever extra production that you get now, you will be hit by the accelerated decline in production post-peak.

    Based on what is happening currently, I have reasons to believe that we are right at the peak of global oil production. You can read more about it in the book of by Matt Simmons, where he discussed his findings on the oil fields of Saudi Arabia. I heard from financialsense that Saudi Arabia has paid some 4X amount of money to obtain the oil digging rigs around the world, frantically trying to making up any amount of shortfall in their oil production.

    What are the implications and ramifications of Peak Oil if it is true and we’re close to the peak (if not behind it)? At the time of the two most populated countries China and India coming to join the world as the new capitalists, improving their living standards, and therefore increasing dramatically their usage of oil and natural resources around the world, global oil demand has stepped on the acceralated pedal. Unfortunately, oil production appears to be almost at the peak. If you recall from the basic of economics, supply/demand curve, with dwindling supply and increasing demand, the only resolution for price is to go up. What’s even worse is that both the supply and demand are relatively inelastic. Supply cannot be increased without dramatically higher price; demand cannot be decreased with our current economic and transportation infrastructure. Relative inelasticity will simply worsen the crude oil price picture.

    Here are some more books & websites on Peak Oil. If you have time & money, I suggest you try to read as much as you can about this topic. When I first visited Life After Oil Crash, I was really depressed about the bleak outlook. However, I was able to climb out quickly due to my religious belief and my general optimism. Just be aware not to sink too deep emotionally. But do reflect on all the facts. After all, even a physics professor David Goldstein at Caltech (top three, if not #1 university in science in the US) has subscribed to the theory of peak oil.

    1. Life After Oil Crash
    2. Peak Oil.com
    3. Peak Oil blog
    4. Peak Oil from Energy Bulletin
    5. HubbertPeak.com

    Unfortunately, the development of alternative energy sources and most importantly the infrastructures are so far behind that I doubt that if peak oil is upon us, mankind would be able to come out of the crisis without some serious economic and social upheavals.

    P.S. Due to the lack of my time, I would really appreciate anyone who can write some very short summaries or comments on any links or books so that everyone can benefit from it. Thanks. By the way, I bought Hubbert’s Peak, and it has too much technical information for non-geologists. Personally, I would suggest trying Golstein, Simmon’s books.






    Posted in Book Review, Investing, Natural Resources | 17 Comments »

    Book Review: The Millionaire Next Door

    Posted by Frugal on 27th June 2006


    I heard about this book long time ago, but have never read it until recently.  I had always dismissed it because one of the words in its title is Millionaire.  Since I never believe that by reading any books, one can become a millionaire, I tend to discard those fashionable titles.

    After reading the book, I found that I really liked it.  This is one of the books that you can both learn from its experiential examples, and also use it as a solid reference.  Furthermore, the book is a good reading & reference for wide range of ages and income levels.  I highly recommend it to everyone.  Here is a short summary:

    Because the entire content of the book is based upon a solid survey of millionaires, the texts in the book are not just empty words.  The author Thomas started with the description of the American millionaires (based upon his interviews, surveying questionaires).  He found that one of the common traits is frugality.  There were many other traits, such as a high percentage of the millionaires are self-employed business owners, or most millionaires are not active investors, and tend to hold stocks for several years, etc.  You could read about the book to find out the other interesting common traits in the “frugal frugal frugal” and other chapters.

    Then Thomas went on discussing how most millionaires use their time and energy very efficiently to increase their wealth over the long term.  I think this is also a really good and important chapter.  Majority of people don’t realize that Roman empire is not built in one day, and that small daily changes in life goes a long way.  If you simply spend 15 minutes less in front of TV or on the phone, and spend those time wisely such as to increase your knowledge on wealth, you can learn and do a lot in the long term.  And because everyone has only 24 hours a day, spending the time efficiently over the long haul will certainly make a huge difference in terms of achievable success.  Personally, when I spend my time on money-related matters, I usually focus on the bigger dollar problems, or a habitually repeated process (which adds up to be a big dollar problem by its repetition).  My wife is much more frugal than I am in the daily matters.  I keep telling her not to waste too much energy on anything that is less than $100.  My daily portfolio swing is usually more than several thousand dollars.  It’s obviously much more important to get my portfolio right than saving $10 on an one-time deal.

    Near the end of the book, Thomas also listed out several things that how and what the millionaires teach their children about money, and the professions of their successful heirs.  The list on what they teach about money is an excellent list for parents.  It includes things such as not revealing how much money to your children, not discussing how much they may get for inheritance, etc.  All of them are great advices to parents.

    Overall, I must say that this book is definitely worth the money.  I’m pulling out my Amazon affiliate ads for this book (or for any future books that I recommend reading).  If you want to purchase this book, why don’t you go through my link as another way of showing support to my ongoing publishing efforts on this website.  I will certainly appreciate your kind gesture.

    Posted in Book Review | 3 Comments »

    Book Review: Mind Over Money

    Posted by Frugal on 11th June 2006

    This is my first book review.  As a general rule of thumb, I won’t give out every detail in the book, so that there is something that you can discover when you read the book yourself, and by doing that I also respect the author’s & publisher’s copyright.

    Mind Over Money by Eric Tyson

    Eric discussed six types of people in respect to the ways that they deal with money.  The six types are Shopper, Workaholic, Obsessive Gambler, SuperSaver, Avoider, and a last type that I won’t disclose here.  By using some real cases and pointing out their short-comings, the author attempts to impart some basic principles in dealing with money.  While he is right most of the time, I must say that not everyone falls into one of the pathological cases that he classifies.  And even when someone is in a particular category, he or she may not behave pathologically.

    At times, he will discuss certain small detail and try to put forth his special view on that matter.  One example is where he discusses why someone in his case doesn’t need to balance checkbook.  He claims that he never encountered anyone losing more than a few hundred dollar from bank error, and that the amount of time checking bank statement and balancing checkbook is simply not worth the time invested.  Yes, he claims that indeed he pay some bank fees because he overdrafts his checking account, but he gains much more by not spending his time on the tedious details.  While I enjoy a refreshing viewpoint from him and agree with him for the most part, I personally dare not to advise people to follow his example.  I think there are so many ID thieves around us that at the minimum, one should scan through their statements for potential big problem.

    The book overall presents good advices for the pathological people that behaves such.  But I must say that probably because of his profession as a counselor, he encountered such cases.  Many other people however may behave much saner.  If you’re one of those people that in need of financial help, then I suggest you to take a look of his book for advices.  Otherwise, I don’t really think that every SuperSaver is afraid of investing his or her money, or cheats on taxes, or hoards without knowing when to stop.

    P.S. Why I think one should check their statements & How I check them

    Personally, I had ID thieve trying to charge my credit card.  And there is one time, bank made an error by depositing someone else’s $30000 bank CD into my wife’s account, when we tried “frantically” to go through our paper trails to search for a non-existent CD.  Now I’m sure that if the other person did what Eric does, not checking bank statements, the $30000 erroneous deposit would probably stay in my wife’s account for longer than just two weeks.

    What I personally do in respect to checking bank & credit card statements is I only check for the transaction amounts in my bank statement, and I try to recount the charges made at the regular vendors that I go to with receipts that I regularly keep.  I never check the calculations made by credit card companies and banks, because I trust modern day computers.  As long as the transaction amounts are correctly inputted, the final result will definitely be correct.  When I don’t have much time, I will simply scan through the vendor column, and just make sure that there is no weird companies charging my credit card.  As for my bank statements which have just a few transactions, I only checked the list of the company names that use ACH to withdraw from my account, and I don’t spend much more time beyond that.  In total, I only spend about 30 seconds for my longest bank statement, and just under 2 minutes to scan through vendors on my credit card statements, assuming that I don’t check every transaction amount with my meticulous wife.  And I don’t balance my checkbook either.  I simply let automatic transactions to take care of the regular and necessary transfers.  And by heart, I try to know at least the first digit, but preferably the second digit too of my bank account balances.  The rest of the digits down to cents, computer can take care.

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