"The Richest Man in Babylon" by George S. Clason

The Richest Man in Babylon [Paperback]
George S. Clason (Author)

Read by millions, this timeless, easy-to-read classic holds the key to personal financial success. It's been hailed as the greatest of all inspirational works on the subject of thrift and financial planning. This celebrated bestseller offers an understanding of personal money management. It reveals the secrets to acquiring money, keeping money, and making money earn even more money.

My comment:
This is one of the best books I have ever read on the subject of personal saving and investing. As of Jan. 9th, 2011 it is rated on the Amazon.com bestseller list as follows:

Amazon Bestsellers Rank: #2,207 in Books (See Top 100 in Books)
# 2 in Business & Investing > Personal Finance > Money & Values
# 4 in Business & Investing > Business Life > Ethics
#19 in Business & Investing > Mgmt & Leadership > Motivational

"Rich Dad, Poor Dad" by Robert Kiyosaki

Rich Dad Poor Dad: What the Rich Teach Their Kids About Money - That the Poor and the Middle Class Do Not! Robert T. Kiyosaki (Author)

As of Jan. 9th, 2011:
Amazon Bestsellers Rank: #516 in Books:
# 1 Business & Investing > Personal Finance > Financial Planning
# 3 Business & Investing > Investing > Introduction
#10 Business & Investing > Skills

My comment:
Many years ago I read Rich Dad, Poor Dad by Robert Kiyosaki, and learned some valuable lessons.


Rich Dad Lessons: The Quick Reference Guide To Wealth

This quick reference table is very interesting... especially the point about real estate: you make your profit when you buy, not when you sell.

Rich Dad Lessons: The Quick Reference Guide To Wealth - Money Making Online

Inflation and Hyperinflation

Every financial asset is also a liability. Let's read that again: Every financial asset is also a liability. What does this mean?

Suppose you have a bank savings account, or a bank CD. You regard them as assets, but for the bank they are liabilities. If the bank goes bankrupt, they no longer have the liability, and you no longer have the asset, unless your account is insured by the FDIC.

What about insurance policies? You have homeowners or renters insurance, auto insurance, health insurance, life insurance and/or long-term care insurance. You may think of them as assets, even if they have no cash value. But to the insurance company or companies, they are definitely liabilities. And what happens to these policies if the insurance company goes bankrupt?

Corporate bonds, preferred stock and common stock are assets to you, but liabilities to the corporation that has issued them. And what happens to the value of your assets if the corporation goes bankrupt?

If you own a home, with a mortgage, the home is your asset, and the mortgage is your liability (but it is an asset to the finance company holding the mortgage). If you go bankrupt, or your home is foreclosed, what happens to the value of the mortgage?

The point is that every financial asset is also a corresponding liability. But what about real assets that are unencumbered, that have no corresponding financial liability? If you own your home free and clear, with no mortgage, it is a real asset without a corresponding liability. Any real property or personal property asset that is not leveraged, that has no lien or mortgage or encumbrance, is an asset without a corresponding liability.

What about currency... is it a real asset, a financial asset or neither? Prior to 1971, when the U.S. was on the gold standard, our currency was backed by gold, and could be redeemed in gold. So one could argue that currency was a real asset. Today there is no backing for our currency. It is worth only what it can be exchanged for in goods and services. It is not backed by anything of value. If we try to redeem currency at the U.S. Treasury, they will give us an interest-bearing U.S. Treasury security of some denomination and maturity.

The conclusion we must come to is that our currency is only worth what it brings in the marketplace. As the U.S. government prints and circulates more currency, we will have more money chasing fewer goods and services... this is the definition of inflation. At some point nobody will want U.S. dollars... this is the definition of hyperinflation, and it could happen gradually, or very, very quickly.

At that point we will enter a barter economy, trading goods and services directly. Nobody will trust paper money; it will have become worthless.

This is why it is good to have a portion of your wealth in real, physical assets.

16 of the most overpriced products you should avoid

16 overpriced products to avoid

www.Edmunds.com True Cost to Own

If you're thinking about buying a car or truck, check out this Edmunds.com feature, called the "True Cost to Own". It works for new and used vehicles, for the current model year as well as five previous model years.

www.Edmunds.com True Cost to Own

Reversion to the mean

"Mean reversion" or "reversion to the mean" refers to the concept that every asset class cycles between being overvalued and undervalued, but in the long run returns to (reverts to) a mean valuation. This includes stocks, real estate, commodities, collectible art, coins, gems, cars, any asset class. The goal is to buy ...an asset when it is undervalued and sell it when it is overvalued. Many experts believe that real estate is presently undervalued, while stocks and mutual funds are overvalued.

Writing Covered Call Options (updated July 5, 2018)

When we hear the words "put and call options", we usually think of highly speculative financial instruments. And, it's true, except for one particular option… the covered call option. If you have several thousand shares of a particular stock, whether it's Oracle or Cisco or any other company, and you're curious about covered call options, you will find this information useful and potentially quite profitable.

A call option is a contract that gives the owner (buyer) of the contract the right, but not the obligation, to buy 100 shares of a stock at a specified price, at any time before the option expiration date, generally the close of trading on the third Friday of the month. A call option contract is written by the owner of the stock, who then sells the contract on an exchange, in order to generate income. It's called a "covered" call option because the writer owns the stock, as opposed to a "naked" call option, if the writer does not own the stock.

For example, suppose I own 1000 shares of Oracle (ORCL) stock. The stock is currently selling for $45.35 a share in July, 2018. Now let's further suppose that I would be happy to sell my 1000 shares for $47 a share, any time in the next three months. I go to the Yahoo! Finance page for Oracle, click the Options tab and pick September 21, 2018 as the option expiration date. The link to that page is HERE.

I see that ORCL Sept. 21, 2018 $47 call options (ORCL180921C00047000) are Bid $0.94, Ask $0.99. I direct my broker to write 10 call option contracts (a single contract is for 100 shares) and offer them for sale at $0.95 cents a share, or $950 for 1000 shares (ten contracts).

When someone buys the contracts, I receive the $950, and my 1000 shares of ORCL stock are now committed until one of two things happens: either the stock price reaches $47 and the buyer exercises the options, buying my 1000 shares for which I receive $47,000, or else the stock price fails to reach $47 by the close of trading on September 21st. In this case the options expire unexercised; I keep the $950 and the shares, and I can write more covered call options on the same shares.

Psychologically, as the writer (seller) of covered call options, I have to be prepared for either eventuality. I have to be indifferent to having 1000 shares of ORCL stock or $47,950. The only risk to me as the writer of covered call options is that the price of the stock may rise far above the exercise price, and I will forfeit the capital gain above the $47 exercise price. For example, if the stock rises in price to $50 before Sept. 21st, the holder of my contracts would pay me $47,000 for my stock, and then could immediately sell it for $50,000, making a nice profit.

Why would someone want to buy covered call options? There are two reasons. First, the buyer believes the stock price will be well above the exercise price before the options expire, so there is the potential for a short-term capital gain. And, second, the buyer wants to use leverage. Through covered call options, a buyer can control the stock for a fraction of the cost of actually owning it. In our example, the buyer has paid $950 to control 1000 shares of ORCL stock. If the options expire unexercised, he loses his $950. If, however, he has bet correctly, and the share price goes to $50, his profit is $2,050 ($3,000 less the $950 cost of the contracts).

Since most options expire unexercised, buyers are obviously playing the percentages. To use a baseball analogy, they are expecting that a few home runs will compensate for a large number of strikeouts.

While this is a real-world example, it isn't completely realistic because I have ignored broker commissions. A broker might charge me $150 to write ten contracts covering 1,000 shares. So to make the transaction cost-effective, I must own enough shares, and write enough contracts, so the broker's commission becomes a relatively minor cost.

Some stockholders actually do want to sell their shares, and they use covered call options like a limit order, equivalent to telling their broker to sell their shares when the price reaches a price equal to the option exercise price.

However, other stockholders use covered call options as a way of generating income, equivalent to a stock dividend. They don't really want to sell their shares, so their goal is to pick an exercise price and exercise date that allows them to generate some income, while having a low probability that the call options will actually be exercised. For these stockholders, their shares are like a "money machine", and the covered call option process is like a "crank" on the machine. They "turn the crank" in order to generate income.

The rule among experienced covered call option writers is: "Buy the stock on dips, and write covered call options on strength." In other words, when the price of the stock is falling, buy the stock. When the price of the stock is rising, sell the covered call options. This rule is particularly effective if you can identify a seasonality pattern in the stock price. For instance, if a company typically has a weak third quarter and a strong fourth quarter, you would buy the stock in the third quarter when weak earnings are projected and the stock is falling, and you would sell the covered call options in the fourth quarter when strong earnings are projected and the stock is rising.

Note that income from selling covered call options is considered ordinary income for federal and state income tax purposes and must be declared on your tax return. At the same time, broker commissions that you pay are considered an expense and are deducted from the income.

Call options that are priced below the current stock price are "in the money" options, while those priced above the current stock price are "out of the money" options. As you might expect, the farther out the exercise date, the more the call option is worth, while the higher the exercise price compared to the current stock price, the less the call option is worth. So it becomes a balancing act. The major considerations are: (a) how strongly do you want to keep (or sell) your shares? and (b) for how long a period do you want to commit your shares?

My personal experience, having repeatedly sold covered call options over a five-year period, was that I was most comfortable with an option exercise date three to four months out and an option exercise price that was close enough to the current stock price to give me a 1%-2% yield ($0.50-$1.00 per share on a $50 stock)

I hope this information has been useful. I originally discovered the concept of covered call options in Wade B. Cook's book "Wall Street Money Machine, Vol. 1". While Mr. Cook has a bad reputation within the investment community, and has done prison time for tax evasion, his book was an invaluable guide to understanding how covered call options work, and I still believe that it was the best $20 I ever spent on an investment book.