Financial times

Beating the economy to make your money grow.

June 4, 2010 22:54
Meir Barak

MeirBarak311. (photo credit: .)

‘Mazal tov!’ There’s lots of cheering and clapping as the five people at the table congratulate the sixth on the birth of a new baby and start plying him with $100 bills.

But after the glow and excitement fades, the new parent is going to have to face facts: That new baby is an additional expense, and he’s going to have to figure out how to stretch his policeman’s, teacher’s or clerk’s salary to cover it. Or maybe he’ll try to increase his income by looking into some investment opportunities that have come his way – if he can figure out how to invest without losing his shirt.Okay, so the baby isn’t a real baby, the money isn’t real money and the investments aren’t real investments – at least not yet. It’s a game called Cashflow 101 that was developed by US entrepreneur Robert Kiyosaki to teach financial literacy, and if you’ve ever played the game Life, well, it’s basically Life writ large.

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Cashflow 101, which first appeared in 1996, is played all over the world, and the instruction booklet Kiyosaki wrote for it later evolved into the international best-seller Rich Dad, Poor Dad, which promotes financial independence through investments in real estate and businesses.

For many players the game is an eye-opener, leading them to realize how little they know about managing their own finances, let alone about the world of business and investments.

But the games that take place weekly in classrooms in Tel Aviv, Jerusalem, Haifa and Rishon Lezion are not meant merely to educate. They are a marketing tool used by Cashflow College to motivate players to take one of its 20 courses in capital markets investing, real estate and entrepreneurship.

The six-year-old Cashflow College is only one of many institutes around the country offering courses in what is known in Hebrew as haskala financit, financial education. Through whatever investment vehicle one chooses to explore, the courses teach how to put one’s money to work to maximize returns – whether the aim is to meet looming family expenses, augment a pension after retirement or simply have a stream of income other than a salary.

These courses, which cost NIS 2,000 and up and can last from six weeks to six months, are given in community centers, offices and “colleges,” that are not academic institutions, nor do they pretend to be. On the contrary, the instruction is strictly how-to, with just enough theory to understand why.

The courses I checked out – hardly an exhaustive sample of what’s available – seemed thorough, and none of the instructors or administrators who spoke to The Jerusalem Post sounded like snake-oil salesmen; they are knowledgeable in their fields and some are media commentators and columnists in the financial press. The students who agreed to be interviewed – who ranged in age from students to pensioners – seemed satisfied, though not all of them had as yet gotten up the courage to invest.

All courses described in this article are given in Hebrew, but those who prefer studying in English need not despair: Jerusalem’s Lander Institute runs an investing and finance course for English-speakers, given by Douglas Goldstein, director of Profile Investment Services and author of Building Wealth in Israel. The latest session of the course, which costs NIS 2,400, opened on Sunday.

All the course purveyors promise as much hand-holding and mentoring as you might need, both during the courses and after they’re over, by phone, e-mail, electronic newsletters, Facebook group or their Web sites, which provide endless reams of information.

And all these places offer introductory sessions that not only explain what the courses are about, but leave you with some investment tips. The aim, though, is spur you to sign up to learn more.

THERE ARE rules you can learn to navigate the market confidently, so you can earn money while minimizing risk, says Yisrael Morgenstern, chairman of the investment committee at Big Capital Investments and the academic coordinator of the market investment curriculum at the Herzliya-based Mercaz Lehascala Financit (Financial Education Center – FEC), which also gives courses in Tel Aviv, Ramat Efal and Haifa.

“The stock market is not a casino,” says Morgenstern. “It’s an opportunity to be a partner in a company. Sometimes these partnerships cost more money, sometimes less. Before you become partners with anyone, in any business, you check the company’s fundamentals.

“If you know how to read a financial statement, to evaluate a company’s worth, to know who its competitors are and what they are making, and if you can see that the management knows what it’s doing, over the long term [the stock] should go up.”

FEC is a division of Matrix, an information technology company that owns several education and training programs, including John Bryce, the Hi-Tech College, and Israeli Management Center. FEC gives a range of market investment courses, from a 17-week course (NIS 5,150) that covers the investment basics, to more advanced courses in technical analysis, options and foreign currency. The courses also teach strategies and how to use the various computer programs needed to invest on-line.

Morgenstern is the primary lecturer in the basic course, and a couple of times a month holds a “trading room,” open to both current and former students, where he does a market survey, evaluating what investments participants have made or are considering, and dispenses some investment advice.

Speaking to the Post after one such “trading room” session, Morgenstern notes that nearly all of the two dozen people who had attended had known virtually nothing about the markets before taking his courses.

G.S., 60, of Ramat Gan, who had 37 years’ experience as a hi-tech executive, already had a side income from real estate investments but decided he’d prefer to diversify and learn to invest in the stock market, about which he admits he knew nothing.

Since last July, he has taken several courses at FEC – Morgenstern’s as well as several advanced courses – and has started investing small sums.

“I believe that it’s important not just to learn things, but to try them, and I’ve even seen some profits, but I wouldn’t consider myself an ‘investor’ yet,” he says. “That will take a lot more practice.”

Naomi Katznelson of Givatayim admits that she didn’t know anything about investing before taking FEC’s basic course last year. She hasn’t made any investments yet, and though she comes regularly to the “trading room,” to view the practical applications of what she learned.

“I come to the trading room and I hear things repeated, and repeated again, and I’m catching on,” says Katznelson.

“We teach them different methods, but we also teach them rules, which they are meant to follow, which keeps students focused,” explains Morgenstern. “We don’t want them to sit on the computer the whole day, or even every day; we want them to check on their portfolio every couple of days or even once a week.”

Like all thorough courses on the capital markets, Morgenstern teaches students how to make money when the markets go up or down. But his investment focus is decidedly medium- to long-term; otherwise, he says, playing the market is indeed a gamble.

“Whoever tries to bet on whether the market will go up or down tomorrow indeed turns it into a casino,” he says.

MEIR BARAK emphatically disagrees. Trying to hold stocks for the long term is more dangerous, he says, because every few years there’s some kind of crisis that sets the market back, and one may not be able to recover from it.

“When I make a profit I sell, because I have no clue what will happen over the long term,” he says. “There’s nothing better than putting money in your pocket.”

Barak, a former hi-tech executive who founded Tradenet in 2004, is a day trader, playing the New York Stock Exchange and the Nasdaq exclusively. This is because the volume and technology of the US stock markets make it much easier – and safer – to trade successfully, he says, and commissions are far lower than on the Tel Aviv Stock Exchange.

Moreover, people on this side of the ocean have an advantage, since due to the time difference, they can trade in the evening, after work.

Barak bounded into a recent introductory session in Jerusalem looking pretty proud of himself. It was the evening of Monday, May 10, the day that the EU had announced its trillion-dollar euro-zone bailout plan.

Anticipating that such a plan would be announced, he had taken various stock positions on Friday, and sold immediately on Monday when the US markets started zooming up as trading opened. He had made $32,000, a personal one-day record.

“Traders love volatile markets,” says Barak. “We love crises. Because during crises, we can predict how the public is going to act. And when the public is predictable, we make money.”

Tradenet’s 12-week course (NIS 6,000), given in the central region, Haifa, Jerusalem and Beersheba, teaches stock analysis, strategies and how to use the relevant computer programs. Its very sophisticated Web site has its own on-line “trading room,” where for a monthly fee, one can listen in on analysts as they make their recommendations and ask questions.

Barak also makes his own weekly recommendations, which if followed, Tradenet claims, would have netted investors a return of 7.2% a month over the past two years.

Students can train on demo programs for free, but to open an account at the brokerage firm affiliated with Tradenet requires at least $3,000, with the broker allowing students to buy stock worth up to four times as much on margin.

At the introductory session, Barak made it clear that success as a day trader is as much about psychology as about money.

That’s the purpose behind what he calls his “3 by 3” rule: if a stock you buy goes down by 3 percent, you sell – no matter what. If it goes up by 3%, you sell three-quarters of your holding and let the other quarter ride, but then sell that – no matter what – if it sinks back down to what you paid for it.

It seems a simple enough strategy to implement, but apparently it isn’t.

“People don’t like this rule, because the desire to go out and tell your friends that you made a killing is too great.” he says. “To sell at 3% [profit] is a battle – a battle with yourself.”

What’s perhaps most significant about the rule, though, is that it prevents you from losing much money by stubbornly holding on to a bad stock in the hope it will go up.

“That’s what most people do, and that’s where the problems lie,” he explains. “Even when a stock plunges, people tend to say, ‘If I haven’t sold it, I haven’t lost anything.’”

Amazingly, Barak continues, as the stock drops further, people sometimes increase their stake. “You tell yourself, ‘It’s a good stock, it’ll come back.’ Once in a while that will work. But it’s only a matter of time before a stock doesn’t come back, and you’ll get a slap that you won’t recover from.”

THE NEED for discipline in investing is one reason why both instructors and administrators say they would like to see more women – now only about 20%-25% of the students in their courses.

“I think women are better at market trading than men,” says Geva Gazit, who teaches a course in day trading of futures contracts for Cashflow.

“They don’t have an ego. Men have an ego, they think every trade is a war between them and the market. They have to win in every transaction, and they end up losing a lot of money.

“Women are a lot more rational. If something’s not working, they just close it up and start with something else.”

Gazit’s five-session course (NIS 2,450) teaches the techniques and the program associated with futures contracts, and requires students to practice on a demo version of the program, which they can get for free for a few weeks. But his trading model also imposes a degree of discipline.

The minimum required to open a brokerage account for the Chicago Mercantile Exchange, where one can trade in both commodities and contracts linked to various financial indices, is $5,000, and he wants his students to make do with making $100 a day. Then they are meant to turn off the computer and forget about it.

During a demonstration on his laptop, Gazit put in a buy command for a Standard and Poor’s-linked contract, then sold it for a $50 profit. It took about 30 seconds.

“A hundred dollars a day is nothing to someone who’s in commodities, it’s ridiculous,” he says. “But if there are 20 or 22 trading days a month, that’s around $2,000. On $5,000, that’s a return of 40% a month. Where else can you get a return like that?”

Gazit came to market trading from a totally different place: His field was wellness promotion – smoking cessation, nutrition and the like. He got into trading seven years ago because he understood that his savings were not getting the returns he wanted.

“I took a basic course in futures, but most of my studies were trial and error in front of the screen,” he says. “I teach these courses because I know that I went through a process – I had no financial or business background or degree and I succeeded; there’s no reason that anyone can’t succeed.

“But I don’t teach people how to make millions. That doesn’t interest me. People can and do, but that’s not what I teach. Take an hour or two a day, go into this market that turns over trillions of dollars every day, and take a little piece. That little piece can be a very nice income, when you take into account the effort and expense you would have to put into it.”

Dale Baranowski, a sound engineer from Gush Etzion, is still practicing. After taking Gazit’s course in the fall, he recently opened the $5,000 brokerage account so that he could get unlimited access to the demo program, though he hasn’t made any investments yet. His simulations, “playing with Monopoly money,” as he put it, have been mostly profitable.

“This is the first time I ever attempted anything like this,” Baranowski says, adding that he was very impressed with Gazit’s approach to investing. “He gave us a realistic appraisal of what we could and couldn’t expect to accomplish. He wasn’t out to impress anyone.”

Both Gazit and Tradenet’s Barak refer to day trading as a “profession,” but neither believes that students should aim to quit their day jobs.

“In this economy, everyone could use a second profession,” says Barak. “As far as I’m concerned, there’s no better profession than one in which you can hook up to the Internet in Thailand and make money.”

If you look at capital market investing as a business venture, Gazit says, it is one of the few businesses you can actually get some practice at, using demo programs, before making more than a minimal investment, if any.

But that’s a relatively recent development. These types of courses would not have been relevant even 10 years ago, when real-time access to market information cost thousands of dollars, putting it out of range for individuals.

Now, anyone with a fast Internet connection can play the market on his own. Almost all the programs are either free or available at minimum cost, supported by banks or brokerage houses or other commercial entities. Research is much easier, assuming you can understand the information, and the ability to program in buy and sell commands means that your portfolio can be adjusting itself even if you’re nowhere near a computer.

Independent investing in the capital markets without any training, however, is still risky.

“To invest on your own, you need three things: Time to do it, the talent and understanding of the markets, and a temperament not subject to emotional swings that can mess you up,” says Lander’s Goldstein.

“In the end, a lot of people who try it themselves end up coming to learn it,” says FEC’s Morgenstern. “They make so many mistakes and lose so much money that they decide it’s worth spending NIS 4,000 to NIS 5,000 for a course to learn how to do it properly.”

NOT EVERYONE who takes these courses will actually invest, which seems to genuinely pain Cashflow chairman Shai Baaton.

“People write that they enjoy our courses, and that’s fine, but we’re not a theater, that they should come, enjoy the performance and go home,” Baaton says. “I’d prefer to think that people apply what they learn here, that they take it further.

He believes his courses offer more than just a way to make money.

“Of course, our students learn how to make money, but just as a way to achieve something beyond,” he says. “They want something of their own; they don’t want to feel that all they’ve accomplished is through their job and if they don’t have a job, they aren’t worth anything. That’s a feeling of dependence, of enslavement.”

In an era in which Icelandic volcanoes, binging Greeks and irresponsible American bankers can affect jobs and savings here, the money generated on the side certainly doesn’t hurt.

“I believe in freedom more than I believe in money,” says Baaton. “Money is just a tool, it’s never the end in itself. I think that what we are selling is freedom, in the form of financial independence.”

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