Financial times

Beating the economy to make your money grow.

MeirBarak311 (photo credit: .)
(photo credit: .)
‘Mazal tov!’ There’s lots of cheering and clapping as the five peopleat the table congratulate the sixth on the birth of a new baby andstart plying him with $100 bills.
But after the glow andexcitement fades, the new parent is going to have to face facts: Thatnew baby is an additional expense, and he’s going to have to figure outhow to stretch his policeman’s, teacher’s or clerk’s salary to coverit. Or maybe he’ll try to increase his income by looking into someinvestment opportunities that have come his way – if he can figure outhow to invest without losing his shirt.
Okay, so the baby isn’ta real baby, the money isn’t real money and the investments aren’t realinvestments – at least not yet. It’s a game called Cashflow 101 thatwas developed by US entrepreneur Robert Kiyosaki to teach financialliteracy, and if you’ve ever played the game Life, well, it’s basicallyLife writ large.
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Cashflow 101, which first appeared in 1996, isplayed all over the world, and the instruction booklet Kiyosaki wrotefor it later evolved into the international best-seller Rich Dad, PoorDad, which promotes financial independence through investments in realestate and businesses.
For many players the game is aneye-opener, leading them to realize how little they know about managingtheir own finances, let alone about the world of business andinvestments.
But the games that take place weekly in classroomsin Tel Aviv, Jerusalem, Haifa and Rishon Lezion are not meant merely toeducate. They are a marketing tool used by Cashflow College to motivateplayers to take one of its 20 courses in capital markets investing,real estate and entrepreneurship.
The six-year-old CashflowCollege is only one of many institutes around the country offeringcourses in what is known in Hebrew as haskala financit, financialeducation. 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 pensionafter retirement or simply have a stream of income other than a salary.
Thesecourses, which cost NIS 2,000 and up and can last from six weeks to sixmonths, are given in community centers, offices and “colleges,” thatare not academic institutions, nor do they pretend to be. On thecontrary, the instruction is strictly how-to, with just enough theoryto understand why.
The courses I checked out – hardly anexhaustive sample of what’s available – seemed thorough, and none ofthe instructors or administrators who spoke to The Jerusalem Postsounded like snake-oil salesmen; they are knowledgeable in their fieldsand some are media commentators and columnists in the financial press.The students who agreed to be interviewed – who ranged in age fromstudents to pensioners – seemed satisfied, though not all of them hadas yet gotten up the courage to invest.
All courses described inthis article are given in Hebrew, but those who prefer studying inEnglish need not despair: Jerusalem’s Lander Institute runs aninvesting and finance course for English-speakers, given by DouglasGoldstein, director of Profile Investment Services and author ofBuilding Wealth in Israel. The latest session of the course, whichcosts NIS 2,400, opened on Sunday.
All the course purveyorspromise as much hand-holding and mentoring as you might need, bothduring the courses and after they’re over, by phone, e-mail, electronicnewsletters, Facebook group or their Web sites, which provide endlessreams of information.
And all these places offer introductorysessions that not only explain what the courses are about, but leaveyou with some investment tips. The aim, though, is spur you to sign upto learn more.
THERE ARE rules you can learn to navigate themarket confidently, so you can earn money while minimizing risk, saysYisrael Morgenstern, chairman of the investment committee at BigCapital Investments and the academic coordinator of the marketinvestment curriculum at the Herzliya-based Mercaz Lehascala Financit(Financial Education Center – FEC), which also gives courses in TelAviv, 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. Beforeyou become partners with anyone, in any business, you check thecompany’s fundamentals.
“If you know how to read a financialstatement, to evaluate a company’s worth, to know who its competitorsare and what they are making, and if you can see that the managementknows what it’s doing, over the long term [the stock] should go up.”
FECis a division of Matrix, an information technology company that ownsseveral education and training programs, including John Bryce, theHi-Tech College, and Israeli Management Center. FEC gives a range ofmarket investment courses, from a 17-week course (NIS 5,150) thatcovers the investment basics, to more advanced courses in technicalanalysis, options and foreign currency. The courses also teachstrategies and how to use the various computer programs needed toinvest on-line.
Morgenstern is the primary lecturer in the basiccourse, and a couple of times a month holds a “trading room,” open toboth 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 afterone such “trading room” session, Morgenstern notes that nearly all ofthe two dozen people who had attended had known virtually nothing aboutthe markets before taking his courses.
G.S., 60, of Ramat Gan,who had 37 years’ experience as a hi-tech executive, already had a sideincome from real estate investments but decided he’d prefer todiversify and learn to invest in the stock market, about which headmits he knew nothing.
Since last July, he has taken severalcourses at FEC – Morgenstern’s as well as several advanced courses –and has started investing small sums.
“I believe that it’simportant not just to learn things, but to try them, and I’ve even seensome profits, but I wouldn’t consider myself an ‘investor’ yet,” hesays. “That will take a lot more practice.”
Naomi Katznelson ofGivatayim admits that she didn’t know anything about investing beforetaking FEC’s basic course last year. She hasn’t made any investmentsyet, and though she comes regularly to the “trading room,” to view thepractical 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.
“Weteach them different methods, but we also teach them rules, which theyare meant to follow, which keeps students focused,” explainsMorgenstern. “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 everycouple of days or even once a week.”
Like all thorough courseson the capital markets, Morgenstern teaches students how to make moneywhen the markets go up or down. But his investment focus is decidedlymedium- to long-term; otherwise, he says, playing the market is indeeda gamble.
“Whoever tries to bet on whether the market will go up or down tomorrow indeed turns it into a casino,” he says.
MEIRBARAK emphatically disagrees. Trying to hold stocks for the long termis more dangerous, he says, because every few years there’s some kindof crisis that sets the market back, and one may not be able to recoverfrom it.
“When I make a profit I sell, because I have no cluewhat will happen over the long term,” he says. “There’s nothing betterthan putting money in your pocket.”
Barak, a former hi-techexecutive who founded Tradenet in 2004, is a day trader, playing theNew York Stock Exchange and the Nasdaq exclusively. This is because thevolume and technology of the US stock markets make it much easier – andsafer – to trade successfully, he says, and commissions are far lowerthan on the Tel Aviv Stock Exchange.
Moreover, people on thisside of the ocean have an advantage, since due to the time difference,they can trade in the evening, after work.
Barak bounded into arecent introductory session in Jerusalem looking pretty proud ofhimself. It was the evening of Monday, May 10, the day that the EU hadannounced its trillion-dollar euro-zone bailout plan.
Anticipatingthat such a plan would be announced, he had taken various stockpositions on Friday, and sold immediately on Monday when the US marketsstarted zooming up as trading opened. He had made $32,000, a personalone-day record.
“Traders love volatile markets,” says Barak. “Welove crises. Because during crises, we can predict how the public isgoing to act. And when the public is predictable, we make money.”
Tradenet’s12-week course (NIS 6,000), given in the central region, Haifa,Jerusalem and Beersheba, teaches stock analysis, strategies and how touse the relevant computer programs. Its very sophisticated Web site hasits own on-line “trading room,” where for a monthly fee, one can listenin on analysts as they make their recommendations and ask questions.
Barakalso makes his own weekly recommendations, which if followed, Tradenetclaims, would have netted investors a return of 7.2% a month over thepast two years.
Students can train on demo programs for free,but to open an account at the brokerage firm affiliated with Tradenetrequires at least $3,000, with the broker allowing students to buystock 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’sthe purpose behind what he calls his “3 by 3” rule: if a stock you buygoes 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 youpaid for it.
It seems a simple enough strategy to implement, but apparently it isn’t.
“Peopledon’t like this rule, because the desire to go out and tell yourfriends that you made a killing is too great.” he says. “To sell at 3%[profit] is a battle – a battle with yourself.”
What’s perhapsmost significant about the rule, though, is that it prevents you fromlosing much money by stubbornly holding on to a bad stock in the hopeit will go up.
“That’s what most people do, and that’s where theproblems lie,” he explains. “Even when a stock plunges, people tend tosay, ‘If I haven’t sold it, I haven’t lost anything.’”
Amazingly,Barak continues, as the stock drops further, people sometimes increasetheir 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 astock doesn’t come back, and you’ll get a slap that you won’t recoverfrom.”
THE NEED for discipline in investing is one reason whyboth instructors and administrators say they would like to see morewomen – now only about 20%-25% of the students in their courses.
“Ithink women are better at market trading than men,” says Geva Gazit,who teaches a course in day trading of futures contracts for Cashflow.
“Theydon’t have an ego. Men have an ego, they think every trade is a warbetween them and the market. They have to win in every transaction, andthey 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’sfive-session course (NIS 2,450) teaches the techniques and the programassociated with futures contracts, and requires students to practice ona demo version of the program, which they can get for free for a fewweeks. But his trading model also imposes a degree of discipline.
Theminimum required to open a brokerage account for the Chicago MercantileExchange, where one can trade in both commodities and contracts linkedto various financial indices, is $5,000, and he wants his students tomake do with making $100 a day. Then they are meant to turn off thecomputer and forget about it.
During a demonstration on hislaptop, Gazit put in a buy command for a Standard and Poor’s-linkedcontract, then sold it for a $50 profit. It took about 30 seconds.
“Ahundred dollars a day is nothing to someone who’s in commodities, it’sridiculous,” 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. Whereelse can you get a return like that?”
Gazit came to markettrading from a totally different place: His field was wellnesspromotion – smoking cessation, nutrition and the like. He got intotrading seven years ago because he understood that his savings were notgetting the returns he wanted.
“I took a basic course infutures, but most of my studies were trial and error in front of thescreen,” he says. “I teach these courses because I know that I wentthrough a process – I had no financial or business background or degreeand I succeeded; there’s no reason that anyone can’t succeed.
“ButI 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 aday, go into this market that turns over trillions of dollars everyday, and take a little piece. That little piece can be a very niceincome, when you take into account the effort and expense you wouldhave to put into it.”
Dale Baranowski, a sound engineer fromGush Etzion, is still practicing. After taking Gazit’s course in thefall, he recently opened the $5,000 brokerage account so that he couldget unlimited access to the demo program, though he hasn’t made anyinvestments yet. His simulations, “playing with Monopoly money,” as heput it, have been mostly profitable.
“This is the first time Iever attempted anything like this,” Baranowski says, adding that he wasvery impressed with Gazit’s approach to investing. “He gave us arealistic appraisal of what we could and couldn’t expect to accomplish.He wasn’t out to impress anyone.”
Both Gazit and Tradenet’sBarak refer to day trading as a “profession,” but neither believes thatstudents should aim to quit their day jobs.
“In this economy,everyone could use a second profession,” says Barak. “As far as I’mconcerned, there’s no better profession than one in which you can hookup to the Internet in Thailand and make money.”
If you look atcapital market investing as a business venture, Gazit says, it is oneof the few businesses you can actually get some practice at, using demoprograms, before making more than a minimal investment, if any.
Butthat’s a relatively recent development. These types of courses wouldnot have been relevant even 10 years ago, when real-time access tomarket information cost thousands of dollars, putting it out of rangefor individuals.
Now, anyone with a fast Internet connection canplay the market on his own. Almost all the programs are either free oravailable at minimum cost, supported by banks or brokerage houses orother commercial entities. Research is much easier, assuming you canunderstand the information, and the ability to program in buy and sellcommands means that your portfolio can be adjusting itself even ifyou’re nowhere near a computer.
Independent investing in the capital markets without any training, however, is still risky.
“Toinvest on your own, you need three things: Time to do it, the talentand understanding of the markets, and a temperament not subject toemotional swings that can mess you up,” says Lander’s Goldstein.
“Inthe end, a lot of people who try it themselves end up coming to learnit,” says FEC’s Morgenstern. “They make so many mistakes and lose somuch money that they decide it’s worth spending NIS 4,000 to NIS 5,000for 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.
“Peoplewrite that they enjoy our courses, and that’s fine, but we’re not atheater, that they should come, enjoy the performance and go home,”Baaton says. “I’d prefer to think that people apply what they learnhere, 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 toachieve something beyond,” he says. “They want something of their own;they don’t want to feel that all they’ve accomplished is through theirjob and if they don’t have a job, they aren’t worth anything. That’s afeeling of dependence, of enslavement.”
In an era in which Icelandic volcanoes, binging Greeks andirresponsible American bankers can affect jobs and savings here, themoney 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 whatwe are selling is freedom, in the form of financial independence.”