Monthly Archives: November 2013

Income Inequality

economics-trickle-downThis video is the biggest reality check about income distribution in the U.S. that I have ever seen. 1% of U.S. Citizens, possess 40% of the U.S. wealth.

As I meditate on this video, a few ideas come to my mind.

1. That the 1% has so much power because they have expanded their reach on a global scale. Take for example Google, Facebook, Microsoft, or Apple. Their clients are no longer confined to the U.S.A., their clients are all over the world. So of course their revenues are collected from the whole planet, not from a single nation.

2. Many of these people who are now part of the 1% were part of the 99% in their youth. Steve Jobs (C.E.O. of Apple) was not able to afford university classes, so he used to sneak into different classrooms hoping that he would not be caught. The creators of Google, Larry Page and Sergey Brin where the sons of poor immigrants. The creator of Facebook, Mark Zuckerberg was part of the middle class.  Bill Gates created his company in his garage when he was 15 years old. Warren Buffett had humble beginnings. Michael Dell created Dell Computers from his dorm room. There is a great  list of entrepreneurs who were dead-poor or just middle-class folk when they created something that the rest of the world considers valuable and gladly pays for it.

3. As the world becomes more global, the opportunities to become insanely rich continue to multiply and the opportunities are everywhere.  One guy became rich by creating the iphone app I-fart. Can you blame him if millions of people want to give him money for this silly thing? He took a small risk that paid out big. He came out with an idea and took action. I believe that if a person wants to become rich, the opportunity is there. With the internet, people can find clients for their product and services all around the globe.

4. At the same time that some people’s income is raising crazily fast, some other group of people are seen their income evaporating. As technology improves, robots and machines are slowly taking over the jobs that at one time belonged to humans. A car assembly line is practically ran by robots. The same goes for so many industries (metals, paper, etc.) that at one time were labor intensive, now they are robot intensive. With so many people displaced from their perceived secured jobs, it is normal to see more people unemployed living below the poverty level.

5. Many people believe that income inequality can be fixed by increasing taxes on the rich. Well, once a government starts taxing more than 50% of one’s revenue, rich people simply move to a different country. Remember Eduardo Saverin, one of the co-founders of Facebook? He simply renounced his U.S. citizenship, packed his bags and moved all his millions to  Singapore. How about Canadian businessman Frank Stronach who simply renounced his Canadian citizenship and moved to Switzerland. A simple wire transfer and now all his millions are under another jurisdiction. If government squeezes all the rich people too hard, they can simply get their private jets and go away and we will finally achieve income equality because only the poor people will remain. I have to point out that after the government takes about 50% of the rich people’s income, many of the rich  give away the other half by way of the charity institutions of their choice in ways that are a lot more efficient than government could ever do. Bill Gates has made it his life purpose to help poor people with their education and to cure diseases in Africa. Richard Branson and Oprah Winfrey have created hundreds of organizations in Africa and other under developed countries. The Rockefeller and Carnegie  foundations are still helping people long after their founders are dead. The list goes on and on.

6. Government has a lot of responsibility for this inequality. During the financial meltdown of 2008, government came to the rescue of the big banks at the expense of the taxpayers. What a bad move. The government taking away money from the taxpayers to give to the rich. Still today, 2013, the government continues taking from the poor to give to the rich by keeping a zero interest rate policy. When the poor savers have no interest return for their hard earned cash, they are forced to “invest it”. They are forced to buy stocks in the stock market, which is the equivalent of giving their money almost for free to the big corporations. The government wastes precious resources by fighting wars that break the country financially. Vietnam, Iraq, Syria. I am sorry, I don’t support the troops. These soldiers go to other jurisdictions as mercenaries,  killing people or being killed to support someone else economic interest.  Many of these wars were not in self defense. These wars represent the aggression of a North American government looking to get an economic gain. Also, the government has wasted millions of dollars and lives fighting the war on drugs instead of offering assistance to drug users. Finally, The U.S. government has more people incarcerated than communist Russia.

What is the solution?

There is no solution. There will always be inequality, but there are ways to take better care of the people who are struggling.

1. For all of those people who have lost their jobs to robotics or to outsourcing, there should be programs that would re-educate them and reintroduce them to the labor force. As some opportunities closes in one industrial sector, other opportunities open up in another sector.

3. The government needs to stop intervening. Bailing-out dying industries is a form of stealing from the poor to give to the rich. Taking tax money to save dishonest banks, saving badly run car companies, participating in wars to help the defense industry. The government continues getting involved in the market, always benefiting the rich to the expense of the poor. Government should stop getting involved. Let the market do its self cleansing.

4. People who are in difficult economic situation can do some things to improve their fate. We have to stop this Television culture, Netflix’s shareholders  becoming rich out of people television addition. People need to stop eating junk food and develop healthy eating habits. Stop smoking for god sakes, smoking kills you, it gives you lung cancer.  Stop playing the lottery. People need to get off Facebook (me included) and use that time more productively. People need to take responsibility for  themselves and start using this wonderful tool called the internet to continue educating themselves . The world is so full of opportunities. Really, all you have to do is extend your hand and pick one.

Become richer, stop watching the news

making up newsAs individuals we trade two major currencies: cash and time. Today I intend to make you richer by asking you not to spend any time watching, listening or reading the news. It’s all a waste of time. Here’s why:

1. The purpose of the news is to sell advertising time. If you are not the client, you are the product. Take any regular event and you’ll see it magnified by the media, you’ll see those sound bites being played and played again. Whether the news is true or not is not even relevant, the media will twist the truth in a way that will create a bigger drama. If they get caught lying, this is good too, they get to come back, admit the lie and that will increase their ratings even more. The main purpose is to retain your attention so that later on they can sell the advertising spots. You are the product; advertisers are the client.

2. Other than entertainment, the news has no real value. We are told about all these terrible things that happen every day, in our neighborhood or far away. “Someone had a car accident and two people died”, how does this enrich your life? “A man gets his hand cut off in the middle east after stealing some food,” “A woman get 100 slashes for being raped”. All these stories add no value to your life (in fact you would be so much better off if you never heard them), yet you get emotionally involved. When Princess Diana died, so many people cried real tears for her. Thousands of other people die every day and we are totally indifferent. Wouldn’t you have been better off not knowing about all these things that are irrelevant to your life?

3. The News is bad for your health. Bad news sells more advertising than good news. When you get the constant avalanche of bad news every day, the murders, the rapes, the nature disasters, it brings you down morally. When you are down morally, your immune system is weakened to the point that you can get sick very easily.

4. The news is bad for our personal finance. We become prey for advertisers. Inevitably advertisers will sell us soft drinks, junk food, luxury items, etc. Ads are created by very smart psychologist that know how to turn wants into needs. I have seen how many people are controlled by the apple advertisers. They spend $2000 for the latest “Mac”-something because somehow, Gmail, Facebook and YouTube look better on a mac than a pc.

5. The news will take away your civil liberties. All of you remember President Bush saying that Iraq had  weapons of mass destruction even though he knew that it wasn’t true. The people were totally manipulated into backing a war for false reasons. There were many other “real” reasons that were never reported in the news. People were sold lies and later, excuses that gradually chipped away their civil liberties. Now, in the U.S.A., the land of the free, people know that their email and web browsing are being monitored by their National Security Agency. Novelists like John le Carre and Tom Clancy used to portray communist Russia as the only government who would do this kind of thing to their own people, well now North America has its own version.

What to do about it

Just go cold turkey. Eliminate all news from your life. If some piece of news is really important it will eventually find its way to you. It will be filtered down from the pile of irrelevant news that has nothing to do with your life. Here is where to start.

1. The best gift that you can give to yourself and your family is to throw away that television that you have in your living room, don’t dare give it away. You will be creating harm to someone else. All of a sudden, you will have more space in your living room, you will be forced to have real conversations with other members of your household and you will have all this extra time to think, read, learn or be creative.

2. Don’t pick up that newspaper. The headlines are written by expert copywriters who have honed their craft over many years in order to be able to capture your attention and sucker you into reading one more irrelevant story with some advertising on the side.

3. Don’t listen to the news on the radio, listen to nice music, a podcast or an audiobook.

4. Don’t read the news on your computer,

Good luck. Please let me know if you are succeeding or if the news habit is more powerful than you.

Hard times for small investors

investment choicesTraditionally, people who didn’t have much knowledge about investments would buy secure government bonds and allow the magic of compound interest to take over. Slowly but surely their investment would grow over time. Today, however, the government has reduced interest rates to practically 0%. Nowadays, you can consider yourself lucky if you find any safe investment that pays more than 1%. At these rates savers would have to have a few million dollars in the bank in order make a living out of their interest revenues, and then they would be highly taxed on those revenues.

Central bank screws people

In short, the government has decided to screw the small people, the mom-and-pop savers, the grandmothers with their retirement accounts, to benefit big business and government. Now businesses and government can borrow tons of money at interest rates of almost zero. What surprises me is that hardly anyone complains about this new reality. We have been domesticated to such a level that we don’t question the actions of the government. The voices of big corporations and government have overwhelmed the million little voices of the small savers.

When the banks of Canada, or the bank of the U.S.A. lower the interest to such a low-level,  savers have no other alternative but to put their money in high-risk investments. The most popular high-risk investments that gets pushed down our throat are stocks or mutual funds in the stock market. But how is a person who has never seen a financial report supposed to decide where to allocate their hard-earned money?

Financial institutions want a piece of you

So what do you do? Go to a local bank to ask for some advice? Make an appointment with a financial institution?

Unfortunately finance, for the uneducated, is a loser’s game. It seems that everyone wants a piece of you. No matter what you do, you will be saddled with commissions and service fees. Your money will have to overcome a big hurdle just to break even. Savers could lose as much as 50% of their capital even if they are placed into conservative investments; in fact, in the stock market there is not such a thing as a conservative investment.

Here is how they take your money

If you do some research you’ll notice that most financial advisors make their money from commissions. That means that their main objective is to get you to do a transaction, any transaction, it doesn’t matter which. They’ll get paid for the number of transactions and the amount of funds under management. They never get paid for the accuracy of their advice. We’ve all seen the television shows in which all the experts scream frantically; “buy”,”hold.” But you will never hear them say “sell.”  It’s as if that word doesn’t exist. Another interesting thing is that those experts never come back the following month to admit they were wrong.  Of course everyone is getting paid a commission for creating those additional transactions.

Other conflict of interest

Here are some of the conflicts of interest that you have to face when you see a financial advisor:

Credit cards Have you ever been pitched to get the latest credit card? Even if you already have more than one? Financial experts get nice commissions from pushing yet one more credit card.

Front end mutual funds The expert gets a nice upfront commission for just getting you on board for the latest mutual fund. Those commissions come out of your pocket. After they get the commission, they couldn’t care less what happens to your money.

Mortgage or line of credit insurance They will push hard to sell you this product. The last time I bought a property this insurance was pushed on me four times during our transaction. If you decide you need insurance, make sure that the beneficiary is your family and not the bank

Conflict of interest in other ways. I have seen this often. The expert advises you to borrow money from the bank to invest in the bank’s investment product. You’re not guaranteed to make a profit from your investment, but the interest you’ll have to pay on that loan is very real.

I just want to make you aware

Unfortunately, at this moment, I just want to make you aware of the many problems you are facing. I don’t have a solution to propose in this article. I will propose alternative investments in future blogs. For now, I’d like you to be skeptical of everything and everyone. Always ask yourself, “How is this person screwing me? How are they getting paid?” It’s not a healthy way to live, but this is the world we live in.  If we cannot change it, we might as well be aware of it.

Our dysfuntional education system

education-systemThe success of all my school years, from grammar school to university, has been measured on  how well I can memorize a particular section of a textbook. As soon as I passed any given exam, all that stuff was be deleted from my mind. I had to make room for more stuff. I spent years of my life inside a library, cursing myself for memorizing stuff that I would never use.

I never dared to ask why I was memorizing all these dates, formulas, phrases, etc? How was all that information applicable to real life? What was the world going to gain from me memorizing one more chapter? “Is this going to be in the test”? I would ask, because if it wasn’t, why would I even bother listening to it.

Still to this day very few people ask these questions. We continue mortgaging our life, with money and time, for an education that only has marginal value. The opportunity cost is just too high not to question what we are doing. What is the net value of our time and money and how does it compare to other alternatives? What is the opportunity cost?

Today we are at liberty to abandon the social script. We have to wake up and realize that we can craft our own way, decide where we want to go and how we want to go there. There are millions of free resources out there. We can learn what we want, when we want, for free or for a fraction of the cost of traditional education.

Of course, if you’re a brain surgeon, as a patient, I’ll feel more comfortable knowing that you have a diploma on your wall. But for most professions, do they really need to take all those classes? If you are studying programming, why would you be obliged to take electives such as Spanish or history? Shouldn’t you have an alternative?

The system is what it is, and there are many forces that will fight to keep it this way. It might be too late for you, as it is too late for me, we have already been processed by the system. But if we’re aware that there is another ways to get educated, perhaps we can inform future generations that there are many alternatives out there.

How to buy a property, my experience step by step

lavalSo you’ve been thinking about it for some time, perhaps you read my previous article about how I’m planning to become a millionaire, and now you’re considering taking a plunge, put some money at risk. Here is my step by step guide based on my experience.

How much can you afford?

In addition to the mortgage payments, you have to consider the city taxes, property insurance, mortgage insurance, condo’s fee, utilities, recurring repairs, etc. It’s good to sit down with a piece of paper or a spreadsheet and make all these calculations before you go property hunting.

Location, location, location

Location is one of the major determinants of the value of your property. Sometimes you just cannot afford to live where you want to live, but please don’t get a property out in the boonies just because it’s cheaper. I have seen it many times, people buying a property far away because it’s cheaper and then they have to waste two hours of their life, every day, to go and come back from work. Can you imagine the frustration of sitting in traffic, wasting gas and life just to get a lower mortgage?

Real estate agent or no agent?

The real estate brokerage system is coming under attack by new websites that allow buyers and sellers to get together without the help of the broker. An example in Canada is Proprio Direct. I have never used one of those self service websites, but if I had my choice, I would never use a real estate broker again in my life. One time I had a very good experience with a friend, Issam Dweik. but then, because of proximity, I started doing business with another agent ( I will not mention the name) who I also considered my friend. With the second agent, I got the sense that the commission was more important that the friendship that we had. The deal fell through and I was happy because I didn’t trust my agent any more.  Conclusion, even if you deal with friends, be aware that these are transactions with a lot of money involved and it’s better to be in the cautious side and to question everything as opposed to have blind trust in your agent.

Help from the government

It has always be my opinion that the government is always out to screw you. If ever they give you some credit or advantage, I assure you that they’re taking it out of some else’s pocket. Nevertheless, there is a $750 federal tax relief for first time buyers in Canada. If you can take advantage of it, go ahead, but please never make a voting decision based on the goodies offered to by the politicians.

Making an offer

Once you have found a property that meets your criteria, you can make an offer. Never go for the asked price. It is part of the ritual; the seller inflates the price because they know that you will make a bit at a lower price. As a rule of thumb, always bid at least 5% lower than the asked price. It’s expected. The seller will come back with a counter offer somewhere in the middle and now it’s up to the buyer to accept it or refuse it.

Acceptance of the counter offer / Inspecting the property

If you accept the counteroffer, make sure that it’s conditional to an inspection by a professional inspector. Whatever you do, don’t use the inspector recommended by the real estate agent. You want the inspector to be on your side and tell you about all the shortcomings that he can see in the property. If you hear from an inspector that is disliked by real estate agents, that means you are in good hands.

Financing

The most typical financiers are banks, but they are not the only game in town. There are other mortgage lenders and brokers around. Shop around and never believe the displayed rates. When you sit down at the table ask for a lower rate than the one advertised. If the lender suggests it’s not possible, then threaten to walk away. It is all a mirage in which everyone lies  and only the inexperienced pay the full price.

The factors that a lender considers before giving you a loan are:

  • Credit history,

  • Amount of the down payment,

  • Income of the borrower.

In Canada, if you have RRSPs, the government will allow you to borrow money from your RRSPs, but you have to pay yourself back within a certain time period, otherwise you will get taxed on that loan that you borrowed from your own retirement account.

Variable or fixed rate?

Lending institutions use the Prime Rate to determine the interest rate that they will charge you. Usually, variable rate is lower than prime rate and fixed rate is higher than prime rate. For example, if prime is 3%, your variable rate could be 2% and your fix rate could be 3.5 or 4%. The disadvantage of variable rate is that prime rate could go up and you will end up with a higher mortgage payment than the one you started with; while fixed rate doesn’t change even if prime rate increases. When you choose variable rate you are taking a chance, but statistically, about 80% of the time, when borrowers chose variable rate, they end up saving money.

Other financing expenses

If your down payment is below 20%, your lender will ask you to get mortgage insurance. The lender wants to make sure that if you die or if you decide not to pay your mortgage they will be protected. If your down payment is higher than 20% the lender will feel confident that if something happens to you, they can sell the property at a discount and still make make a profit.

Another expense will be the appraisal cost. Sometimes the bank will send their own inspector to make sure that the property is worth what you say it is worth. Even if you show them the report of your own evaluator, they will send their own appraiser.  In this world where everyone lies and no one trusts each other, we all need to cover our butts. So the lenders, not believing you, send their own inspector and charge you for it.

Warning: As a result of such a competitive market, the lender doesn’t make lots of profit from the loan they give you, so they will try to make money by offering other products. In particular, they will push a life insurance that will pay your mortgage in case you die. They will use the “fear” technique every time. In my case, I had to sign three separate papers in which I was refusing to buy life insurance.

The Notaries

The notaries are one of the most important players. Once again, because we don’t trust each other, we need someone to verify that we are all telling the truth, That the seller is in fact the seller and that the property is free from any other claims. The notary guarantees the validity of the deed of sale.  It’s my opinion that notaries are very unhappy with their job and they have forgotten long ago the meaning of the word “customer service.” Although they earn good money for their job, they show you that they’re giving up their lives in exchange for it. At one notary office I was treated as a nuisance by the receptionist and the notary showed up 45 minutes late for our appointment. At another notary, we had such a hard time accommodating an appointment around the notary’s schedule that I wanted to walk away.

Taxes

Like in the mafia, no one can exchange money without the government taking their cut. As soon as the property changes owners, you get saddled with property tax which changes according to the value of the property. The higher the value, the harder you’re squeezed.

Maintenance

If you’re a condo owner, the condo association will take care of the maintenance of the building. However, many property owners neglect to budget for regular repairs that will be needed to keep the property in top shape. It’s recommended to allocate about 1% of the value of the property, every year to take care of unexpected or planned repairs.

Conclusion

In spite of all the hurdles along the way and all the hands you have to grease so that the transaction goes smoothly, real estate has been for centuries one of the safest things that you can do with your money. Perhaps the harder it is to get a deal done, the better it is because you will have less people competing against you for the same properties. People are lazy, they don’t like to save, and renting is always more convenient than buying. So if you are the owner, it’s very likely that  people will want to rent your space.

Becoming rich one condominium at a time

To become rich is the dream of many people. Here is how I’m doing it and how you can do it too.

Condominium in Le Plateau
Condominium in Le Plateau

In my previous blog, I wrote about my stock market addiction that lasted 10 years. One day, I closed my broker’s account and with that money I made my first real estate investment.  After my first property I wanted to buy another one. This is the recipe that you can apply to your own circumstances.

1. The most important part is to have a network of friends. Relationships with people who trust you and who believe in you. I have been fortunate enough to have a few friends who love me and trust me. Likely you have family and friends who would be happy to help you out.

I went to my network of friends and asked them to help me out by lending me some money to use as a down-payment to purchase a condominium. In exchange (a) I promised them a higher interest rate than the one that they could get at the bank (easy, the banks pay only 1%), (b) I guaranteed the loan with the property that I was buying with their money and (c) I made them beneficiary in my will in case that something happened to me. I don’t have any rich friends; however, my friends trusted me enough to help me finance this project.

Assuming that your credit history is good and a bank allows you to give a 5% down-payment, all you have to do is to find three friends to lend you $4,166 each and you have the down payment money for a $250,000 property.

2. The next step is to find a property. I searched for months. The property needed to be in the right neighborhood so that it would be easy to rent and it needed it to be at a price range that I would feel comfortable with. In my case, I wanted it to be in “Le Plateau,” and I felt comfortable with a $250,000 price tag. In your case, you have to choose a neighborhood where there is a high demand for rental property and only you know at what price level you can feel comfortable.

If you want to search for properties that fit your criteria of location and price range, ask several real estate brokers to put you on their mailing list and they will send you listings as they come available to the market. This way you have your finger on the market’s pulse and you will be able to recognise a good opportunity when a good opportunity shows up.

3. You have your down payment money, you have your property. Now you have to ask the bank for a loan. This could be difficult. The bank has to feel comfortable that they will not lose their loan money. Some of the factors that the bank consider are:

  • Do you have good credit?

  • Do you have any debt?

  • Do you have an income?

  • How big is your down payment?

I find Canadian banks very conservative. The bank gave me a hard time, but they became more flexible when I increased the  size of my down payment. You have to get to know your bank and be persistent. I must have gone to the bank about five times before they gave me a loan.

4. The last step is to find a tenant that will live in the property and get a rent amount that would allow you to pay back both your friend and the bank. You can always find tenants through craiglist.org. In my case, the rent revenue is not enough to pay my creditors during the first year, during the second year my revenue could match my expenses and during the third year, my revenues should be bigger than my expenses. You might be cash flow positive from the beginning.

I hope that this blog is testimony that if I, an immigrant who arrived in Montreal without family and friends (and without speaking French-the imposed language in Quebec), if I was able to get friends to help me out; you, who may have lived in the same city for most of your life, you should have a bigger network and therefore have an easier time finding friends to help you out.

Now, imagine this: If you do the same operation once per year during four consecutive years, you could have a one million dollar business. The cash flow is not great but if you pay your mortgage in 25 years and if you assume a 2% annual appreciation for your property, in 25 years your properties will be worth $1,641,000. During those 25 years you would also have been receiving cash as your revenues would continue to increase faster than your expenses.

Sure, this is not a get rich quick scheme, but is within reach of almost anyone who is willing to do the work. Now, turn off that TV., get off that couch and start hustling.

My Wasted Years Studying Finance

Quebecois fighting for separation of Quebec from CanadaMany years ago, I was reading an issue of National Geographic magazine. The main story was the Quebec referendum (the possible separation of Quebec from Canada). La Fleur de lis  was displayed in the front cover with thousands of people on either side of the debate waving their flags. It was at that time that the idea of coming to Quebec was planted in my head. If history was to be made, I wanted to be there.

One day I applied for a student visa, even if I didn’t have enough money to sustain myself as a student, I wanted to have the Montreal experience.

concordiaI went to Concordia university and I started resenting my university studies from the first semester. Within a few weeks  I considered  to be a waste of the money that I didn’t have an a horrible way to spend the limited time that I have in this earth. I quickly calculated that if I worked at McDonalds for minimum wage and put that money in a savings account until age 65, I would get a better return for my time and money than sitting through one more calculus class.

One proof that my university education was a complete waste of time was that I had to memorize the “Efficient Market Hypothesis” created by Nobel prize winner Eugene Fama.

FamaWhat Fama and his colleagues tell us is that no one can earn more than the average return of the stock market over a long period of time. He suggest that even if a person, has insider’s information, on the long run their return would not be higher that the general market index. Well Fama, in the long run everyone will be dead, but from here to there, a lot of amazing things can happen.

 Robert ShillerStudies like Fama’s encourage us to have the herd mentality that lead us to think that the highest financial aspiration that we can have is mediocrity. He wants all of us to buy the mutual funds pushed by the financial industry and hold them until we die. Ironically, another Nobel prize winner, Robert Shiller, dismissed the entire EMH as “one of the most remarkable errors in the history of economic thought.” What is more ironic still it that they both won the nobel prize on the the same year for studies that totally contradict each other. If one of them is correct, obviously the other must be false.

Of course, the mutual fund industry loves Fama’s studies and encourages the regular Joe to surrender all his hard earned cash to the nearest mutual fund franchise. However, Fama cannot explain the above average return of people like Warren Buffet, George Soros, David Harding and many other successful investors who continue having above average market returns.

iSHARES SP TSX 60 INDEX FUND ETF chart
iSHARES SP TSX 60 INDEX FUND ETF chart

As an experiment, to disprove Fama’s theory, I have created two fictional $10,000 portfolios. In one I will buy and hold of the Toronto index (as Fama may suggest) and in the other portfolio I will actively buy and sell the index,  depending on whether the market is going up or down. In addition, every time I do a buy or sell transaction, I will deduct $20 for commission out of the portfolio. For simplicity, I will post the end of the month total, but all the transactions will be stored in my Google Drive. Of course my sample size of one person is statistically insignificant and it can be easily dismissed or explained as an outlier. Only if I do this experiment for several years may it have any statistical relevance. As for today, it’s nothing but a fun game and it will feel great if I am  the exception of the rule.

10 Years of Gambling Addition in the Stock Market


I have managed to control my addiction to gambling in the stock market for almost 3 years, but I have never stopped being an addict. I guess that it must be like being addicted to alcohol or any other drug. You control the urge, but the urge never goes away.

Since early childhood I always wanted to be a millionaire. My father was a millionaire before he lost it all. He gambled his life and lost but he was so alive while he was going through his ups and downs.

I wanted to make my millions the scripted way, by getting a diploma, getting a high paying job and accumulating wealth until retirement. Latter I found out that working for someone else is the dumbest way to become a millionaire; you will always be someone else’s puppet. Whether you are the CEO of a company or the president of a developed country, you will always be kissing someone else’s butt in exchange for your millions.

Another impediment was that I was a terrible student. To this day, I still resent my university education. I consider university to be a big scam that robs your money, your time and your creativity. According to Seth Godin, the number one purpose of schools is obedience. Do as you are told! We are training you to be a robot, a factory worker, nothing more that a cog in a wheel to work in a repetitive motion environment all day long 40 hours per week. http://www.youtube.com/watch?v=sXpbONjV1Jc

While in Montreal, I decided to invest in mutual funds (today, I hate mutual funds). I read hundreds of prospectus, had many passionate conversations about the best mutual fund to pick and I finally picked some Canadian Index fund. From my under-the-table jobs ( I did not have a working permit when I arrived to Canada) I managed to save $50 per month and I would rush to deposit my cash in the bank as soon as I could. It was at that time in history when all the mutual funds were going up, so I was already considering myself a genius for making that first investment.

When I had saved $5,000 I sold my mutual funds and I decided to invest directly in stocks. Once again, I started reading all kinds of financial newspapers, watching financial tv shows, and immediately I became obsessed with the stock market. I started to make some low risk investments (buying and holding banks and collecting dividends), but it got boring fast. I wanted to invest in the latest fast-moving Internet companies, the latest oil discoveries, gold, silver, the dollar, the yen… I wanted it all and I could not satisfy my thirst.

I was cursed with beginner’s luck. My first few trades were successful and I was hooked for the rest of my life. I would wake up at 5:00 am to see how the market closed in Asia, then I would follow the market in Europe until the opening time in New York at 9:30 am. I would make my first trade and make my money within the first half hour or agonized for the rest of the day over my losses. I would gamble $30K to $50K every morning.

I was clueless and I relied on my good luck while portraying myself as a person who knew what was going on. The adrenaline rush would come to my head as soon as I would hit that “buy” (or sell) button and I would faithfully watch tick by tick as I was making money or I losing it all.

I would try to keep my emotions under control. I would try not to bore my wife to death when telling her that we made one thousand dollars in half an hour and I’d try to mask my sorrows the next day when I’d lose the same thousand dollars in another trade.

In general, I was barely breaking even, perhaps losing over a long period, but there were some remarkable successes that I remember with pleasure. One time, the “Breaking News” anchor man announced that XYZ company just discovered a massive amount of oil in Argentina… a few seconds later I had bought about $30000 of shares. I made about $6000 profit in about 2 hours of gambling, 20% return in two hours. That day I smoked a big Cuban cigar (a Cohiba ) and was high for the rest of the day. I had other spectacular gambles that allowed me to get out of the business with a profit.

One day, I felt that my head was going to explode. I could not enjoy myself in my personal life. My heart and soul belonged completely to the market. I wasn’t able to enjoy a holiday or a weekend with my wife or friends, I wanted to be in front of the screen, gambling 24/7. I wanted to liberate myself but I didn’t know how. It came to this: I was having a miserable day, I was losing big. Out of frustration I sold everything, the winners and the losers, everything. I took whatever cash was left over and I rushed to buy a condo in Le Plateau so that I wouldn’t have any money to go back to the market. It worked; I have been out of the market for almost three years now. But I have never stopped missing it.

To this date, my desire to trade has never gone away. I learned how to control it, but the urge is still there.