Investing = Stock Picking + Buying Low and Selling High

If you want your portfolio to beat the market over time (generating a better return with less risk), then picking good stocks is just part of the answer. In fact, you don't need to hit home runs by picking the next potential Microsoft or Apple.

You need a trading system that buys low and sells high (Looking for chart patterns is not a way to do it).

Here are 3 reliable ways:

1. Identify a stock that is about to undergo a dramatic shift. This goes beyond studying fundamental data to find good companies. You are also trying to time big moves up or down. This is the hard way to trade because, not only do you need to study the facts, but you have to figure out how the market will respond - not an easy task.

2. Evaluate the stock like a business. You calculate the intrinsic per share value of the company, and compare it to the stock price. Buy when a good company is under valued and sell when the company is overvalued. This is the system that Warren Buffett uses. It requires you to possess a high degree of financial and business knowledge. You also must spend a lot of time doing research. Unless you have an MBA and/or a background as an analyst, it is hard to really get a good edge.

3. Have an automated formula that scales in and out of stocks. This is the method that I use for trading, and I believe it is superior because anyone can use it. You don't need a lot of financial knowledge and time spent in research - only the discipline to stick with the plan.

With this method, you always have a base position in a good company, and increase or decrease the size of your position, depending on the change in the current stock price. Because you are not making a few large trades, errors caused by buying too high or selling too low are self corrected over time.

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My Trading System

I became a very successful trader after I developed my trading system.

My complete system, along with information on possible variations, effects of commissions, and beneficial tax strategies, are detailed in my book, Stock Trading Riches, which is available on Amazon.com.

I don't want you to just follow my system - I want you to start thinking critically, and develop your own system, that you feel comfortable with.

My system is like zen or tao. The market fluctuates and I am at peace with whatever it does. The system has no optimized parameters - it simply uses the formula for each stock to see how many shares it should own NOW. It makes no assumptions about the future or remembers the past.

I am "one with the market" in the present moment, and buy low - sell high.

Here is an example with Amazon.com yearly prices. Just imagine having a whole portfolio, where you buy some stocks at the top, some in the middle, and some at the bottom, all feeding and pumping cash, as the markets cycle over years!

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Interview With Ev Bogue, Author of "Minimalist Business", Part II

This is part II of an interview I recently conducted with Ev Bogue, who just released a completely rewritten version of his best-selling ebook "Minimalist Business".

You can read part I of the interview here. I would like to again thank Ev for taking the time to answer my questions.

6. What are some common mistakes that new minimalist business owners make with respect to attracting attention / getting permission?

Right now the biggest misstep I see is assuming social media is a list of people who are supporting the work. Social is a great way to get in touch with almost anyone when I need to make a request. However, it’s not a list of clients.

There might be a few clients in the bunch, but most of the people I follow on social fall into three camps.

1. Masters

2. Peers

3. Friends

Customers don’t fall into these three groups.

So where are customers? To find out, I need to gather permission in social spaces. I have to ask ‘would you be willing to hear more about the work I’m doing?’ I ask people to sign up for a list. Then I have an honest list of people who are actually interested in the work I’m doing.

This is hard, because the honest list for someone just starting out might be three people.

7. Can you give a rule of thumb, based on your experience, about how a new minimalist business owner who is struggling to attract attention (i.e. he/she is in "The Dip") can decide whether to keep trying, or should perhaps switch to a new topic?

I’m in a constant process of experimenting, measuring, and untethering when what I’m doing isn’t working. If I stuck with one topic, I’d almost certainly be bored – and the people who read me would be bored too.

Knowing this, I continue to innovate based on what interests me, and how I benefit the people who support my work.

8. Can you briefly describe how your specific attention-gathering process (Google+, EvBogue.com sign-up box, daily letters) works? Why isn't the EvBogue.com page longer (describing your background, your products, etc)? Is the Google+ step suppose to make people comfortable enough that EvBogue.com only needs to present the sign-up box?

I haven’t gathered permission until I have permission to contact you in your inbox. My goal with social is to tell a compelling story about the work I’m doing, to incentivize new readers to sign up to hear more.

I look at the work I’m doing online as a constant experiment. The website I have right now may not be the one I have in one week. My social presence may shift to another service. The reality is, I need to be constantly trying new things to see how they land.

What works for me may not work for you.

9. Given that you switched EvBogue.com from a blog to a sign-up page / daily letter, why did you re-launch the "Minimalist Business" site using a blog format? Was this another experiment?

This is an experiment. Will having a blog associated with Minimalist Business boost sales? The blog is another tool for gathering permission to contact customers in their inboxes.

This being said, all of the information I push to the public web is solid. All of the experimental work I’m doing right now is behind the scenes. If you’d like to hear more, you’ll need to sign up for the list. The public work is just scraping the surface.

10. Finally, could you tell us why you distributed the new edition of "Minimalist Business" as a .mobi (Kindle) file, as opposed to pdf format (like the original)? Was this another experiment, or do you see an advantage to this format? Was this format easy to generate using "Scrivener"?

Exactly. Using the Kindle format allows me to compile quickly. I see Minimalist Business as an evolving book.

As the world changes, Minimalist Business will change with it. As the experiments I do teach me more about how the current world of the web works, I will update the book with what I find.

I’m beginning to see a book less like a brick of information, which can never be changed, and more like a fluid entity. This has been confusing for some, because we’re just at the start of the evolving book era. The trouble with a bricked physical book is it’s two years out of date by the time it’s published. With a digital book, I write, compile, update and distribute in a fraction of the time.

Ultimately, the goal of creating a Minimalist Business is to be flexible. It’s about changing based on the needs of the people who support your work. What works today may not work tomorrow.

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Interview With Ev Bogue, Author of "Minimalist Business", Part I

I recently conducted an interview with Ev Bogue, who has just released a completely rewritten version of his best-selling ebook "Minimalist Business".

Since Ev kindly took the time to provide a lot of information in his answers, I decided to split the interview up into two parts. Today is part I, and here is part II.

1. How do you define a minimalist business?

A Minimalist Business exists in the cloud. It’s as close to zero-overhead as possible. A Minimalist Business delivers products and services digitally.

I built my first Minimalist Business in 2009, after I quit my job, threw out all of my stuff and started moving through the world more than I did before.

I realized if I separated my income from my location, I’d be able to earn a location independent way. If I kept my business (and personal) overhead low, I’d be able live a very flexible life in the world.

Over the past year, it’s become increasingly easier to live and work from anywhere in the world. Minimalist Business takes all of my experiences from the past three years living and working from anywhere and condenses the experiences into one compact package for your benefit.

2. Could you mention one difference between the original edition of "Minimalist Business" and the current edition, specifically concerning attracting attention/gathering permission?

In 2010, I released the original edition of Minimalist Business. I’d been living and working from anywhere for 6 months at the time. I’ve learned a lot since then, so I decided it was a good time to revisit the work.

The technologies we use to communicate online have transformed significantly over the past few years. I’m constantly experimenting to see what works best.

What I do know is this: I can only sell digital products to the people I’ve gathered permission from. There’s an entire section in the new Minimalist Business on gathering permission.

Gathering permission is the act of asking this in public spaces online ‘Would you be willing to hear more from me?’

3. Do you think it is harder to attract attention / permission online today, compared to when you first wrote "Minimalist Business? If so, is it because people are more jaded? Are prospects too busy trying to promote their own offers?

It’s actually easier to get the word out about your work than it was three years ago. The flow of information on the web is almost frictionless. Even a few years ago, information was still being controlled by a few self-appointed very important bloggers. Now, I know if I put something which benefits people into the world, it will reach the people who need it.

The challenge is, in this world of frictionless information – how do we stand out in the noise? The answer, for me, is to continue experimenting, and doing the work, every single day.

I know if I create things which benefit other people, they will find a way to the information.

4. Would it be fair to say that the overall lesson in "Minimalist Business" is about continuously conducting experiments to find an independent path to success - as opposed to giving readers an absolute plan to follow? Is there a concern that readers may want more specific steps?

There’s no certain path to success in the online space. In Minimalist Business I talk about how to keep overhead low, experiment, measure, and untether from what isn’t working.

The only way to find out if my work is going to land in the online space is to push it out into the world and see how it lands.

If there was a surefire path to success, everyone would be doing it, and it wouldn’t be a path anymore – it’d be a really crowded highway.

5. Could you give us a quick experiment that a new minimalist business owner (with no list or followers) could try to attract attention?

I were just starting off I’d try to find one person I really trust to give me honest feedback about how my work is landing for them.

I'd again like to thank Ev for taking the time to answer my questions. Here is part II of Ev's interview.

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Product Creation: Should You Go For A Breakthrough or Improvement?

The entrepreneurial and inventive spirit in you might dream about creating a revolutionary, breakthrough product that changes the world.

However, throughout history, new products or ideas that extend or incrementally improve on current technology have been equally (and perhaps more) important.

I have noticed that there are two types of creative people: Visionaries and Improvers. A Visionary (like Steve Jobs) can create successful products for people that they don't even realize they need. A scientific Visionary like Newton or Einstein can form radically different theories and models of everyday phenomena that are beyond common sense.

Society and, especially creative types, judge innovative success in Visionary terms. We want to change the world with a bang.

However, the Improvers are equally important. They change the world with a whimper. Their creativity lies in a less expansive vision, where they can see one step ahead. To be creative, they need a specific problem or observation that allows them to build on whatever the current state of the art is.

Personally, I'm an Improver. Whenever I focus on improving something that is existing, I am able to harness my creative juices and get absorbed in creating. If I try to create something totally revolutionary or involved, I get bogged down and lose steam - I lose any excitement or creative juice.

The problem is when I get down on myself because I think I need to create something big.

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Successful Investing Is About Finding A Simple Strategy That Works

My experience has been that successful investing is about finding a simple strategy that works, and then having the patience and discipline to stick with it - even when it is not performing in the short term.

Over short periods of time, randomness has a bigger influence. A lot of investors get impatient, and they then abandon the system and switch to trying something else.

With hedge funds and mutual funds, a lot of it is about needing good short term results to attract new money, so they keep trying complicated stuff to avoid any down performances - this helps keep them from getting good long-term results.

On this blog, I did write about a book called "The Hedge Fund Mirage", which is critical of that whole industry:

http://simple-trading-system.blogspot.com/2012/02/who-really-benefits-from-hedge-funds.html

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Stock Charting Flaws: Why Using Charts To Trade Does Not Work

Many traders use charts of past prices to trade stocks. They feel that, if the chart makes certain patterns, it can predict what the stock is likely to do in the near future.

One of the problems with chart reading is that pattern recognition is fairly subjective (the human brain likes to organize random data into pictures). One trader may see a pattern where another one doesn't. This makes charting-based trading systems hard to test.

However, studies that have been done using objective definitions of patterns consistently detect no trading advantage. They show that trading on chart patterns are equivalent to buying randomly.

I think that another flaw of chart based systems, which nobody really talks about, is scaling. Chart scaling, in my opinion, is the reason that patterns looks so seductive and accurate in hindsight.

Traders develop patterns by studying charts of big moves that have already occurred. They frequently "see" consolidations and patterns before the big moves.

For example, one pattern is called sideways consolidation - where the market trades almost horizontally in a narrow range. Then, prices eventually "breakout" and make a big up or down move.

The problem is that, after a market's range has expanded, the scaling of the chart changes as well. This scale change smooths out the movements that occurred prior to the big move, and creates the sideways consolidation. Prior to the big move, traders would not have seen the sideways consolidation, because the chart scale would have been different.

Let's assume that the market moved in a range between 10 and 20 for 6 months. The chart would be scaled from 10 to 20, and the chart will show lots of peaks and valleys. After the market moves to 85, the chart now reflects a range from 10 to 85. This compresses the peaks and valleys between 10 and 20. The result is that the 6 months before the move looks like a sideways consolidation pattern.

Unfortunately, you can't trade on patterns that occur after the move.

This is why my trading system does not use charts - only prices. Numbers are objective, and not open to interpretation. I only use charts to find prices for stocks I want to back test using my spreadsheet.

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