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On a regular basis, I talk about paying yourself first. I discuss it in my book, The Confident Investor, and I have mentioned it on my site multiple times. I was very impressed with Philip Taylor and his article on the subject. What he said was 100% accurate and everyone should follow his advice.

He points out that paying yourself first is essential for doing the following:

  1. Want to get out of debt?
  2. Want to have an emergency fund?
  3. Want to have money to set aside for a down payment or a vacation?
  4. Want to afford retirement one day?
  5. Want to give your kids some money for college?

I personally think that just paying yourself first is not enough to retire comfortably. You need to have a plan that increases that savings faster than the market grows. That is where my book, The Confident Investor, teaches you to grow that savings. You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in e-book formats for Nook, Kindle, and iPad.

Jump over and read Mr. Taylor’s advice. Start paying yourself first so that you can start investing. After you have developed a bit of a nest egg, you can start investing by following the advice of my book.

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The money that you invest in stocks needs to be money that you do not need immediately. This does not mean that it is not money that you will not need for 20-30 years. If you have money that you are confident you will not require for decades, you should probably invest that money in your own home. Follow the old Benjamin Franklin saying, “A penny saved is a penny earned.” (Yes, I know he probably didn’t say this).

If you currently pay 7% interest on your home loan, any extra money that you apply to your mortgage will immediately give you a 7% return for the balance of your mortgage term. Therefore, if you pay a one-time extra $1,000 on a 7% mortgage that has 23 years left on it, then it will result in $5,002.04 that you did not have to pay over the course of the 23 years. This is a guaranteed return: over the course of 23 years you will be more than $5,000 wealthier due to that one-time investment.

Your home mortgage is the safest “buy and hold” investment that you can make! You already know that you pay a certain percentage. If you pay the loan off early, you effectively get that loan percentage as an investment return.

The same logic also applies to your auto loan and credit cards. This is typically more short-term debt than your home. Quick payoff on any short-term debt will guarantee you the quickest and best investment strategy. You are not spending those pennies, you are saving them. Benjamin Franklin will be proud of your efforts to pay off your short-term and long-term debt quickly and efficiently.

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I must admit that I have been guilty of violating this principle that is taught by Barry Ritholtz. I recently read his great article that analyzed the impact that politics and economics has on investment community. It was enlightening to me and I encourage you to click through to the article and read it.

Economic issues

Barry points out that most economic issues are either estimates or such long-term trends that they have very little impact on specific stocks.  He quotes Warren Buffet: “If you knew what was going to happen in the economy, you still wouldn’t necessarily know what was going to happen in the stock market.”

Political issues

Barry points out that politics has even less of an impact on the market. He points out that the markets wobbled a bit for various political panics. He also points out that within a short time the previous trends continued as if the politicians didn’t matter.

Interesting that if the market spiked or dropped during those politically sensitive times the only ones that probably made or lost money were the ones that worried about the event. They also probably just took money away from each other and not from the steady investor that sat back and didn’t panic.

Personally, I know that I have been guilty of worrying about political issues. I thought for sure the market would react badly to the fiscal cliff at the beginning of 2013. I pulled all of my capital out of the market except for my free shares (read my book, The Confident Investor, to learn how to get free shares of stock). Nothing essential happened to any of my Watch List stocks during the fiscal cliff. Granted, I didn’t lose money but I am sure that I lost the opportunity to make more money. Bad mistake on my part that I won’t be repeating in the future.

I don’t wish to regurgitate all of the great points that Barry made – go over and read his article. He makes excellent points on ignoring these two issues.

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I am regularly asked about the indicators that I use in my investment strategy. To refresh your memory, GOPM (Grow on Other People’s Money) is the strategy that I teach in my book, The Confident Investor. It has a couple of main tenets:

  1. You should only invest in truly Good Companies.
  2. You probably do not have enough money to have a balanced portfolio of “buy-and-hold” positions in truly Good Companies.

To get around the realities of the second tenet, I have developed a trading methodology to help. This methodology allows you to invest in companies that are currently experiencing a bull market. It also avoids those that are in a bear market. Almost all companies experience times when their stock price drops. This means that you have your money invested when the stock is going up, and it is invested elsewhere when the price is falling.

For the balance of this article, I am going to explain why I have modified some standard indicators. These indicators help to signal the bull and bear action of the stock. This explanation will only be available for registered owners of my book, The Confident Investor. If you own the book, you can register and log in to see the balance of this article. If you don’t own the book, you can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in e-book formats for Nook, Kindle, and iPad. [s2If current_user_can(s2member_level1)]

The three main indicator types that I use are EMA, RSI and MACD. I suggest you set these indicators to use a multiple of 5 in the analysis. If you read some of the theory behind these indicators and the original math from the creators, you will find that none of them use a multiple of 5 as I suggest. My reasoning is important to understand.

In nearly every case of common usage, the popular value is larger than 5. In the case of RSI, it is 14. In the case of MACD, it typically is 12/26/9 (for the three different signal lines). In the case of EMA, you will often see values as high as 50, 100 or even 200. In my case, it is always 5, 10 or 20.  Why do I suggest a different time frame for all of these?

First let’s look at EMA of 200 or 100.  There are 250 trading days in a year or about 21 trading days in a month. This means that EMA(200) and EMA(100) are basically telling you if the stock has moved up in value for the past 10 or 5 months, respectively. This has almost no relevance if you are trying to decide to buy that stock today, tomorrow, or next Tuesday. The time frame that is relevant to that decision is this week or this month but not 5 months ago.

If you are trying to decide to buy today or not buy today, you need to look at what is happening now versus where the stock was a few days ago. There are 5 trading days (or bars) in a typical week (assuming no holidays). There are 10 days in 2 weeks and about 21 in a month. What is happening within the last week is very relevant. This week is more relevant than what happened 2 weeks ago which in turn is more relevant than what happened last month this time.

Most government indicators e.g. inflation rate, unemployment, etc. are on a monthly basis. By looking at 20 trading days, we are including a full cycle of most government indicators but not two or three. This is important as we want to make a decision based on what is happening now and not in history.

Not insignificant in this timing analysis is that the stock market is incredibly quarterly driven. Looking at a metric that is longer than a quarter is simply not relevant for understanding how most professional investors, mutual fund managers, and company executives are paid. They are paid to influence and capitalize on immediate returns.

Once you are comfortable with the concept of what is happening this week in a stock, you can quickly get comfortable with a 5 day increment. From that basis, it is easy to jump to 10 and 20.

Finally, it is important to remember that these three indicators were originally built in a different era. These indicators were developed when trades were in fractional increments of 1/8 rather than our current system of pennies. This means that stock movement was not nearly as fluid. A stock would jump by 12.5 cents per increment where today it moves in increments of 1 cent. That change in increment calls into question the original logic of the creating mathematician in suggesting the default time frame. Combining that change with the accelerated decision-making of the Information Age and a much larger marketplace, implies that a shorter time frame is necessary.[/s2If]

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It is no secret that two of the hottest stocks in technology are Google [stckqut]GOOG[/stckqut] and Apple [stckqut]AAPL[/stckqut]. Google leads in market share between the two companies by offering the Android OS, which is free. Which causes an investor to wonder, is Google really capitalizing on the mobile trend that it is leading?

This infographic from Wordstream shows that Google does just fine in capitalizing on the mobile market.

Google mobile solutions
Find out how Google’s mobile solutions could work for your business.