Alternative Billing Comes to Main Street

Jim Calloway’s Law Practice Tips Blog

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Game changing catalyst offer explosive opportunity

On a daily basis many stocks go up on news. Not all of the news is worth paying attention to. But a special kind of news can help you find explosive move.Game changing catalyst news fundamentally change the market participants view about the company and trigger a multi month or year rally. The objective of finding game changing catalyst stock is to find a stock that will increase your overall account by 15 to 20% in one trade. Which essentially means the stock should be capable of big move and you should risk sufficiently big on it.Look for a game changing earnings surprise announced after hours or before market open. For this look at pre market gainers and last night after close gainers.You want to …

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On a daily basis many stocks go up on news. Not all of the news is worth paying attention to. But a special kind of news can help you find explosive move.

Game changing catalyst news fundamentally change the market participants view about the company and trigger a multi month or year rally.

The objective of finding game changing catalyst stock is to find a stock that will increase your overall account by 15 to 20% in one trade. Which essentially means the stock should be capable of big move and you should risk sufficiently big on it.

Look for a game changing earnings surprise announced after hours or before market open. For this look at pre market gainers and last night after close gainers.

You want to see stock with neglect, that has significant first or second earnings surprise. If such surprise happens right at the beginning of a new rally then the move can last for weeks or months and the magnitude of move can be 50% to at times 1000% plus.

Big game changing catalyst kind of moves are Episodic Pivots that change the existing Wall Street perception about a company’s business and as a consequence its future price potential.

Earnings related Episodic Pivots are the most common and happen frequently. But they are not the only EP , biotech sector has its own kind of EP. Biotech move based on drug trial data. A loss making biotech can go up a lot on “potential” of drug approval which might or might not happen after many years.

Loss making technology companies also can at times go up based on future potential or sector moves. This tends to happen in later stages of bull moves.

From a practical process point of view focusing bulk of effort on earnings EP is good strategy as they are easier to understand.

The easiest way to find game changers is by running a volume expansion scan in Telechart and then research stocks to find out what triggered such big buying or selling.

In a day you do not get many stocks with huge volume surge and also up big. The few that do are worth examining in detail and if they have several months of neglect they offer best opportunities.

www.stockbee.biz If you are serious about your trading and want to build an enduring edge the Stockbee Member site might be for you. One of the most recommended site for learning to trade. 2200 plus members and growing everyday… www.stockbee.biz

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Game changing catalyst offer explosive opportunity

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Plug Power Surges After Earnings – Business Insider

Rob Wile Mar. 13, 2014, 9:45 AM5,758 Email More Share on Tumblr Plug Power Plug Power shares are going bonkers after the fuel cell machine distributor reported revenues of $8 million versus $5.9 million in the same quarter last year.That beat the lone estimate from Cowen, which also just put together a registered offering for the firm, of $7.4 million, according to Marketwatch.Plug Power also narrowed adjusted losses to $0.08 a share compared with $0.25 a share last year. That was in-line with Cowen’s estimate.Plug Power said orders for the 2014 fiscal year have already exceeded $60 million.Shares were up nearly 22%. Ballard, which supplies Plug Power with the fuel cells themselves, was up nearly 11%. FuelCell Energy, which makes power generation units for locations and …

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Plug Power shares are going bonkers pre-market after the fuel cell machine distributor reported revenues of $8 million versus $5.9 million last year.

For more info: Plug Power Surges After Earnings – Business Insider

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Plug Power Surges After Earnings – Business Insider

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Polypore Beats Q4 Estimates, Stock Unmoved After Hours | Benzinga

Benzinga is a fast-growing, dynamic and innovative financial media outlet that empowers investors with high-quality, unique content. Perry Ellis Issues Concerning Prelim. Q4 Results, Guides FY14, FY15 Well Below the Street IBM Increases Cloud Investment – Analyst Blog

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Polypore International (NYSE: PPO) appears stagnant in after hours trading. The company reported a Q4 EPS of $0.39, which was $0.10 higher than the Street …

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Polypore Beats Q4 Estimates, Stock Unmoved After Hours | Benzinga

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Maybe Financial Literacy Is NOT the Answer to Student Overborrowing, Part 1

According to an essay that appeared in the Pacific Standard, “there is a certain line of thinkingâ��embraced by Wall Street and politicians of both partiesâ��that holds that one of the major causes of the Great Recession was the publicâ��s lack of financial literacy.” The piece goes on to say that the root problem wasnâ��t just an unchecked mortgage industry or an investment sector that wagered billions on Byzantine mortgage-backed securities; the ignorance and greed of Main Street Americans, which made them easy marks, played a major role too. To fend off further economic calamity and keep families afloat, many financial literacy advocates believe our best hope is to teach people to live within their means, to carefully check mortgage documents before signing them, and…

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According to an essay that appeared in the Pacific Standard, “there is a certain line of thinking—embraced by Wall Street and politicians of both parties—that holds that one of the major causes of the Great Recession was the public’s lack of financial literacy.” The piece goes on to say that the root problem wasn’t just an unchecked mortgage industry or an investment sector that wagered billions on Byzantine mortgage-backed securities; the ignorance and greed of Main Street Americans, which made them easy marks, played a major role too. To fend off further economic calamity and keep families afloat, many financial literacy advocates believe our best hope is to teach people to live within their means, to carefully check mortgage documents before signing them, and to save enough money to survive a prolonged period of unemployment. All we need are the right educational tools.

Answering the call, financial literacy initiatives, both public and private, have proliferated wildly over the past several years. There’s Sesame Street’s “For Me, For You, For Later,” in which Elmo and his preschool-age fans learn the basics of spending, saving, and living within one’s means as the furry Muppet decides to forgo a $1 “stinky ball” in order to save up enough money to purchase a glittery “fantastic ball” instead. At the other end of the age spectrum, there’s Money Smart for Older Adults, a joint project of the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau designed to teach the elderly how to avoid falling for financial scams.

The leading cause of bankruptcy is not overspending, nor lack of adequate financial planning, but the financial free fall caused by a health crisis.

In between, there are numerous online games, like Financial Football, a co-production of Visa and the NFL that quizzes players about things like compound interest and identity theft as they make their way toward a virtual end zone. There are programs for children and teens peddled by personal finance gurus like Dave Ramsey. And there are untold numbers of special school curricula, many created by financial services outfits like Capital One or your local credit union, which offer education with a side of brand awareness. (Banks relish the opportunity to get their names in front of future customers and their parents in a warm and virtuous context.)

Government, too, stands squarely behind these efforts. More than a dozen states now require that their students take a class in personal finance before they can receive a high school degree. And the Obama administration—acting under the terms of the Dodd-Frank financial reform law—has set up a federal Office of Financial Education housed in the Consumer Financial Protection Bureau. “Financial education supports not only individual well-being, but also the economic health of our nation,” said Federal Reserve Chairman Ben Bernanke in a speech last year. In case that doesn’t make clear what’s supposedly riding on this effort, in 2012 the U.S. Senate held a hearing titled “Financial Literacy: Empowering Americans to Prevent the Next Financial Crisis.”

There’s only one problem: mounting, resounding evidence shows that financial literacy education doesn’t work. Dave Cannon’s experience is not the exception but the norm. “We have this idea that if we teach kids good habits they will use them. But it’s just not true,” explains John Lynch, a consumer psychologist at the University of Colorado’s Leeds School of Business. Not all behaviors are governed by rational intentions. “A kid in the backseat of a car,” Lynch says, “is not thinking about Sex Ed.”

FINANCIAL LITERACY PROMOTION MAY sound perfectly sensible—who wouldn’t want to teach children and adults the secrets of managing money?—but in the face of recent research it looks increasingly like a faith-based initiative. Consider one recent paper, scheduled for publication in a forthcoming issue of the journal Management Science. In a meta-analysis, Lynch and the marketing experts Daniel Fernandes and Richard Netemeyer compiled the results of more than 200 studies of financial literacy programs, adjusting for subjects’ family background and personality traits that had been ignored in the previous research. The result? Financial education has a “negligible” impact on subsequent financial decisions and behavior. Within 20 months, almost everyone who has taken a financial literacy class has forgotten what they learned.

These findings echo the results of another recent working paper, by the economists Shawn Cole at the Harvard Business School, Anna Paulson at the Federal Reserve Bank of Chicago, and Gauri Kartini Shastry at Wellesley College, on the efficacy of state laws requiring financial literacy to be taught in schools. Their conclusion: “State mandates requiring high school students to take personal finance courses have no effect on savings or investment behavior.”

Another study, from 2009, tested the financial literacy of recent high school graduates who had taken a highly regarded personal finance class. They did no better than graduates who had not taken the class. One of the study’s authors, the economist Lewis Mandell, was a founder of the modern financial literacy movement, but the evidence has prompted him to turn his back on the mainstream financial literacy paradigm.

Reluctant to give up entirely on educating consumers, a number of scholars—including Lynch and Mandell—are now pushing for a model of financial literacy promotion known as just-in-time education. Instead of teaching personal finance in schools, the idea goes, a combination of education and coaching should be offered at the point of sale, or when people have reached a point in their lives when they actually need a given financial service. Don’t offer retirement education in high school or even college. Wait until someone starts a new job and needs to understand and manage a 401(k).

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Maybe Financial Literacy Is NOT the Answer to Student Overborrowing, Part 1

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Do you want to improve your trading?

Then learn how procedural memory works.The day you realize trading success is about developing procedural memory, you will be on path to success.Trading success is about developing expertise. When you try and develop expertise you train your procedural memory. Procedural memories are implicit memories. They allow us to lower cognitive load. They are learned intuitions.Procedural memory is memory about how to do a process. It is stored in memory as one schema. A process containing say 32 steps is not stored in memory as 32 discrete step but as one sequence of step. When performing that task the brain efficiently recalls all those steps simultaneously so you can do the task effortlessly.Procedural memory helps free up the brain to do other things. It frees the …

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Then learn how procedural memory works.

The day you realize trading success is about developing procedural memory, you will be on path to success.

Trading success is about developing expertise. When you try and develop expertise you train your procedural memory. Procedural memories are implicit memories. They allow us to lower cognitive load. They are learned intuitions.

Procedural memory is memory about how to do a process. It is stored in memory as one schema. A process containing say 32 steps is not stored in memory as 32 discrete step but as one sequence of step. When performing that task the brain efficiently recalls all those steps simultaneously so you can do the task effortlessly.

Procedural memory helps free up the brain to do other things. It frees the brain by reducing cognitive load. We have thousands of procedural memories developed over our lifetime. They make our life easy. For example take a simple skill like flossing your teeth, it is a procedural memory once you develop it you can perform it daily without thinking or while doing some other task without focusing on a step by step sequence.

Procedural memory also allows us to do vast number of day to day tasks. Imagine if you had to learn to drive everyday, or learn to walk everyday. Life would be impossible without well developed procedural memory. Same things happens in trading. As a trader you develop hundreds of procedural memories to make your trading effortless.

Most successful traders who survive the market for many years have developed a procedural memories specific to a style of trading or a setup.

They can instinctively trade those setups without thinking about individual processes or steps involved in that setup. They are not conscious of the steps.

A novice watching them trade many times do not understand their decisions. Many times they get out of a trade just before it hits a pothole or avoid certain trade that novice will take. Lot of it is instinct developed as a result of procedural memory development. It is like a driver instinctively hitting breaks at sign of something on the road.

For discretionary trading it is all about procedural memory development on a specific setup.

If your efforts at training procedural memory to trade a setup or style are successful then you will become efficient in trading that style.

Once you learn a setup it become relatively easy to develop procedural memory on related style or setup.

But it is difficult to develop procedural memory on another instrument or style. That is why you will see many successful traders focus on very narrow niche in the market.

Some focus on growth investing , some focus on value, some on options, some on futures, some on currencies.

Within that they focus on very niche setup. Some trade say growth stock as swing trades, some trade them as position trades. These two setups require distinct procedural memories.

Most successful traders learn by trial and error that sticking to their setup is best because when they do it the procedural memory automatically kicks in.

As against that novice traders are ambitious, they want to trade as many setups as possible. They don’t want to miss out on any style or instrument like option or futures. So they try and simultaneously develop procedural memory. That obviously leads to failure.

If we know that the key to discretionary trading success is procedural memory then why is it difficult to develop procedural memory?

To develop procedural memory you need highly structured environment.

When you learn to drive, it is done under structured environment. You learn it in stepwise manner under close supervision. There is someone sitting next to you closely supervising every step and also ensures you don’t get killed. Every month you will see some young kid getting killed in car accident, and the reason is largely to do with lack of well developed procedural memory and bravado.

As against that much of learning to trade on your own is unstructured and unsupervised process unless you join a trading firm or a Wall Street trading house or bank. You are your own instructor and you need to create your own structure and you need to give yourself correct feedback and you need to ensure you do not get killed by blowing up your account.

If you read the classic Wall Street books like How I made 2 million dollars in stock market by Darvas or Reminiscence of a Stock operator, you will see that much of the struggle depicted in those book is about trying to find a setup and a process and sticking to it. Once Darvas found his setup and developed a process it was easy. In Livermore case he went from setup to setup and from day trading to position trading before making big money.

As a novice trader if you understand the role of procedural memory in trading you would approach the task differently. You will set process goals as against monetary goals. You will focus on well developed setup idea with step by step instructions. You will try and find someone to supervise your process and ensure you do not get killed during the earning process. In most procedural memory development situation a apprentice model has shown to be most effective for learning.

When you attempt to develop procedural memory on your own, unless you are extremely motivated and driven (or the correct word according to psychologists is you have very high self efficacy beliefs) the task is difficult. That is why you will see few extremely motivated individuals make it in this field.

This is the reason most ordinary and less motivated traders fail before they can achieve profitability.

They blame markets or other things for it but in many cases the fault lies with failure to train procedural memory.

In order to develop procedural memory for any given time frame or style or set up first you need to start with well defined setup with clear step by step process led out with clear explanation for each step.

For example if you were to decide to trade a swing trade setup, you need clear well defined highly structured process that you can follow and master till you can do it on your own without supervision.

That kind of process requires time and effort. Within that process the external environment plays important role. You might decide to focus on a setup and then market might go in to correction offering you no opportunity to use your setup for some weeks or months. Can you sustain your motivation during that time.

If you look at procedural memory development situations outside of trading then you will see that all of them impose enormous structure.

Dancing pr ice skating is one of the skills developed through procedural memory development. If you see the process used for training dancers you will see that it is highly structured and regimented. You are given specific skill to practice. There is close supervision of the practice. There is constant feedback loop.

Enormous hours are spent on practice before a performance is attempted. The learning happens primarily from repeated practice. It takes 10 to 15 years of rigorous practice before ballerinas are considered suitable for major performance.

What does the Bolshoi Ballet Academy in Moscow do. It takes young girls from all over Russia and trains them in to ballet using a extremely structured method called Vaganova Method. The effort involved in brutal and the instructors are very demanding. It takes anywhere between 10 to 15 years of training to become good ballerina.

How are surgeons trained. They start early in med school as apprentice, do simple procedures first under close supervision. For next 6 to 10 years they perform hundreds of procedures working under a highly skilled surgeon or group of surgeon. After 10 year or more of developing procedural memory they venture on their own. My brother is world renowned cardiac surgeon and I have seen very closely how they learn this art .

The ballet training, ice skating , heart or brain surgery or trading is primarily about developing implicit memory.

Implicit memories are unconscious memories. They are formed through automation.

Procedural memory is memory about skill.

In the case of a dancer or a surgeon the procedural memory challenge is about developing a complex skill which require enormous coordination of various muscles and activities.

Through repeated practice the skill becomes automatic and a procedural memory for it is developed. Same way a good trader primarily has developed procedural memory skills related to specific setup.

Developing procedural memory skills requires breaking down a skill in to process and then mastering those processes. S

impler skills are easy to master. For example riding a bike is easy skill to develop as procedural memory skills involved are relatively easy. The time taken to learn it is small.

But if you have to learn extremely complex skills and skills requiring use of multiple skills simultaneously then the training involved for it has to simulate those situations and also allow allow the learner to gain confidence in his own skills.

That is the basis for developing procedural memory skills for commandos. We can use same learning in trading by doing set up practice like we did in January series of posts or through the boot camps held every year.

US Army, Navy, and Air force have world’s best training programs. If you study the history of training skills development in these institutions you will find that they were the first to recognize the concept of procedural memory.

If you read book on expertise development, you will see that vast amount of learning about expertise development process has happened through research on training armies. .

One of the best book on understanding expertise development, procedural memory and implicit learning is Development of Professional Expertise by K. Anders Ericsson

The book focuses on understanding how highly skilled professionals learn their skills.

Professionals such as medical doctors, airplane pilots, lawyers, and technical specialists find that some of their peers have reached high levels of achievement that are difficult to measure objectively.

In order to understand to what extent it is possible to learn from these expert performers for the purpose of helping others improve their performance, we first need to reproduce and measure this performance. The book delves into research in this field.

This book is designed to provide the first comprehensive overview of research on the acquisition and training of professional performance as measured by objective methods rather than by subjective ratings by supervisors.

The book is collection of articles. In those articles the world’s foremost experts discuss methods for assessing the experts’ knowledge and review our knowledge on how we can measure professional performance and design training environments that permit beginning and experienced professionals to develop and maintain their high levels of performance, using examples from a wide range of professional domains.

What does the US Army, Navy or Air force do. It takes raw recruits and through a extremely structured program it converts them into exceptionally skilled warriors. It helps them develop procedural memory through a highly disciplined and structured program. If you want to understand how this is done watch the video Navy Seals Buds Class 234 Discovery Channel

If your objective is to become elite trader the training process would be similar.

The only difference is you have to structure your own training and develop your own training material and then have the discipline to train yourself.

Along the way there will be several setbacks and ability to persist under those circumstances is critical. Besides that you should survive the self training phase without blowing your account (which very few would do).

That is the enormity of the task involved in becoming a successful trader. Which most novice have no idea about. They set goals like to make 500 dollars per day without having a process to do that. Or they spend time developing a trading plan which does not take into account the time required for developing procedural memory. Or they look for shortcuts.

Behind every successful self learned trader you will find similar story of extreme efforts and extreme frustration and then slowly discovery of profitable method. Unfortunately most people will not tell you that.

The Stockbee Advanced Bootcamp will give you an insight into the process. As many of the traders attending it have been practising their skills and craft for many years before gaining enough confidence to do this for living.

If you want to become good at trading keep the essence of procedural memory development in your mind everyday :

1. 
   
   structured environment
   
   


2. 
   
   supervised practice
   
   


3. 
   
   extensive practice
   
   

When you try to develop procedural memory on your own, you are your own supervisor, mentor, instructor, motivator and so on. Besides that you are developing your own syllabus. As against that in any structured environment they have studied procedural memory skills required for the job and have template to develop such skills in others.

That is the big challenge for trader who tries to learn trading on his own. And it is also the reason for high failure rate. What can trader do to survive such learning process and become successful:

Understand that learning to trade is about developing expertise. And specifically it is about training procedural memory.

Understand that procedural memory is task specific. So specializing in a setup is extremely critical.

Once you select a setup then you develop procedural memory specific to that setup. A trader who is good at trading say momentum stocks on 3-10 days has developed a procedural memory specific to that setup.

Understand that selecting your trading time frame is critical. If you want to be day trader the kind of procedural memory development you will need is very different from if you decide to be swing trader.

Understand that less number of setups you focus on better it is.

The entire logic behind the procedural memory development process is that it allows you to overcome cognitive load.

The more setups you try and trade simultaneously more is cognitive load. When your short term memory gets overloaded you tend to make mistake and get frustrated.

First master one setup then you will find mastering other setup easier.

Understand that there are no secrets in this business. The real secret is your ability to develop procedural memory.

Procedural memory can only be developed through “How to ” kind of knowledge. If someone gives you a secret way to put stops as a software plugin. It is perfectly useless. Because it does not allow you to develop your own procedural memory skill.

Similarly someone gives you 3 picks daily and does not tell you in significant detail how that person actually arrived at those picks, what scans he used, what software he uses, what analytical methods he used to arrive at those 3 picks from 100 other stocks meeting same conditions , you will learn nothing. It will not help you in anyway to develop procedural memory.

Understand that many profitable traders are not conscious of how they develop their own trading skill and how procedural memory work. in fact most would not have even heard of procedural memory unless they had background in psychology or are involved in training.

That is why instead of asking a trader how and what he does, it is better to meet them face to face and observe what they do. Procedural memory is best developed through face to face interactions as it allows you to clarify process and completes feedback loop.

Understand that profitable traders can not verbalize the process they follow. Procedural memories are implicit memories they can not be easily verbalized. A person who possess a skill in particular kind of trading may not be aware of steps he or she is following.

Psychologist and those who study procedural memory use special techniques to build procedural maps to understand such skills. Often you will read a interview or watch an interview of famous trader and you will see that the person does not tell you much about his process. Often they give you generalities , why because they are not aware of their own procedural skills.

So if you ask the most prolific day trader on the Timeline about his trading , it is unlikely he can help you much because so much of his skill is implicit. He or she knows how to do it , but can not verbalize how they do it. It is not possible for every skilled trader to verbalise their process. There are many gaps in their explanation and actual process.

Understand that once you develop procedural memory it is on autopilot and it is lifetime skill. Once you learn a process it tends to become part of you as long as you keep using it. That is why learning to trade can be your best retirement strategy. You will see some old traders on Stockbee site who are trading into their 70’s

Understand that procedural memory is not developed through hard work. There are many hardworking traders but they do not necessarily make lot of money. Why because they may not be having right procedural memory. In fact once you develop procedural memory you don’t really need to work hard. that is the essential role of procedural memory.

If you want to be successful rader there is one thing you can do today and that is to narrow your focus to very small setup idea and develop procedural memory about it.

www.stockbee.biz If you are serious about your trading and want to build an enduring edge the Stockbee Member site might be for you. One of the most recommended site for learning to trade. 2200 members and growing everyday… www.stockbee.biz

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High Speed Traders Are Robbing Us All – Gawker

SHigh frequency trading, in which superfast computer algorithims buy and sell stocks in fractions of a second, is little more than a tax on financial markets that goes directly into private pockets. There’s more news today about how ridiculous the practice has become.Why do financial markets exist? Ostensibly, they exist to funnel capital to its most productive uses. That is what redeems them, socially. They are supposed to fulfill that beneficial purpose, in order to make all the high salaries of Wall Street motherfuckers at least theoretically tolerable. High frequency trading, on the other hand, has no socially redemptive value at all. It is a way for the person with the fastest fiber optic cable to suck money out of the financial markets for their own …

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High frequency trading, in which superfast computer algorithims buy and sell stocks in fractions of a second, is little more than a tax on financial markets that goes directly into private pockets. There's more news today about …

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High Speed Traders Are Robbing Us All – Gawker

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The Sheep and the Wolves: Smart investing made simple

Note: This article is from J.D. Roth, who founded Get Rich Slowly in 2006. J.D.’s non-financial writing can be found at More Than Money, where he recently wrote about winning the jackpot.Imagine that you’re a farmer. You live in a rural county where everybody raises sheep.The county’s farmers, on the whole, prosper. Their flocks tend to grow by 10 percent every year. Some years are better than others. In the best years, the sheep population in the county grows by 40 percent. Little lambs are everywhere! But in the worst years — years filled with frost, famine, and disease — the sheep population can collapse to half of what it was before.Further imagine that the county becomes home to vicious predators. Wolves, perhaps. …

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Note: This article is from J.D. Roth, who founded Get Rich Slowly in 2006. J.D.’s non-financial writing can be found at More Than Money, where he recently wrote about winning the jackpot.

Imagine that you’re a farmer. You live in a rural county where everybody raises sheep.

The county’s farmers, on the whole, prosper. Their flocks tend to grow by 10 percent every year. Some years are better than others. In the best years, the sheep population in the county grows by 40 percent. Little lambs are everywhere! But in the worst years — years filled with frost, famine, and disease — the sheep population can collapse to half of what it was before.

Further imagine that the county becomes home to vicious predators. Wolves, perhaps. The wolves descend from the mountains and begin to eat the sheep. Some farmers protect themselves from loss, but others don’t know how — and some don’t even realize their flocks are being attacked.

The farmers who take precautions aren’t able to prevent all losses, but they come close. On farms with vigilant shepherds, only 0.10 percent of sheep are lost to wolves every year. For every thousand sheep, the wolves pick off one animal.

The farmers who don’t take precautions, on the other hand, suffer terrible losses. During the initial onslaught they lose 5 percent of their sheep. (Plus, every time they add more sheep to their herds, the wolves manage to grab another 5 percent.) To make matters worse, the wolves steadily steal 2 percent of the beasts every year. For every thousand sheep, this group of farmers loses 50 in the initial attack, and 20 more each year thereafter.

Think of it: After the first year, the smart farmers will have lost just one of every thousand sheep. The other shepherds will have lost 70 sheep.

If the county’s flocks each grew at the long-term 10 percent average during that first year, the vigilant folks would now have 1,099 sheep for every thousand they started with. The unwary farmers would have 1,024 sheep.

Now imagine that in the second year, the same pattern continues. All flocks grow at the long-term average of 10 percent, and the wolves snatch 2 percent of the animals from those farmers who aren’t paying attention. At the end of the second year, the wolf-free flocks would have grown to 1,208 sheep for every thousand that were present at the start. The flocks where the wolves run wild would have just 1,104 sheep.

Both populations of farmers enjoy the same growth rate among their flocks. The difference is that one group loses fewer sheep to the wolves.

And at the end of 10 years following this pattern? The wolf-less flocks would have grown from 1,000 to 2,566 sheep. Those under attack would still have increased, but at a much slower rate. They’d have 2,013 sheep.

Things are even worse when you look at the farmers who add more animals to their farms every year. Remember that I said the wolves slaughter 5 percent of the sheep added to the unlucky flocks? Well, assume that wealthy farmers from both populations are able to buy 100 new sheep every year — but that the wolves snatch five of these from the one group.

At the end of a decade, these wealthy farmers will have contributed a total of 2,000 sheep to their flocks for each 1,000 sheep they started with. With average long-term growth, these flocks will have grown to 4,154 animals for the lucky shepherds and 3,374 sheep for those ravaged by wolves.

Which population of farmers would you prefer to join?

I won’t belabor this analogy any longer. I think most of you get my point.

Stock-market investors are like these sheep farmers. Collectively, they enjoy investment returns of roughly 10 percent per year. Individually, however, things are different. Most investors suffer severe losses from the wolves of Wall Street. Wolves, by the way, who don sheep’s clothing to convince investors to trust them. (These investors also have a tendency to make things worse by selling their flocks when sheep prices fall and expanding them when prices rise.)

If you want to be a successful farmer, you have to understand how farming works, and how to protect yourself from the wolves. Fortunately, it’s not as tough as it seems.

The financial industry wants you to believe that investing is difficult. If you buy into their message, if you accept the premise that you need help to invest wisely, they can charge you big bucks to handle your money.

The truth is somewhat different. Investing is simple. In fact, it can be one of the easiest things you do while managing your finances. How simple? Let’s boil it down to just a few sentences.

Here’s how to invest wisely:

• Set aside as much as you can in investment accounts. Prefer tax-advantaged accounts (like a 401(k) or Roth IRA) before taxable accounts.


• Invest all of your money in a low-cost stock index fund, such as Vanguard’s VTSMX or Fidelity’s FSTMX.


• If the stock market makes you nervous, allocate some portion of your money to a bond fund. Or invest instead in a low-cost combo fund like Vanguard’s VGSTX or Fidelity’s FFNOX.


• Continue investing as much money as possible. Never touch it.(Nothing makes a bigger difference to the size of your flock investments than how much you contribute.)


• Ignore the news and ignore your fund.

That’s it. Seriously. That’s all you have to do to earn returns better than 90 percent of other investors.

There are scores of books and published research papers that support this strategy. It’s also the strategy that Warren Buffett (and other top pros) recommend for 99 percent of investors. If you’d like, you can spend days or weeks or months reading about why this works. Or you can trust these folks and do it.

Longer ago, my own flock of sheep was crippled by predators and my own bad behavior. After many mistakes, I got smart. I moved to greener pastures far from danger. Now I can ignore my sheep and go about my daily life, comfortable that the animals will continue reproducing at the long-term average without any intervention on my part. And with no danger of being consumed by wolves.

Note: Photo by James Bowe.

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The Sheep and the Wolves: Smart investing made simple

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Maybe Financial Literacy Is NOT the Answer to Student Overborrowing

Dave Cannon has made several attempts over the past decade to learn the basics of money management. The Seattle entrepreneur took a class in personal finance when he was an undergraduate in college, and another when he attended Brigham Young Universityâ��s business school. But the lessons, by and large, didnâ��t take. By the time he hit 30, Cannon had racked up a $12,000 credit card tab and, in tandem with his wife, another $60,000 in student loan debt. â��Itâ��s hard to turn an hourâ��s worth of education into a system youâ��ll use every day,â�� Cannon told The Pacific Standard. But that doesnâ��t stop us from trying. There is a certain line of thinkingâ��embraced by Wall Street and politicians of both partiesâ��that holds that one of the major…

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Dave Cannon has made several attempts over the past decade to learn the basics of money management. The Seattle entrepreneur took a class in personal finance when he was an undergraduate in college, and another when he attended Brigham Young University’s business school. But the lessons, by and large, didn’t take. By the time he hit 30, Cannon had racked up a $12,000 credit card tab and, in tandem with his wife, another $60,000 in student loan debt.

“It’s hard to turn an hour’s worth of education into a system you’ll use every day,” Cannon told The Pacific Standard.

But that doesn’t stop us from trying.

There is a certain line of thinking—embraced by Wall Street and politicians of both parties—that holds that one of the major causes of the Great Recession was the public’s lack of financial literacy. The root problem wasn’t just an unchecked mortgage industry or an investment sector that wagered billions on Byzantine mortgage-backed securities; the ignorance and greed of Main Street Americans, which made them easy marks, played a major role too. To fend off further economic calamity and keep families afloat, many financial literacy advocates believe our best hope is to teach people to live within their means, to carefully check mortgage documents before signing them, and to save enough money to survive a prolonged period of unemployment. All we need are the right educational tools.

Answering the call, financial literacy initiatives, both public and private, have proliferated wildly over the past several years. There’s Sesame Street’s “For Me, For You, For Later,” in which Elmo and his preschool-age fans learn the basics of spending, saving, and living within one’s means as the furry Muppet decides to forgo a $1 “stinky ball” in order to save up enough money to purchase a glittery “fantastic ball” instead. At the other end of the age spectrum, there’s Money Smart for Older Adults, a joint project of the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau designed to teach the elderly how to avoid falling for financial scams.

The leading cause of bankruptcy is not overspending, nor lack of adequate financial planning, but the financial free fall caused by a health crisis.

In between, there are numerous online games, like Financial Football, a co-production of Visa and the NFL that quizzes players about things like compound interest and identity theft as they make their way toward a virtual end zone. There are programs for children and teens peddled by personal finance gurus like Dave Ramsey. And there are untold numbers of special school curricula, many created by financial services outfits like Capital One or your local credit union, which offer education with a side of brand awareness. (Banks relish the opportunity to get their names in front of future customers and their parents in a warm and virtuous context.)

Government, too, stands squarely behind these efforts. More than a dozen states now require that their students take a class in personal finance before they can receive a high school degree. And the Obama administration—acting under the terms of the Dodd-Frank financial reform law—has set up a federal Office of Financial Education housed in the Consumer Financial Protection Bureau. “Financial education supports not only individual well-being, but also the economic health of our nation,” said Federal Reserve Chairman Ben Bernanke in a speech last year. In case that doesn’t make clear what’s supposedly riding on this effort, in 2012 the U.S. Senate held a hearing titled “Financial Literacy: Empowering Americans to Prevent the Next Financial Crisis.”

There’s only one problem: mounting, resounding evidence shows that financial literacy education doesn’t work. Dave Cannon’s experience is not the exception but the norm. “We have this idea that if we teach kids good habits they will use them. But it’s just not true,” explains John Lynch, a consumer psychologist at the University of Colorado’s Leeds School of Business. Not all behaviors are governed by rational intentions. “A kid in the backseat of a car,” Lynch says, “is not thinking about Sex Ed.”

FINANCIAL LITERACY PROMOTION MAY sound perfectly sensible—who wouldn’t want to teach children and adults the secrets of managing money?—but in the face of recent research it looks increasingly like a faith-based initiative. Consider one recent paper, scheduled for publication in a forthcoming issue of the journal Management Science. In a meta-analysis, Lynch and the marketing experts Daniel Fernandes and Richard Netemeyer compiled the results of more than 200 studies of financial literacy programs, adjusting for subjects’ family background and personality traits that had been ignored in the previous research. The result? Financial education has a “negligible” impact on subsequent financial decisions and behavior. Within 20 months, almost everyone who has taken a financial literacy class has forgotten what they learned.

These findings echo the results of another recent working paper, by the economists Shawn Cole at the Harvard Business School, Anna Paulson at the Federal Reserve Bank of Chicago, and Gauri Kartini Shastry at Wellesley College, on the efficacy of state laws requiring financial literacy to be taught in schools. Their conclusion: “State mandates requiring high school students to take personal finance courses have no effect on savings or investment behavior.”

Another study, from 2009, tested the financial literacy of recent high school graduates who had taken a highly regarded personal finance class. They did no better than graduates who had not taken the class. One of the study’s authors, the economist Lewis Mandell, was a founder of the modern financial literacy movement, but the evidence has prompted him to turn his back on the mainstream financial literacy paradigm. “Financial education doesn’t work when it’s given in advance of when the consumer needs it,” he says flatly.

Reluctant to give up entirely on educating consumers, a number of scholars—including Lynch and Mandell—are now pushing for a model of financial literacy promotion known as just-in-time education. Instead of teaching personal finance in schools, the idea goes, a combination of education and coaching should be offered at the point of sale, or when people have reached a point in their lives when they actually need a given financial service. Don’t offer retirement education in high school or even college. Wait until someone starts a new job and needs to understand and manage a 401(k).

It sounds like common sense. But even just-in-time education has its problems. If counseling is delivered at the point of sale, for instance, the potential for conflicts of interest is huge. Where does education end and marketing begin? With no credentialing or oversight requirements in the financial literacy world, it’s up to the consumer—the one in need of enlightenment, remember—to determine whether a lesson objectively and thoroughly covers the most important bases. Take, for example, Ally Financial, a company that offers car loans and other products. It has put together an entire online education site called Ally Wallet Wise. But the site makes no mention of subprime auto loans, does not say how to determine whether you are being offered one, and doesn’t help users find out what an optimal interest rate might be.

In addition, the very notion that there is some moment that’s “just in time” for many financial decisions may be a mirage. Consider retirement savings for a moment. In our current, do-it-yourself model of financial planning, built on instruments like the 401(k), consumers must begin saving early in life to maximize the money they will have on hand at the end of their careers. But that often doesn’t happen. People stay in school until their late 20s, or, faced with competing demands on their funds, come to believe they can’t afford to put money away for some ill-defined future need. They make bad decisions for what seem like good reasons. If a counselor comes along at some point in this process, it’s likely not going to be “just in time,” but either too early to make an impression—or too late to make a significant difference.

Finally, it’s worth noting that standards of good advice have a way of shifting over time in a way that, say, basic facts of history or math do not. It used to be that people saving for retirement were told to set aside 10 percent of their salary. Now, many experts suggest 15 or even 20 percent.

You can see the promise and peril of financial literacy education play out in Dave Cannon’s life. The information presented in his money classes was “a blur,” he now says. “When we were in college, we were just surviving. There was not much use for financial principles.” So he forgot those principles more or less immediately.

What he does recall is that some of the classes were obviously lightly disguised marketing ploys. With a laugh, he recalls how one of his instructors, a seller of financial services, treated class as an opportunity for gathering leads. “A lot of financial advisers give good trainings,” Cannon says, “and then they follow up and try to sell you more expensive stuff.”

Cannon finally did start to take some financial principles to heart when he and his wife recently decided they wanted to buy a home. They went to a mortgage broker who sat down with them, explained that their debt to income ratio was too high, and helped them work out a budget—one that allowed them to simultaneously pay down their credit card debt while saving more aggressively for a down payment. They’ve since cut their credit card debt in half and have begun looking for homes. So just-in-time counseling works? Cannon says yes. “I wasn’t really ready to learn how to make a budget or build savings ’til we had goals,” Cannon told me. “The first behavior I needed to learn to change was to stop spending so much damn money.”

A FEW MONTHS AGO, a website called Low Pay Is Not OK brought a burst of national attention to a financial literacy initiative created by Visa and McDonald’s, designed to teach low-wage McDonald’s employees “practical money skills for life.” The online program included a suggested monthly budget for a typical employee that left room for $800 of “spending money” after expenses. The budget assumed that this employee would take a second job to bring in extra money, while not spending a penny on child care or heat, and spending a laughable $20 a month on health insurance. The intended moral of the budgeting exercise: “You can have almost anything you want, as long as you plan ahead and save for it.”

The sheer cluelessness of this exercise caused uproar on the Internet, and no wonder. The United States is an increasingly class-stratified country, where the engines of mobility appear to have stalled. Minimum wage jobs lead to other minimum wage jobs. Salaries are stagnant. College tuition has soared at rates well beyond that of inflation, forcing students to turn to loans to get by, which in turn leaves them servicing massive amounts of debt in their 20s, a time when financial literacy classes—citing the power of compound interest—say they should save. The leading cause of bankruptcy is not overspending, nor lack of adequate financial planning, but the financial free fall caused by a health crisis.

Dave Cannon may attribute his financial troubles to a lack of discipline and poor money management, but when I asked him how his credit card debt grew, he told me it was medical bills. “My family wasn’t in a position to help,” he offered by way of explanation. No amount of financial literacy can change a situation like that.

Personal shortcomings and mistakes in managing money can indeed worsen the financial situation for many of us, but even these may be more a function of stress and scarcity than ignorance. Recent research by the behavioral economists Sendhil Mullainathan and Eldar Shafir has shown that perfectly intelligent people become much less so when they are experiencing a shortage of money, time, or attention. They develop a kind of tunnel vision that erodes the long-term thinking essential to financial planning. (Indian sugarcane farmers, for instance, perform worse on cognitive tests before a harvest, when they are cash poor, than they do after they’ve sold a crop.)

Trying to take some of these realities into account, a small group of educators is fundamentally rethinking the concept of financial literacy. Chris Arthur is an eighth grade teacher and a Ph.D. candidate in education at York University in Toronto. When he taught the subject in the past, he exposed his students to the Great Piggy Bank Adventure, a traditional financial literacy game produced by T. Rowe Price and Disney, and introduced them to the business concepts promoted by Junior Achievement, the children’s entrepreneurship organization. But last year he also made them play an online game called Spent, which is not a financial literacy product at all.

Spent was designed a few years ago for the North Carolina charity Urban Ministries of Durham. The concept is simple. The gamer assumes the role of a low-wage worker—like, say, someone at McDonald’s—attempting to get by until the end of the month. Players are faced with a relentless series of decisions and tradeoffs, and almost anything—a gift for a child’s birthday, a plea from a family member to help pay for needed medication—can send them into a financial downward spiral.

Needless to say, it’s just about impossible to achieve anything resembling financial success in the game of Spent. And that’s the point. “It challenges the dominant framing of financial insecurity as wholly a problem of ignorance and irresponsible consumer behavior,” Arthur told me.

Spent, like the controversy that ended up swirling around McDonald’s suggested employee budget, points to an oft-buried truth. The financial literacy movement presumes that with a modicum of education, we can all be equal in the financial and economic marketplace. But that’s a false promise. Financial literacy is, first of all, no substitute for financial regulation. It’s also an ultimately ineffective personal solution to a systemic political and economic problem. And even McDonald’s knows it. As I was reporting this piece, the Low Pay is Not OK website released a recording of a McDonald’s employee calling the firm’s help line for financial advice, saying she could not make ends meet on her salary. The counselor she spoke with suggested she locate a local food pantry and apply for food stamps and Medicaid.

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Maybe Financial Literacy Is NOT the Answer to Student Overborrowing

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