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Investing lessons from the lemonade stand

Posted on December 30, 2012 at 1:33 pm

Teaching people about investing generally comes in two flavors: plain-vanilla, simple prosaic stuff or text-book-heavy chocolate which is either too complicated or too boring to digest.

Simple books tend to lack the rigor or pragmatism that investors face. Investing is hard and a general investing overview is typically insufficient to help investors facing tough decisions: like selling into a fiscal cliff or avoiding home or Internet bubbles.

On the other hand, definition- and formula-driven books also lack a real-life approach to investing. Instead, books like these are good for classroom settings or MBA-on-the-job training.

Sneaking in the complicated stuff while engaging the reader

James Berman’s new book, Lessons from the Lemonade Stand, uses a common metaphor to a book by James Bermanteach the basics of investing: the lemonade stand (Joel Greenblatt used a similar one in The Little Book that Beats the Market.

By abstracting out the “hard” stuff about investing and focusing on the most simple of businesses, Berman (a finance prof at NYU and an investment advisor) is able to gradually introduce more complicated concepts without overwhelming the reader with jargon.

Really, Lessons from the Lemonade Stand encompasses much of an introductory finance curriculum in book form that reads, well, more like a book of fiction than one on investing.

Interesting excerpts

The difference between traders and investors:

The difference between investors and traders is almost religious in fervor. Ironically, both have the same goal: to make money. But each approaches that task in a different way. At first glance, investors hold stocks for the long term while traders buy and sell stocks on a short-term basis. But the distinction is more philosophical. INvestors view stocks for what they are: pieces of paper that grant ownership in a company. Traders view stocks as gambling chips” things to be bought low and sold high regardless of what they actually represent.

Taxes:

The wise lemonade stand investors spends some time learning the ins and outs of taxes. Unfortunately, the tax code is outlandish in its complexity. But it’s yours. And if you want to hold onto your gains, you better know the basics.

Price vs. Value:

In the real world, just as in Lemonville, everything has both a price and a value. Understanding the difference is the key to success. A stock’s price and value are often far apart.

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  • Building best ideas portfolios — with Kyle Mowery

    Posted on April 22, 2013 at 12:45 pm UTC

    Investors have always been taught that diversification is good — good for long term performance.

    grizzlyrock capitalBut, there’s such thing as too much diversification. In a new paper, GrizzlyRock Capital’s Kyle Mowery discusses how investor performance is affected by being too diversified and what he and other smart investors do to create more focused — best ideas — portfolios.

    Listen to the FULL episode

    About Kyle Mowery

    Managing Director of GrizzlyRock CapitalKyle is the Managing Director of GrizzlyRock Capital, which invests in long/short corporate credit and equity securities utilizing a fundamental valued-based style.

    More information

    Even More Resources

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  • The Permanent Portfolio: How an entrepreneur invests — with Craig Rowland

    Posted on March 11, 2013 at 1:46 pm UTC

    As a successful entrepreneur, Craig Rowland knew how to take measured risks.

    He does the same now when investing his portfolio. In his recent book The Permanent Portfolio: Harry Browne’s Long-Term Investment Strategy, Rowland describes Harry Browne’s famous Permanent Portfolio strategy and why it’s so effective at helping him succeed in the market.

    Please join us for an interesting discussion about managing money, taking risks, and Harry Browne’s famous easy-to-implement no-brainer investment strategy.

    Listen to the FULL episode

    About Craig Rowland

    Craig Rowland -- author of Permanent PortfolioCraig Rowland is a software entrepreneur with multiple successful start-ups who sold his previous company to Cisco Systems, Inc. His company produced a real-time network attack response and analysis system. He has also worked for the Chief of Naval Operations – U.S. Pentagon, with a start-up founded by members of the Air Force Information Warfare Squadron (also acquired by Cisco).

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  • Get off the investment roller coaster by getting the Lending Club gospel

    Posted on March 8, 2013 at 8:29 am UTC

    Lending Club produced a nice new video I liked and thought you’d appreciate seeing.

    In 5 years, the firm has underwritten over $1B in peer-to-peer loans and is on fire. As I’ve written before, I believe the direct personal loan is on its way to becoming a new asset class in investor portfolios, thanks to Lending Club.

    Additional resources

    • Listen to my interview with Lending Club founder and CEO, Renaud Laplanche

    p2p lending tools

    p2p lending tools

    P2P lending is becoming a big business -- lots of other tools are popping up to help investors. Here are a few of the best.

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      Lend Academy

      Lend Academy

      Subscribe to our weekly newsletter and get access to exclusive content plus a free copy of our ebook, “Understanding Peer to Peer Lending” (updated monthly).

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      Personal Loans & Investing with Peer Lending - Lending Club

      Personal Loans & Investing with Peer Lending - Lending Club

      Largest provider of p2p loans -- over $1B underwritten and 100% quarterly, positive returns on investment.

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      Nickel Steamroller

      Nickel Steamroller

      Nickel Steamroller is a premier resource for p2p stats and news. Lending club vs Prosper 2012. Also, tools like returns forecaster and portfolio analytics for p2p loans.

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      Lendstats.com

      Lendstats.com

      Lendstats.com LendingClub and Prosper lending and lender statistics.

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      Peer to Peer Lending Guide | Lending Memo

      Peer to Peer Lending Guide | Lending Memo

      Lending Club and Prosper guide for peer to peer lending. Free eBook and quality articles updated daily.

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      SELL a SOUL

      SELL a SOUL

      I sell my soul for 1000 000 €.

      Наve you ever had sm'bd's soul?
      I offer you to have my own for 100 years.

      paper attached.
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      Feel free to contact me:
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  • Crowdfunding: Is the reality going to live up to the hype?

    Posted on January 15, 2013 at 4:19 pm UTC

    Lenny Grover’s a smart guy. He runs Screener.co and is a consultant/VC type.

    I chatted with him yesterday over my Yammer group about equity crowdfunding, its prospects and his view on how this all plays out.

    Here’s what Lenny had to say:

    :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

    MeWhat do you guys think of what’s going on in the crowdfunding space? So many new entrants (Angel List) and deals going doing. 

    Is it going to live up to the hype?

    Screener.co’s Lenny Grover: I think there will be rapid adoption and some early successful case studies but that equity crowdfunding as an asset class will ultimately implode in a wave of bad publicity. Even successful angels have a low “batting average” and that means there will be more losers than winners among amateur angels (though some of the winners may be very big winners). While venture capital as an asset class has been propped up by the IPO market recently, the poor subsequent performance of those IPOs may leave that window less open going forward. Between the “Series A Crunch” and the cramdowns that will result from not having a strong motivated and sophisticated “lead” investor to represent the Preferred in future round negotiations, I think overall returns of the asset class will be mediocre.

    When everybody and their mother starts chasing an illiquid and high risk investment, it’s time to run for the hills.

    For companies looking to raise money, however, it could be the best thing since sliced bread–driving valuations higher and giving the founders more leverage whether they choose to crowdfund or go the traditional route.

    Just my $.02.

    MeGreat answer, Lenny. Access doesn’t equate to success with a new asset class and I tend to agree with you.

    Given what you said and the initial “fervor” (will it really be that strong??) dies down, though, do you see this as a persistant asset class for the masses?

    LG: I do think it will become more widely adopted earlier than people expect. The combination of the rapid adoption of “rewards”-based crowdfunding sites, low interest rates (“cash is trash” and the chase for returns), the widely publicized success of tech startups like Facebook (with hardly any attention given to the 90+% that fail), and the money that can be made by brokers pushing these deals is enough to convince me that there will be a sizable early-adopter market for these securities(including many of dubious quality).

    Michael Milken and others were able to rapidly create a large institutional market for high yield corporate debt (some issues were so toxic that they never even made a single interest payment) in a low-interest rate environment when investors were chasing returns. Imagine what equity crowdfunding sites will be able to do with unsophisticated retail investors with the benefit of social media and other modern distribution channels.

    I think we should do away with the accredited investor rule completely and allow anyone who passes a proctored mathematics and securities proficiency exam to invest in private equity, hedge funds, etc. without restriction. But, allowing brokers to push complex, illiquid, and risky private company securities on the same consumers who signed for mortgages they didn’t understand or cannot balance their checkbooks is a recipe for absolute disaster.

    If the government doesn’t intervene, then I think the market for equity crowdfunding will continue even after the wave of bad publicity but it will be a smaller bifurcated market (sophisticated “angel-lite” investors funding only very high quality companies on market terms and unsophisticated dupes continuing to buy trash that unscrupulous brokers push on them).

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  • 2012 performance of the Tradestreaming Guru Hedge Fund Portfolio

    Posted on January 7, 2013 at 3:09 pm UTC

    The portfolio (access details here) was up over 24.51% in 2012.

    I’ve made 17 trades in 2012. The portfolio is based upon the research I published in Tradestream Your Way to Profits and mimics certain strategies of 12 top hedge fund managers. It’s not as simple as merely aping top hedge funds’ trading — certain hedge funds replicate differently than others.

    For example, investors may begin to approximate Warren Buffett’s returns by buying his largest holding while Pershing Square’s Bill Ackman may replicate best by buying his newest holding.

    Anyway, couple more details about the Tradestreaming Hedge Fund Guru Portfolio

    • 82.4% of trades profitable
    • 0.592 correlation with S&P500
    • Sharpe Ratio of 2.29

    For more details, check out my strategy on Collective2

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About Tradestreaming

Tradestreaming is a community of investors learning directly from experts. I’m Zack Miller, investor, entrepreneur, and founder of Tradestreaming.com and I literally wrote the book on how to invest in the age of Facebook and Twitter. Tradestreaming is the resource I’ve created to help me become a better investor.  I believe it will help you … Continue Reading