Budgets & Brews Podcast

If you haven’t listened to Rich and Tony’s “Budgets & Brews Podcast” yet, you got to check it out! The hosts Rich and Tony are finance and hop-juice enthusiasts!

They created the “Budgets & Brews Podcast” as their way to spread financial literacy to family & friends at first. Then they added a special “splash” to their show: Beer!!!

[yes, I count myself to the hop-juice enthusiasts as well]

My grandfather used to say: There’s nothing better than something good together with something good. That’s what Rich and Tony did: A perfect combination of their two favorites – finances and beer – in order to create a more relaxing and welcoming environment.

The other aspect is: Rich and Tony like to remove the naturally intimidating feeling of finance terms and lingo and make financial literacy more fun and accessible to a broader audience!

This is 100% aligned with my mission.

The show is intended for anyone seeking more financial education and potentially getting started working towards financial independence.

There’s no better way to start THAT conversation than with a fresh beer!

For the show I’ve chosen Brewdog Punk IPA.

Two reasons:

  1. It’s a wonderful IPA
  2. like the financial advice I’d like to provide: It’s “fiercely independent, forever craft!”

During our talk we dive into how I started my journey towards financial independence more than 20 years ago and how I wanted to be a millionaire. During my journey I used the power of financial life planning to reach my goals. We also cover how jacuzzi beerstorming can improve your creativity and finances and we take a deep dive into how money is created and how YOU can make more with your bank accounts, unlocking YOUR gravity defying money bazooka!

If you have any questions regarding the covered topics, please feel free to reach out by email.

But now, open a can of hop-juice yourself and let’s proceed directly to the show, cheers!

Website: Budgets & Brews Podcast with Matt|Financial Imagineer

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How to Store Time

This is the first post of a series called “financial excursions” where we will explore how to understand the world better while learning about money and your life. In my view, “financial excursions” are the best way to teach your kids about money. This summer we took our kids for a trip to see one of the largest dams with hydroelectric plant in Switzerland.

We marveled at the large wall, enjoyed the views from its top, learned about its functions and of course I grabbed the opportunity to explain how building a dam is similar to capturing your income streams and save money and therefore time for later usage in life.

Let’s explore our discoveries together.

Lac Mauvoisin

This summer, we went to see the Mauvoisin dam. In Switzerland we are very proud to have the bulk of our electricity production generated by hydropower (59.9%), nuclear power comes in second (33.5%) and conventional thermal power plants (2.3%, non-renewable) conclude the electricity mix.

Switzerland has currently 638 hydroelectric power plants. The largest dam in Switzerland is the 285 metre-high Grande-Dixence dam (canton of Valais), the second largest is the Mauvoisin dam standing at 250 metres (820 ft) tall, it’s the eight-tallest in the world.

The impounded water behind the Mauvoisin dam forms the 5 kilometres (3 miles) long lake with a capacity of 211.5 million m3 and captures the water from an area as large as 167 square kilometres.

The impressive statistics about this dam include of course its capacity to produce energy. Water released from the Mauvoisin dam into several hydroelectric power stations lower in the valley are boosting the Swiss energy grid with 943 million KWh annually!

The dam was also chosen as perfect location of the world-record highest [successful] basketball shot. In 2016 the 28-year-old Australian Derek Herron launched a basketball from the top of the dam, where it fell 180 metres directly into a net placed on the ground below.

Water And Gravity

My last post about waterfalls covered the topic how to build an abundant waterfall of income streams where we have learned how to diversify “getting paid”.

Fact is: The average millionaire has seven flows of income!

It’s good to have the income flows, but what do you do once the “water” comes flowing your way? If you don’t do anything particular, “water” will follow gravity and disappear in the endless oceans where it originally came from again.

Looking at the wild mountain range the kids could see how the mountains are still nicely covered in snow – even in summer. From there, the sun melts the snow into water and as it comes down, energy is set free. This energy, released from water flowing downwards, has been harnessed by humans for millennia. Over two thousand years ago, people in Greece used flowing water already to turn wheels of their mills to ground wheat into flour. Today, we convert this kinetic energy into electricity.

This sounds all magnificent. However, there’s one big problem here: As the water keeps flowing, you must keep using and consuming the energy right on the spot. Hence, how about if you would like to delay consumption? How to prevent money simply from flowing through your life I asked my kids standing on that magnificent dam?

If you are planning for a year, sow rice; if you are planning for a decade, plant trees; if you are planning for a lifetime, educate people.

Chinese saying

Build Your Dam

Of course, standing on one, the kids understood quickly: The best way to stop the water from simply flowing through is to build a dam. Financially spoken, this translates to controlling your spending and taming your tendencies towards increasing your spending as you earn more:

Avoid lifestyle inflation.

Forget about keeping up with the Joneses.

Re-direct a certain amount of your nicely flowing income into a “reservoir” for your future use.

In order to save, you need to build your financial dam in life.

A container or vehicle with a huge wall that can capture your ever-flowing income streams and keep the savings “safe”.

I explained my kids how useful it will be to have all this water saved up once winter is coming. You can then simply open the valve at and get fresh energy as and when you need it.

Simplified spoken it’s the same with money:

Fill your “containers” with money now so you can tap into your savings once you need it.

We shall cover in other posts what to do with your savings as keeping it simply in “money” itself is not the best choice anymore due to inflation though.

I further explained to the kids that the people running this hydro plant can not capture all the water as otherwise it would cause a drought downstream.

The amount of water they let pass represents the “enough” in your life.

How much money is enough, so your life is worth living?

Capture as Many Income Streams as Possible

Once your dam is built, try to collect the proceeds of more income streams into your reservoir. The more sources contribute to your collection, the easier and faster it will be to fill it up eventually.

At Mauvoisin the engineers have built tunnel systems and more deviations to capture the maximum amount of water possible in the area.

At this point you may ask your kids if they feel it usually takes too long to fill up their bathtub at home.

Wouldn’t it be easier to have a warm bath at home if water comes in from more than just one tap?

The more you put in, the faster it gets full.

The more you save, the easier your goal is reached.

Explain it would be the same with money and ultimately buying your time back in life.

Maximize Your Potential

The Mauvoisin system – like others as well in Switzerland – has an extra feature that not many know of and which I truly like.

Somewhat more downstream, there are other, smaller, reservoirs again to re-capture some water. These intermediary lakes are once again reservoirs where even more electricity can be produced as water lets gravity do its job.

Financially spoken this means nothing else than:

Spend your money or time wisely.

Maximise their usage.

Having such intermediary lakes can also be viewed as “budgets”.

Let me explain:

Energy consumption is not the same throughout the day, more of it is consumed during daytime and less is being used at night. In Switzerland we also have a significant energy output from nuclear power plants. As less energy is used at night, why not re-use the anyway produced nuclear power to pump additional water from intermediary lakes back up into the main reservoir?

Why is this like a budget?

Let’s say you plan $40 monthly for a haircut. What if you cut your hair yourself? Then you’ll not be needing the $40 that you’ve prepared already and can put it back into your main reservoir. Read more here what could happen if you start doing something along this idea.

Create Power On Demand

A hydropower plant system is like a battery.

You can capture, save, and release energy with it.

Whenever you need some, you simply open the tap and produce instant energy.

In this last step, combine the lessons above and think of water in terms of money and of money in terms of time.

Time is money.

And money can become time again.

The main take-away my kids as well as you should get from this first “financial excursion” is that it’s worth your while spending/ investing some of your time NOW to create your own battery for YOUR life!

The better your system is built, the easier and more fun your life will get.

Trust this post can help you and your loved ones store some money, energy and ultimately time – the most prescious of them all – so you can live more!

If you have kids, consider taking them on this first “financial excursion”.

If you enjoyed this read please don’t forget to subscribe my blog by email, like my Facebook page or follow me on Twitter in order to not miss any future “financial excursions”!

Now, have fun doing “financial excursions” with your own kids and please share the idea with your friends and other parents!

Stay curious and have fun exploring,

Matt

How To Marshmallow Test Yourself

The “Marshmallow-Test” was first conducted back in the late 1960’s by a Stanford professor named Walter Mischel. Over the years and due to its results, it became one of the most famous studies for the subject of delayed gratification.

What is it about? It’s about measuring how young kids can use their willpower to delay their gratification and what impact this has on their potential in many areas of life.

The test was simple: A kid was brought into a room and given a plate with one marshmallow on it. Then it got asked to make a simple choice: Eat this marshmallow in front of you now, or wait 15-25 minutes in order to receive a second marshmallow on top!

Simplified: Each child was given a choice between having one marshmallow now or two marshmallows later. Most kids choose to have two marshmallows later. However, then they were left alone somewhere between 15 and 25 minutes (depending on age) with the irresistible sweet marshmallow right in front of them…

The test was then measuring the number of seconds that a child is able to wait. A few decades later, the researches went back to examine the life of those kids. They could prove the longer a kid was able to wait before devouring the marshmallow at age five was significantly predictive for a few very important life outcomes in their adulthood later on.

They found that kids who could wait [longer/ for the second marshmallow] where more likely to pass more difficult exams, had better social skills, where more confident, successful, healthy, and yes: Happy!

Of course, this test may have some limitations, however, the key essence holds true. More on those critical thoughts that challenge the test at the end of this post.

How to pass the Marshmallow Test?

First and foremost, it’s so simple: DO NOT EAT THE MARSHMALLOW!

That sounds simple but is not as easy as you think for a little kid.

The researchers highlighted two significant findings about how kids successfully passed the test:

First, not physically seeing their reward made it easier for the children to wait longer. This means, don’t look at the damn marshmallow all the time. Find a way to trick your mind into changing your thoughts.

Second, using distraction strategies also had a positive impact on how long the children managed to wait. Some of the kids started so sing songs, covered their eyes with their hands and arms, started to tip-toe on the floor, prayed to the ceiling and so forth. One little girl even tricked herself into falling asleep – a highly successful way to earn big rewards as André Kostolany confirms:

“Buy shares, take some sleeping pills and stop reading the papers. Many years later, you’ll see that you’re rich.”

André Kostolany

The key to success seems to be the ability to focus on the long-term goals despite short term attention magnets.

It’s some kind of trade-off.

Most people are programmed to chose instant gratification over all else.

If you find a way to trick yourself to “suffer” short-term you can unlock the door to the promised land of more enjoyment later:

  • If you exercise now: You will get healthier.
  • If you study hard: You can go to your dream school.
  • If you work smart: You will have a great career or even start your own business.
  • If you don’t eat out: You will save more.
  • If you don’t buy that toy now: You will invest more and become wealthy.
  • If you don’t waste your time and focus: Your dreams will become true!

While we are all different from each other. The remedy is the same.

The key is to find areas where YOU are capable to delay gratification.

Self-control is the key to success.

If you manage to resist short term temptations, you will go far!

How to Teach the Findings of the Marshmallow Test

While it’s easy to teach information and facts as above, the hard part is to teach methods that you can apply to actually improve your behavior and results.

According to Stanford psychology experts, the most important skill parents need to teach their kids for the 21st century is to “become indistractable”. This is a tough one in our modern society where the new currency on the street is “attention”. Even the more, it’s super important to take some time to learn to focus either yourself or teach your kids this skill in one way or another.

A counterintuitive way to teach focus was a study by Michael Posner and his colleagues at the University of Oregon who worked with 4-6 year old kids with the aim to teach them better focus skills using video games. In one of the exercises the kids had to use a joystick to control an umbrella above a cat with the aim to keep the cat dry as it runs around. Kids could manage to stay focused and kept the cat dry. Such sessions led to substantial increases of skillset in kids, including a higher nonverbal IQ level.

Another way is teaching through stories.

Sesame Street for instance has created situations in which Cookie Monster must learn to control himself. Instead of gobbling up his cookies right away – like eating the first marshmallow right away – he’s got to behave and wait. His goal was to join the “cookie connoisseur gourmet club” and – yes- for that one you got to be able to wait for your cookies. In the episode, Cookie Monster learned strategies such as “framing” where he’d pretend the marshmallows are just a picture – and because if it’s just a picture, you can’t eat it. Cookie Monster also had the idea of tricking himself into believing that the cookies are smelly fish, then he will not want them at all.

The key concept for yourself as well as for kids is to get exposed to strategies that showcase what self-control is, while having fun. The best strategies are including both: A great teachable and the self-motivation within. Kids – and adults – must want to change themselves.

Ultimately such exercises will help build character, grit, persistence, tolerance of frustration (!), gratitude, optimism, excitement and how to build energy going into a new project.

Even more important than simply teaching something to your kids is once again: You got to model it. If you promise something, you got to keep your promise. It will get tough to expect your kids to delay gratification if you are breaking your own promises to them.

Finally: Kids must understand that their behavior has consequences.

If they behave in constructive and creative ways, the consequences are good. If they behave in negative ways, the consequences are “less good”. As a parent, it’s your job to create that environment to let them become aware there’s a relationship between what they’re doing and what happens to them in the end. This way, they can internalize those lessons and have a better chance to later live the life of their dreams.

Here another post I’ve written about how to teach kids towards becoming truly (financially) independent.

How to Marshmallow Test Yourself?

As mentioned above, there are many ways to delay gratification. The essence is not to delay everything 25 years out and have absolutely zero enjoyment right now.

That’s no way to live!

However, there are many small things that you can do, to marshmallow test yourself right now, here are the five most important ones in my personal view:

1] You saw something that you’d like to buy:

Try to not look at it, hide it, wait – hold on for a few days and let your emotions cool down.

In more than 80% of cases you may as well forget about it again. If not, maybe yes, buy it.

  • remove temptation, install “spending speedbumps”

2] You check your account and see your stocks are up or down a lot – you’d like to take action:

Take some time to think again why you bought these holdings in the first place? Try to think if any of your long-term assumptions has dramatically changed? Are your emotions rather than your rational mind guiding you? Control your emotions and check the fear and greed index. Maybe sleep over it. Most often your conclusion will be unchanged from before. If not, maybe take action!

  • learn how to manage emotions and stress, align your short-term actions with your long-term goals

3] It’s late at night, you’d like to Netflix and chill – but you also have that great idea right now…

Don’t stress it too much, but do this: Take 5 minutes first, sit down, bring your idea to paper. Once you write it out, you can tell if you’d rather like to work on your idea now or still watch Netflix. Maybe you’re super tired and rather go to sleep than watch TV so you can work on your idea early in the morning?

  • prioritize your time, be intentional, beware of time bandits

4] It’s the last Friday of the month and you’ve just received your monthly salary.

It’s wonderful to see your cash account nicely filled. The weekend is coming. You’d like to go out for dinner, get a haircut, buy some new clothes and splurge a little, maybe stack-up on some exclusive artisan bread for Sunday brunch – after all: You’ve earned it! Right?

How about marshmallow testing yourself first? How? Yes, you’ve earned it: Pay yourself first! Automate a monthly deduction from your salary account to your savings and investing account. Invest into your system of abundant income streams before you spend. Then go have fun!

  • set goals, measure your progress, pay yourself first, automate where needed and control your urges

5] Last but not least, we are all human and yes, you are going to fail. It’s natural.

However, beating yourself up and being harsh to yourself doesn’t help. It’s wasted energy. Eighty percent of achieving your goal is based on your attitude. Attitude defines altitude. If you’re planning to work on ambitious goals, you’ll need time to build sufficient self-control, discipline and focus.

  • learn to forgive yourself and move on – learn from mistakes, stay passionate

“Success consists of going from failure to failure without loss of enthusiasm.”

Winston Churchill

Some people have valid reservations why the marshmallow test turned out as it did. As promised at the beginning of this post, here the disclaimer: It was argued kids of successful parents are usually doing better at the marshmallow test not because they control their willpower better, but rather because those kids were around “trustworthy adults”. Thus, the kids trusted that the second marshmallow would be there in the future.

Nevertheless, I strongly believe that mastering self-control and working on long-term goals with persistence, grit and endurance is more rewarding than not. My dad had me marshmallow tested as well during my own childhood. It’s something you can learn and pass on to the next generation.

A Finish proverb goes like this:

“Life is uncertain, eat your dessert first!”

However, the average human lifespan has increased steadily. We have now more “future” than ever before to spare. Therefore, despite life’s uncertainties, try to focus on your future enjoyment and picture your imagineered life – then you can stand this experiment, this method, better.

Do sustainably, in a fun way please.

Eat more marshmallows!

Tomorrow – not today!

Train yourself!

Make it fun.

Matt

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Fear And Greed

Are you frightened when markets go crazy once again? Afraid of not making the rationally and scientifically proven right choices about investments and life? Suffering from keeping-up with the Joneses and chronic herding-fatigue?

Then you are more than ready to dive deeper into this post where we take apart the two most powerful human emotions that make our world go round:

Fear and Greed.

These emotions have the strongest impact on human behavior individually as well as on a collective level.

They impact your life and [financial] markets in a powerful way.

Read on if you like to understand and manage fear and greed to build a better, happier, and wealthier life.

Step 1: Understand what drives behavior

All free markets are driven by supply and demand. Hence, all transactions need at least three things:

A buyer, a seller and last: The first two need to agree on a price!

Imagine an increasing number of people chasing the same limited assets or resources. The more people like to buy and the less want to sell – the higher the price will climb for supply and demand to meet.

Usually if prices do climb higher, it attracts “more eyeballs” in society and even more people join the party. That’s how greed works and this is what makes financial bubbles grow.

On the other side, think of fear as when suddenly nobody wants to buy anymore but an increasing amount of people is eager to sell.

The price will drop until someone is eager to buy again. Price level will be defined by where sellers and buyers agree to transact.

Markets reflect nothing else than the aggregated sum of individual behaviors.

And yes: It does get messy!

Step 2: Understand how markets work

In most fearful markets, people irrationally sell stock while in greedy markets people are looking to buy.

The wise ones may try to go against the heard and do the opposite, and as the saying goes, “buy low and sell high.” not otherwise.

My father has a great saying:

Some people are wise.

Some are… otherwise.

My dad

Before we draw to conclusions about how to make understanding fear and greed work for you, let’s go get a deeper understanding of them.

What is Fear

Fear is a deeply intriguing component of life.

In our culture, people believe failure is what to be most afraid about. Let me say, they got it all wrong. It’s the fear itself that is the most detrimental to success no matter what you’d like to achieve in your life.

Fear…

It helped us with surviving.

Protected us from sabre tooth tigers.

But it holds us back.

It creates comfort zones.

It keeps us from pushing onwards.

However, in our modern society, fear is mostly the source of all that is wrong in the world:

Fear of failure: “I’m not good enough!”

Fear of embarrassment: “No one will care!”

Fear of starting: “What if I fail?”

Any of these sounding familiar?

Fear is the most sinister made up thing of all time and the guaranteed fastest way to live below your meaning and potential.

Action is the savior of dreams.

When was the last time you did something about it?

Use fear as a tool for growth and challenge yourself.

Learning how to push through fearful moments is most beneficial and shaping your character.

Afraid to try or go “do”?

Face your fears!

Ask yourself: What’s the worst thing that could happen?

You either win or you learn!

Keep learning until you win.

Find a way to the other side of fear because that’s where dreams become reality.

The other side of fear is where your world starts to change, if you just allow it to.

Fear can be so valuable, but at the same time so debilitating. It’s up to you to decide whether to use fear as a tool for growth or as a reason to settle in life. Whether we bravely overcome obstacles or hide away scared is up to you!

Fear can be the biggest killer of dreams.

The sole difference is the decision of either overcoming fear and grow – or to allow fear to limit the life you dream of!

Instead of having fear killing your dreams, kill your fears!

Most of the good things in life are on the other side of fear indeed.

If you’re happy to sit at your desk and not take any risk, you’ll be sitting at your desk for the next 20 years.     

David Rubenstein

Step 3: Kill your fears!

No fear!

What is Greed

Greed is a mostly uncontrolled longing to increase the acquisition or use: of material gain (food, money, land, any possessions) or social value (status, or power). During human history, greed has been identified as “undesirable” because it creates behavioral conflicts between personal and social goals.

Greed is a powerful thing.

In my view, it comes right after fear.

In terms of motivational power, it captures the essence of the evolutionary spirit. Greed can show itself in different forms. It was and still is the driving force pushing mankind forwards and upwards – through history.

That’s why in the 1987 movie “Wall Street”, Michael Douglas as Gordon Gekko preached his words: “Greed, for lack of a better word, is good.”

The problem: Greed comes with downsides. Every once in a while, greed causes asset bubbles where greedy investors keep buying and ignore all the flashing blinking warning signs of impending potential for a collapse.

The 2008 crisis was mainly caused by “sophisticated derivatives” constructs where the end product got abstracted by two to three dimensions from the underlying business case and due to broad diversification and lower transparence everything was made to look just fine.

Don’t get me wrong, being ambitious is good. Wanting to get somewhere in life is great. Wanting to learn, achieve or grow is nothing but natural. As a trained economist myself I studied how a healthy form of greed is behind microeconomic decision finding.

If free market forces are left to themselves [meaning no government interference], the “good qualities of greed” appear. Goods and services will be exchanged at the most optimal allocation for all parties involved. The equilibrium point has its corresponding equilibrium quantity and an equilibrium price which leads to the most efficient allocation of scarce resources.

Would Wall Street, the economy or our capitalistic system function without greed? I don’t think so. Economic activity depend on the profit motive. Greed as such has never been left completely on its own on a macro level. Governments across the globe kept influencing markets. However, on a personal level we know what greed can do.

For a single human being the big problem is always the question: How much is enough?

Greed is a good motivator to chase ambitious goals, but the trap is often such that goals are getting adjusted higher and higher. Too much is never enough anymore. People tend to lose control over themselves. Greed often takes over when it comes to money and power.

Step 4: Learn to control your greed.

Overconfidence, lifestyle inflation, taking too many risks and trying to play bigger and bigger will often cost a lot. It can cost love, friendships, trust, or simply some money.

Beware: Greed is frequently used to sell stuff. If it’s not for fear, marketing often appeals directly to [your] greed. People will listen and buy.

How to conquer greed?

The Stoic mindset is the antidote.

Control your greed!

Know what you have.

Appreciate it.

Avoid lifestyle inflation, don’t let hunger for increased pointless over-consumption run your mind. Forget keeping up with the Joneses. Avoid herd mentality.

That’s where it gets problematic.

Lead your life and remember: True leaders remain committed to what really matters!

You are the leader of your life.

You run your mind.

Shitting Your Pants in Real Time

In this third part of this post, we will combine the concepts of fear and greed.

The initial motivation for (or purpose of) fear and greed and actions associated with it are  the promotion of personal or family survival and safeguarding future opportunities. In our modern world, controlling fear and greed are still important as ever:

The hardest thing an investor ever must learn is to manage his emotions.

Fear, greed, overconfidence, impatience, desperation, panic… I’m certain if you read financial news every once in a while, you may have come across these concepts.

The key here is to avoid the mistake of letting fear OR greed paralyze and impact your investment decisions.

Watching CNBC on a perpetual loop will not make you a better investor. Following such news will simply give you either mental breakdowns or orgasms – depending on the “mood of the day”. Like a drug addict you’ll constantly be like “pheeewwww”, “oh gosh”, “aaah”, “yesss” or “noooo” and keep watching the garbage broadcast: Triggering you to take action when everyone else does!

You’d be shitting your pants in real time or suffer from orgasm exhaustion sooner or later.

You’d be riding the waves of fear and greed.

The wrong way.

Without control.

Yes, if you invest in stocks you will be exposed to volatility. Sometimes this volatility can become nerve wrecking. Once markets go deeply into the red, you will face the situation where you’d love to throw the towel and sell everything. On the other side when certain stocks grow through the roof up into the sky your greed will trigger the so called “fear of missing out” and you’ll join the ride at a rather stupid moment.

“Be fearful when others are greedy and greedy when others are fearful.”

Warren Buffett

Now you’ll say: Okay, I get it Matt. Don’t do what the others are doing. But hey, how would you suggest dealing with stock market fluctuation then?

First, understand that volatility is part of the game. You and me, we can’t control it. Stocks will fluctuate today, tomorrow, next week. It doesn’t matter if you look – or not. Neither does it matter if you like it or not.

Sometimes people claim they prefer real-estate investing over stocks because of lower volatility. I’m also a great fan of real-estate investing by the way. But now, imagine you’d have a crazy neighbor. Imagine this neighbor would scream the actual real-time price of your home over the fence. Every. Fucking. Minute.

How would you feel about that?

I’d say you’ll probably get yourself earplugs.

You don’t check the real time value of your home.

So why would you do it with stocks then?

Ignore the Noise, off the media.

No worries, with time you will grow into this!

Step 5: If you can’t control it. Learn not to let it control you!

The stock market is a device to transfer money from the impatient to the patient.”

Warren Buffett

If you’re a well-diversified long-term investor, the only media I’d allow you to watch on a “red day” on Wall Street is this one here:

A Guided Meditation for When the Stock Market Is Dropping

By JL Collins

The Fear and Greed Index

In the last part of this post, we learn how understanding fear and greed can be useful whilst navigating the seven capitalistic seas.

Many traders use technical, fundamental, or other quantitative analysis. However, market swings are largely driven by human emotions. Hence, the sentimental one analysis is often overlooked.

The “Fear and Greed Index” can help you read the market sentiment. Please beware, you can never base your trading decisions just on this indicator alone. It should be used as a supplement to complement your initial strategy.

Understanding this indicator is relatively simple:

  • extreme fear indicates possible buying opportunities
  • extreme greed indicates a market correction could be expected

The key to making money in stocks is not to get scared out of them.

Peter Lynch

One simple way to apply this would be to rebalance your asset allocation based on certain readings of the index. If the index shows fear, you could reduce your bond or precious metal allocation and increase equity allocation. Or vice versa if the index shows greed.

This is the simple and easier way to make use of it.

Disclaimer: Beware – this is not direct investment advice but rather an introduction of concepts to help you expand your financial literacy. Execute and trade at own risk.

Having been a Wealth Manager and helping sophisticated investors with their money for most of my professional life, let me introduce to some more options here.

Greed Stage:

If markets are high and the Fear & Greed index is above 80 points, a correction of roughly 8% can be expected (data since 2011 till 2020). A high index reading usually also indicates low volatility and a good chance to reduce holdings.

Actions to consider:

  1. Sell covered call options on your holdings/ the index
  2. Use proceeds of 1. to buy put options on the same holdings to install a hedge

In short: Reduce exposure and hedge potential downsides.

Fear Stage:

If markets are fearful, volatility is generally high, and stocks are relatively cheaper. One thing is rather for sure, markets will not remain in fearful territory for very extended periods of time.

Actions to consider:

  1. Buy an inverse VIX ETN such as the SVXY – let go again once situation normalized
  2. If you plan to increase your equity allocation: Sell puts on your desired additions at desired strike price levels, collect premium and wait.

In short: Sell fear, sell volatility, potentially increase exposure.

If you’re as passionate about investing like me, learn to listen to the heartbeat of the market. Add the VIX and Fear and Greed index to your watch-list!

Step 6: Learn to listen to the heartbeat of the market.

Beware, the Fear & Greed Index is not an official index or tool, it’s a construct by CNN. Understand how it’s calculated and take note that CNN may change the way it’s calculated going forward without notification.

The wealthy know the short-term stock market is driven by emotions such as fear and greed.

The average think it’s solely driven by logic and strategy.

They fear when they should be buying.

… hope when they should be cautious

… get greedy when they should be selling

The wealthy have a powerful advantage over the average though:

They have maneuvered themselves in a position where they can allow themselves to take risks.

If your capability to take risks is not there yet, work on it!

Taking calculated risks and expanding your capacity to take on more risks, to build your assets and cash-flows is one of the best kept “millionaire’s secrets” there is!

Step 7: Put yourself in a position where you can allow yourself take risks.

Financial independence allows people to take more small, calculated risks – over and over again.

But remember: Pigs get slaughtered.

“Bulls make money, bears make money, pigs get slaughtered”

old Wall Street saying that warns investors against excessive greed

The more risks you can take, the less you will shit your pants the going gets tough and the more exposed to the upside you will be when the tide will turn once again!

Happy conquering your fears!

Matt

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Financial Imagineer’s Merry Giftmas List

It’s this time of the year once again, all corporates are out to get some of your hard-earned money and you’re eager to provide for a nice Christmas experience for your loved ones. While it’s beginning to cost a lot like Christmas, why not invest into gifting the key to more freedom, happiness and financial health to your loved ones?

Gift something empowering such as the building blocks of financial literacy. Inspire and provide your kids with the tools and power so they might ultimately be in a position to create the best versions of themselves in the future.

Financial Intelligence is knowing that if you spend your life energy on stuff that brings only passing fulfillment and doesn’t support your values, you end up with less life.


This is the Financial Imagineers Giftmas List, version 2.0 – a Christmas Gift list with ideas for FI people, family and friends! Have fun exploring.

The “joyless career man”? Going for meetings, doing spreadsheets and building wealth for someone else?
The new and only “soul-crushing meeting” game!
The latest NES game “Wall $treet Kid”!!!
Buy more crap this year?

Just kidding, the good stuff is further below!

Please read on:

What Extraordinary People Know: How to Cut the Busy B.S. and Live Your Kick-Ass Life (Ignite Reads) by Anthony Moore

How to be a hero of your own life? What’s the secret to “extraordinary?”

Being stuck in mediocrity sucks. It’s easy to identify the symptoms of this disease in your life: are you chronically bored? Do you wake up knowing today is going to suck? Are you constantly fighting off feelings of emptiness, exhaustion, and knowing you’re wasting your life?

Well, eff that! Every moment of every day, you can choose to be extraordinary. You can choose to become someone you’re incredibly proud to be, who accomplishes amazing goals and achieves greatness. “What Extraordinary People Know” guides you through how to be free of the mediocrity trap: starting with the inspiration, tools, and kick in the ass you need to get your life going in high gear-from behavioral change and personal growth expert Anthony Moore. As someone who took his own life from ordinary to extraordinary, Moore has created a three-step path to breaking free of Mediocrity and becoming the hero of your own life.

Are you ready to win? Click below if yes:

Laughing at Wall Street by Chris Camillo

Chris Camillo is not a stockbroker, financial analyst, or hedge fund manager. And yet in early 2007, in the midst of the worst financial crisis since the Great Depression, he invested $20,000 in the stock market, and grew it to just over $2 million in only three years.

How did he do it? By observing the world around him.

Along with his own keen observations, Chris leverages family, friends, coworkers, and online networks like Facebook and LinkedIn to create what he calls “trend-spotting networks.” These networks – and not the bigwigs of Wall Street – help Chris identify market trends that lead to winning investments. You have a powerful network, too, as well as an innate advantage over those on Wall Street – you just don’t know it yet.

In this entertaining, story-driven, and jargon-free book, Chris proves that you don’t need large sums of money, fancy market data, or endless hours to achieve extraordinary wealth. He shows how the average consumer with zero financial education can outsmart Wall Street’s brightest by learning to identify game-changing information hidden in everyday life while watching TV, reading tabloids, working at the office, shopping at the mall, eating out at restaurants, or driving the carpool to soccer practice. You just need to pay attention to the interests and trends in your own life. It doesn’t matter whether you have $100 or $100,000 to invest – you can become a successful investor and create a secure future for you and your family.

Chris Camillo’s inspirational approach to creating wealth shows that you know more than the suits on Wall Street ―and that knowledge can make you millions.

This is not your standard investment book and it will not cover what most other books do, and that’s exactly why I love it. It’s refreshingly different and a good read for people who have read the common investment books already.

Gift a refreshing approach to finding the right investment ideas!

If you like the content of this book, you’ll love the Youtube Channel “Dumb Money” by Chris and his friends.

I Teach You to Be Rich by Ramit Sethi

Personal finance expert Ramit Sethi has been called a “wealth wizard” by Forbes and the “new guru on the block” by Fortune. Now he’s updated and expanded his modern money classic for a new age, delivering a simple, powerful, no-BS 6-week program that just works.

The book will start with ideas and ways about how to crush your debt and student loans, continue to teach how to set up above average high yield accounts and then slowly goes into how to automate your finances to gear your for success.

Opposing the many frugalists and people suggesting to cut down on your wants, Ramit is more a supporter of earning more in order live a richer life. Instead of the usual cut your daily latte or skip on avocado toast, he’ll teach you how to make your money reach further.

In the later part of the book he’ll explore how to set a dead simple investment strategy that is buit to last, how to handle big ticket purchases such as a car or a house, covering a wedding or having children – stress free.

Meeting Ramit during Fincon 2019 in Washington D.C.

Also, since this is the 10th year anniversary edition, it features over 80 new pages including new tools, new insights on money and psychology and some amazing stories of how previous readers used the book to create their richer lives.

Live rich!

The Sassy Investor – Investment Workbook by Michelle Hung

Michelle Hung is the founder of The Sassy Investor. An advocate for financial literacy, she is on a mission to spread the word on the importance of financial independence and how to achieve it.

A beginner’s guide to step-by-step investing for all the sassy females who’ve ever wanted to take control of their finances! From penny-pinchers to free-(spirited!) spenders, this fun and engaging activity workbook allows women from all educational backgrounds to learn more about money and how to build a secure financial future.

Too often, women rely on others to manage their finances. Whether it is their spouse or financial advisors, many find themselves in a complacent spot with their money. Worse, when money is sitting on the sidelines not earning anything, women are short-changing themselves on the potential to earn thousands over a lifetime.

From education to execution, this colourful activity workbook takes women of all ages and life stages through the necessary steps to financial literacy and independence. It is meant to put the power back in the hands of all hardworking women, inspiring all to take a more active role in managing and saving their money.

Gain confidence through education. Investing does not have to be intimidating.

Stock Market Pie… Grandma Helps Emily Make A Million by J.M. Seymour

Stock Market Pie: Grandma Helps Emily Make A Million is a great starter book for anyone interested in learning basic saving and investment concepts.

The story line features young Emily who receives a gift of stock from her grandmother. Emily learns to appreciate the value of the gift as she discusses saving and investing with her grandmother while they two make pies.

Emily develops a clever pie-making metaphor to illustrate investment concepts.

Stock Market Pie features detailed informational sidebars and glossary, making it a great reference book. This well-researched and colorfully illustrated book is a great learning tool for anyone interested in getting a “piece of the stock market pie.”

Entrepreneur Extraordinaire Grandpa Helps Emily Build a Business by J.M. Seymour

Entrepreneur Extraordinaire begins with Emily being disappointed when her favorite cookies were sold out…again.

When Emily shows an entrepreneurial spark, Grandpa enters the picture to help turn her idea and energy into a cookie business. Entrepreneur Extraordinaire is an entertaining story packed with tasty morsels to bring out the entrepreneur in everyone.

This book explains the entrepreneurial thought process behind a business venture. It s a great resource for any budding entrepreneur. Ample sidebar explanations, detailed appendix and glossary make it a must-have reference book.

This is a book tailored to young readers that describes opportunities in entrepreneurship in a fun, thorough and understandable way. Parents and kids alike will enjoy learning how to identify their entrepreneurial skills and utilize them to get busy about creating their own paychecks!

Winning at Money T-Shirt

Are you ready to win at money?

Here also a version for women.

Hereby I wish you a stress-free gift shopping experience and hope this list may have given you some new ideas about what to gift your loved ones.

Two years ago I made a similar post here.

Have a wonderful Christmas!

Matt

Disclaimer: Please be made aware that the product links used above are affiliate links for which Financial Imagineer will receive a compensation.