The Name is Tharp, Van Tharp

Some useful stuff out of "Safe Strategies for Financial Freedom" (with D.R. Barton and Steve Sjuggerud)

Six Paradigm shifts :

1. Start thinking in terms of your financial freedom number rather than how much you are worth. Know your number and think about how to reduce it.
2. Taxes are a major part of your financial freedom number and it is legal to work within the system to reduce your taxes. Just shifting from earned income to passive income could reduce your FFN by 10% or more. But, if you choose entities that allow you to deduct your expenses before you are taxed, you can probably reduce that number by as much as 30%. Takes work and careful planning
3. Ensure your accountant works for you - change accountants as necessary. Tell them what you want to do and to find a way.
4. Financial freedom can be obtained within months by reducing expenses, redeploying assets and using other peoples' money on good ideas. All you have to do is change your thinking. Ask : "How can I reduce my number to zero within a year?" If you think that way instead of thinking, "This will take years," then you will come up with ways (echoes of Kiyosaki :)
5. People who don't work for money tend to think in terms of systems to make them money. A system is something that someone of average intel can do easily. For example, a fast food chain has many systems working within each franchise - working with customers, cleanup, food prep, etc. Biz owners typically think in terms of systems to improve the efficiency and profitability of their biz. The average person doesn't think in terms of systems. They ask, "what should I do now?" or "what should I buy?" They should ask : "How can I develop a system that will reduce risk and make me money?"
6. For things to change, you must change first. This is a revolutionary idea for most people. The assumption behind it is very simple - you produce the results that you get. (You reap what you sow). If you're not getting what you want, you must look to yourself for the reason. What can you do differently? What could be blocking your success?

Three things affecting stock returns :

1. Valuation of the market (is it too expensive? PE ratio - expensive - avg PE over last 75 years. > 17 => expensive - till 1992. )
2. Interest rate climate (the Feds in the way? If borrowing is cheap, stocks tend to rise. Six month period following hike in Fed funds rate. They're out of the way six months after, or if they've cut rates before six month period has ended.)
3. Price of the market (Is market above its 45 week moving average?)

Green? Yellow? (hold) Red? (sell)

Inflation? Gold, collectibles, real estate.

Deflation? Cash, foreign currencies, foreign bonds.

Red --> Yellow : If stocks still expensive, then a bear market rally - so think about selling selectively. 

Purchase "efficient stocks" - ones that go up smoothly with low volatility - think Visa :) AIQ stock screener. Buy undervalued. They are only available during bear markets. PE 6-8. NCAV - Net Current Asset Value. Introduced by Benjamin Grossbaum (Graham). Safe if selling for 2/3 of Graham's number. 

If S&P 500 is down for more than five weeks, consider a bear market shorting fund such as Rydex Inverse NASDAQ.

Real Estate : Buy and H, Cash flow - they're not the same :)

Use a trailing stop always! Lock in profits. Evaluate cash-flow yearly. 

Keys to Investment Success

1. Protect your equity - understand nature of risk. Have a reliable exit strategy. Always have a stop-loss - worst case exit point. First look at risk, then potential reward and know the tradeoff. Defense wins in the long run.
2. Cut your losses short. Don't hope. It's like gardening - you have to weed!
3. Grow big winners. Buy a strong mutual fund and hold till there's a stronger fund. Buy an efficient stock and don't sell till a 25% trailing stop is hit. 
4. Understand relation between risk and reward - expectancy. 
5. Understand how investment frequency affects you. How many times a year can you use this strategy? Real-estate is usually very low frequency. Higher frequency strategies could come with higher transaction costs - may not be true in the RobinHood era.
6. Make sure a position is moving in your favor before you enter it. 
7. Position sizing strategy - match to your objectives. Aka asset allocation. Don't risk more than 1% per position. If market is in green light mode, then scale into a position that is ahead.