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Introduction: The Art of Stock lnvesting
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For years, investors have tried to slog through how-to books about investing and trading, hoping to glean some wisdom that can make them wealthy. For years, writers have churned out these investment texts with an eye toward either dry, academic theory or lightweight analysis that would not hold up under even the mildest professional scrutiny. There's nothing in between, nothing to satisfy your craving for making large amounts of money through common sense and a modest investment of time, homework, and inclination.

A total stock market junkie, I have either been bored to tears by these tomes or recognized that they are the works of charlatans who couldn't make you a dime. Most investing books, like most of the mutual fund managers out there, would probably do worse for you in the stock market than if you just picked a portfolio of the Standard & Poor's benchmark 500 stocks. The books are bought because they are easy to read, easy to practice how-to volumes written by individuals who tend never to have managed money or to have made big money personally in the stock market. How many of these writers started with nothing and made boatloads simply by buying the right stocks and selling or avoiding the wrong ones? Their texts are formulaic and arcane or simplistic and overpromising. The authors don't have the benefit of a lifetime's worth of stock picking. They don't teach you what can go wrong as well as right.

Those books are not this book. This book understands not just the nuts and bolts of investing, but the psychology and humanity of investing. This book is the distillation of everything I have learned, every important rule, every smart move, every edge I have ever been able to garner to make huge amounts of money in the market. In this book I tell you everything that made me rich and everything that could have made me poor. In this book I give you the secrets of how great wealth stays wealthy, secrets I have been taught by thirty-eight of the wealthiest families in the world—the families for whom I managed money for twenty years. I made hundreds of millions of dollars for myself and my investors. I love the process of making money. I love talking about it, writing about it, and most of all, doing it. I know losing and winning; in my best year I lost $300 million, but in that same year, I made $450 million, netting $150 million for the good guys.

In many ways, though, I don't think of this book as a financial book or as a how-to-invest book or a how-to-trade book. As a nationally syndicated talk show host and the creator of a company, Thestreet .corn, where I have interacted with literally hundreds of thousands of investors, I know what you do wrong more than you do right. I know your financial weaknesses better than anyone managing money today, maybe better than anyone on Earth, including yourself. I know what you can't figure out. I know what causes you to lose money and what causes you to sell low and buy high. Most important, I know why you stray, why you can't consistently make money, and why you might consistently lose money by buying stocks. I know what will get you on course for a lifetime's worth of successful investing, not just a quick gain to your wallet. I know this because I hear every day from dozens of grateful investors in phone calls to my show or in e-mails to TheStreet.com who tell me that I have changed their lives, made them money in the market for the first time, and kept them from losing money that they would have certainly given back without my instruction. I coach them every day, and what I coach them from is my own internal playbook, developed over twenty-five years of making great returns in good and bad markets, a playbook that, until now, was only in my head. Now it is in your hands.

In that sense, I think of this book more like a financial diet-for-life book, not a money book. Heck, I've written the first diet book of investing! I have pioneered ways to make the game of investing come alive so that you are interested enough, and stay interested enough, to last on my regimen to riches. I have spent a lifetime trying to explain the process of investing in English, using analogies to sports, to movies, to battles, to anything I can find that makes the stock market more simple and clear for you. I can't have you get frustrated or fed up or scared of your own money. Then you'll just run off to someone who doesn't care as much about your money as you do and wants to make money from you, not for you. I want you in charge of your finances, I want you to be your own guru, and I want you to like the process enough to take control, even if that means injecting some fun and speculation into the process to keep you in the game.

Most financial books are so arid and ascetic, and so unaware of your weaknesses, that they have no more value to you than if I blithely said, "Eat right and get plenty of exercise.'' That's just poppycock. That doesn't grab you. That's not going to make you thin; that kind of fi­nancial advice isn't going to make you wealthy. That's just going to make you lose interest and give up or surrender your hard-earned as­sets to someone who can use you for commission or high-fee fodder. You'll capitulate during the bear phases, you'll sell at the bottom, first chance you get. You will be defeated by every decline in the market, and there will be tons of them. You will be like so many broken investors of the 2000-2003 bear market, shunning IRAs, avoiding their 401 (k)s, or not taking advantage of any of the myriad opportunities even the worst markets offer. I know I can coach you through the hard parts and help you navigate them successfully. I can help you complete the big-money voyage.

I know you. I know you want to speculate. I know you want to make some outsized gains. I know you will ride your losses if you aren't careful, and I know you will succumb to the junk food of finance, penny stocks and the like, if you are left to your own devices. That's why, in my regimen, I build in speculation, similar to the way that good-tasting beef is built into the Atkins diet. I insist that you do some speculation as part of your investing menu. I insist that a portion of your assets be devoted to pure speculation. That way you can be truly diversified, own some solid blue chips, some good dividend yielders from many groups and yet still have that lottery ticket that can't hurt you and can make you rich in a quick stroke. I recognize that the true balance, the true diversification, includes owning some riskier assets that could just pan out huge.

Remember, the biggest return generators of our life, the Home Depots, the Best Buys, the Comcasts, were incredibly risky, if not considered outright dangerous, just when you had to buy them aggressively. These were the stocks that turned thousands into millions but would have been avoided by conventional investors because they were too dicey. Other times, particularly after brutal sell-offs or when you have proprietary hunches you know you have to act on, call options— again something considered too risky by conventional wisdom— might be the most prudent and conservative strategy, particularly for the younger of you just starting out investing, but even for older folks who intend on working for a living for many years and have that pay­check to fall back on. I know for some this is heresy, I know there are well-respected pundits who will shudder at someone not taking the party line, someone not trashing speculation and all it stands for. But those pundits aren't living in the real world. In fact, they exist only on the sidelines, as critics who know little of the true investing process or hate speculation so much they would spurn 100 points of gain if it meant owning something that might not exist ten years from now, even if the prospects short-term for the stock, if not the company, are simply too bright to ignore. For them, I say feel free to criticize my views, but don't deny that sometimes the easiest money is made in the dumbest if not the most speculative of wagers.

Just as important, I show you what not to buy, what can ruin your portfolio, what kind of stocks are in what I call "The Danger Zone," guaranteed to wreck whatever profits your other stocks might create for you. I teach you tricks that the other books don't know to keep those winners on and the losers off.

Throughout this book, I tell you things your brokers don't want you to know and your financial advisers are praying you never find out about how Wall Street really works. I expose concerns and flaws that your mutual funds keep you in the dark about, lest you wise up to their underperforming ways. I tell you what you need to know to be confident and in control of your most important asset, your money. And I do it gleefully, and with passion, because I have made Wall Street work for me, not against me, all my life. I can be your coach and your captain, rewing you up and ensuring we go the distance together to riches.

This book approaches the process of investing the way a successful diet book approaches the process of losing weight. I know that to keep you on a diet that can make you big money over time I have to keep you interested, keep you captivated. I need you to stay on it in order to stay in the game, the equity game. I need you to like the equity (stock) regimen. Why equities? Because every academic study shows that in any twenty-year period in history, no asset—not gold, not real estate, not bonds, not cash—outperforms high-quality equities that can pay good dividends. In fact, holding stocks that pay good dividends over time will allow you to make more money from the dividend accumulation than you can ever hope to make in bonds, the chief investment alternative to stocks, even when the dividend seems much smaller now than the coupon (interest) of the current crop of fixed-income alternatives. Of course, the problem with that simple statement is that most people buy low-quality equities that will never pay good dividends or they hold on to high-quality dividend payers that become low-quality disasters without dividends. That's the bad fat in the financial diet and I can excise it for you before it gets into your veins. That's what happened to so many of you in the stock bubble that was pricked in 2000; that's why many of you have given up or are willing to invest in mutual funds that charge high fees for subpar service and performance. I know that if I can keep you in the good stocks, you will benefit from the unassailable logic of owning outperforming assets without the high commissions and loads that the traditional broker and mutual funds ply.

I also recognize, and will get you to recognize, that you can change course, that you can sell when the stocks you thought might get you there fail to generate that success. Sure you might pick Yahoo! in its infancy, or eBay, but in doing that you might also buy a CMGI or a Webvan, to name a walking zombie and a deceased piece of business. But nowhere in the canons of investing does it say you have to hold the bad ones once they start turning sour. I will show you the warning signs to sell the bad ones in a "field bet" where you pick out an emerging technology or an emerging group and ride out the winners by financing them with what remains of the losers.

Many of you know instinctively that you don't need expensive helpers, either brokers or mutual funds, right now and you will have the courage to jettison them by the time you are finished reading. I can't tell you how many times each day I speak to people with great common sense, on Jim Cramer's RealMoney, my national radio show, who want to do things right themselves and are talked out of reasonable courses of action by highly paid professionals. I can be your second opinion that gives you the confidence to make better decisions on your own.

But if after you read this book you still need financial advisers because of constraints of time and temperament, I will give you the tools you need to be sure they will obey your wishes and not abuse you as they might others who are less informed of the real ways of Wall Street.

This book works this way: If I can make you money legally, using speculation, who the heck cares if we do it with nonacademic meth­ods, because making as much money as possible in a short period of time is the goal. And I promise I can get you to hold on to those gains once you have them. You should no more care that it is done specula- tively than you should care that your diet works with the unorthodox inclusion of beef and cheese. You should also not care if some of the stocks you buy are not meant for the long term but are there simply to capture the current fancy, the fad of the moment. Again, because I encourage selling, this method is not only not reckless, but also prudent even while it allows you to capture outsized gains.

Just because my book makes the process of making money compelling, even enjoyable, doesn't mean that it's simple and can be done by everyone. I can get you started but my methods take some time and some effort and, most important, some discipline. You will be rewarded if you follow them, perhaps with riches beyond what you dreamed of, but not if you don't do the homework, not if you don't pay attention, and not if you break any of the rules that must be followed—and there are many of them. Homework—boring, basic homework—breeds the conviction that sometimes you need to buy more, to double down instead of cutting and running. It has to be done as a prerequisite to any purchase. That's right: In here there are no five easy steps to follow, no quick and dirty foolproof methods, no painless paths to financial independence. There's a complicated and rigorous diet that must be followed if you are going to become rich and stay rich through stocks.

Don't panic, though, at the notion of hard work to augment your capital. Nothing in this book is intellectually above the ken of my thirteen-year-old, and none of the processes of elimination and stock picking require more than the simple arithmetic precepts that no longer stump my ten-year-old. Some percentages, some division, some multiplication, that's as tough as it gets. I know how to teach and coach the financial diet. I know what it takes to keep you on it. I give you all of the safe stuff that you have to have to keep yourself trim and wealthy, but I also give you the secrets, the stuff that I have learned that I believe will make you incredibly wealthy if you simply stay on the plan. I know it can work because I did it.

Lately, no doubt because of the devastating bear market that ended in 2003, the fashion among financial writers and television journalists is to say the investment process is hopeless, that no one can actually at­tempt to make you money. It's the collective throwing up of the hands! The thinking goes, Nobody can beat the market so just join an index fund and be the market. These cynics and negativists believe that all information is so perfect that you can't possibly pick stocks better than anyone else. Or that nobody has the tools and the skills to tri­umph over the market for the long run. Just give up and accept the mediocrity of the averages themselves, regardless of whether they gain or lose money. These postbubble diatribes fill a bookcase of mine at home. They are well reasoned and assume that only colossal amounts of luck separate the long-term winners from the losers. If you don't have the luck, if you approach investing from skill, you can't win.

I would love to be so cynical as to believe those negatives. I would love to believe them because then we could stop right here and I could tell you to forget about using your time and managing your money, that it is all for naught, that your money is like a potted plant, put it in the corner, give it some sunlight and water, and maybe it will grow. Or maybe it won't. So what? The naysayers want you to read a gardening book about finance, for heaven's sake! But then I start thinking what would happen if I had said that to myself twenty-five years ago when I started to invest with a few hundred dollars to my name and piles of credit card bills, fresh out of college. What would have happened to me, hundreds of millions of dollars ago, if I had listened to those who told me that what I wanted to do—make a huge amount of money quickly with a small amount of money—was impossible? Would I, too, have just given up and said, "You know, it's a waste of time this stock market business?" Would I have said, "I know I will never get rich with the market, so what's the point of trying?" What would have happened if I had listened to those who said that without a degree from a major business school, I could never understand enough to make lots of money? What would have happened if I had paid attention to those who told me that common sense doesn't apply to stocks? I guess someone else would have made all of that money.

Instead, I didn't listen. I built my own way to riches, a way that kept me enthralled and intrigued by the market, without ever letting it beat me or knock the enthusiasm out of me. I used methods that weren't from a business school but from the street—common sense and liberal arts, not calculus and abstruse portfolio theory. Sometimes I think, Maybe I'm just a walk-on player who successfully navigated the NFL of riches. If that's the case, I know I can teach you to walk on and win, too, provided that you have the desire and the perspicacity to see it all through.

When I wrote Confessions of a Street Addict, my book about my career as a professional investor, I told a lot about the trials and tribulations of someone who loves the market with every breath he takes. But I didn't give away any of the trading and investing secrets that enabled me to retire at an early age to read, write, and talk about investing, to get others interested in taking control of their money. Some critics who bought the book found it wanting because I didn't say how I got rich and instead focused on the saga of it all.

This time around those who wanted the insights behind my hedge fund or for the money I manage now, my personal money, won't be disappointed. This time I give you the diet that I developed to stay on a regimen to riches.

Is it for everybody? Let's put it this way, it is for every one of the 92 million Americans who own stocks, and it is certainly for all 55 mil­lion Americans who have been forced to become their own portfolio managers, tasked with running their 401 (k)s and their IRAs. It is definitely the primer if we are given control, as I think we will soon be, of our own Social Security accounts. That mammoth task requires a book like this if only to ensure that you aren't ripped off by the myriad financial sorts who can't wait to get their hands on your retirement money.

Of course, not everyone will be up to the methods I outline, so I have written the book "in the alternative," meaning that if you can't be your own best manager, you can be the best client and the best cus­tomer for someone else who helps you. But if you get into it, and I know I can get you into it, I think you can beat every single manager out there simply because you will have all of the tools and the rules, the ins and the outs. Unlike fund managers, you will not be flooded with new money if you are successful, or need to hit the road to drum up new clients as so many brokers must do to stay in business. The individual investor's edge—from not having to report daily to not having to have to promote endlessly to being able to take taxable gains when you want to—makes it imperative that you give it a try. Think of it like this, you are solely in charge of your performance—your gains and when to take them, your losses and when they can help you at tax time. You are focused not on the time-consuming task of asset gathering or commission generating, but on the actual wealth creation and preservation tasks that are often secondary at the big financial institutions we know so well and try so hard to respect. This book also works for every age and for every amount, no matter how small, down to about $2,500 (with an option to use an exchange-traded fund or a mutual fund for those with less money to work with). I started with a couple of hundred bucks. I refuse to be dissuaded by the idea that any amount is "too little" with which to start. Too many brokers don't want to help clients who don't have big money to start. I have no such constraints. In fact, one of the reasons why I retired from my hedge fund, where I worked only for wealthy individuals, was that I couldn't help ordinary people who needed my help much more than the clients I catered to. My clients were already rich; I could only move them up the Forbes 400 list. I want to help you become rich, a far more noble goal. I want to coach and educate you because I know that our country does absolutely nothing to help people understand stocks and bonds and corporate finance. I know we presume a level of knowledge about money that is unjustified, given that we are taught nothing beyond how to balance a checkbook, and even that we're not so hot at.

My task is simple: make the game compelling enough for you to stay on the diet that I know has catapulted me from a struggling writer making $15,000 a year to someone who never has to work again and does so only because I find the challenge of getting others to invest well to be the mission I believe I was put on earth to accomplish. So, get ready for some financial exercise; get ready for a satisfying investing diet for all who crave big returns without big risk.

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