THE WONDERS OF COMPOUND INTERESTWritten by Rosella Aranda
Albert Einstein called compound interest “the greatest invention of all time.” It has even been referred to as “Eighth Wonder of World.” The trick is to get this tremendous force working for you rather than against you.Is compound interest gobbling up a significant chunk of your earnings? If you maintain an ongoing balance with a credit card company, compound interest is costing you much more than you probably realize. Let’s start with basic interest, which is a fee that you pay to a lender for privilege of borrowing his money. This interest is attached to original amount at an agreed upon rate. Compound interest is calculated on balance owing plus any previous interest charges. So then you find yourself paying interest on interest. This compounding effect continues until it virtually takes on a life of its own. Credit card lenders make a killing putting this principle to work for them. Allow me to illustrate. Let’s say you’re carrying a balance of $1,000 on a credit card with a 15% APR. If you pay only minimum each month, you could conceivably gnaw away at this debt for over 25 years and end up repaying a total of over $3,400! If, on other hand, you could commit yourself to paying $100 per month, this debt would be wiped out in less than a single year and interest would come to a much less offensive $75. Now let’s look at what would happen if you took $1,000 and put it to work for you instead of against you. Let’s assume that you are able to keep your hands off this money and simply let it sit and earn 6% interest compounded annually. After 12 years, your money would have doubled without you adding one extra penny! You can quickly figure out in your head how long it will take for a sum of money to double by applying “Rule of 72.” You simply take whatever interest rate you’re earning (6% in this case) and divide it into 72. The result will be number of years required to double your money. (72/6 = 12 in our example)
| | How Nicolas Darvas Made $2 Million in the Stock MarketWritten by Mark Crisp
“How I Made $2,000,000 In The Stock Market” Nick Darvas N.B. Mark Crisp has read this book 100 times! (about 200 by now. MARK. This really is my bible of stock trading))The Gambler ·My pet stocks were causing me my biggest losses ·The sudden drops after he has invested his money are one of most mystifying phenomena facing amateur The Fundamentalist ·The stock that saved me I knew nothing about; I picked it for one reason only—it seemed to be rising The Technician ·If a dignified matron would suddenly (jump on a table and do a wild dance), this would be unusual and people would immediately say: “There is something strange here—something has happened.” In same way, if a usually inactive stock suddenly became active I would consider this unusual, and if it advanced in price I would buy it. ·It was evident that I had bought stock at wrong time…how to judge a movement at time it happens? ·I began to realize that stock movements were not completely haphazard. As if attracted by a magnet, they had a defined upward or downward trend which, once established, tended to continue. ·Within this trend stocks moved in a series of frames, or what I began to call “boxes” ·They would oscillate fairly consistently between a low and a high point. These boxes began to exist very clearly for me ·This was beginning of my box theory which was to lead to a fortune ·When boxes of a stock in which I was interested stood, like a pyramid, on top of each other, and my stock was in highest box, I started to watch it ·If it did not bounce up and down in that box I was worried…no bouncing meant it was not a lively stock ·I found that a stock sometimes stayed for weeks in one box ·The task was to define frame exactly, and be sure stock did not move decisively below lower edge of box—if it did, I sold it at once ·A reaction from 55 to 50 was quite normal while it stayed within its box; stocks are like dancers, they crouch, ready for spring-up (and don’t go smoothly from 50 to 70) ·I learned that 45 position in a stock after a 50 high point has another benefit—it shakes out weak and frightened stockholders ·I came to see that when a stock was on a definite upward trend there was a feeling of proportion about its advance; if it was on its way, rising from 50 to, say, 70 but occasionally dropping back, that was all part of right rhythm ·My broker told me I should have put in an automatic “on stop” buy order ·There is no such thing as cannot in market—any stock can do anything ·I finally realized that: oThere was no sure thing in market—I was bound to be wrong half of time oI must accept this fact and readjust myself accordingly—my pride and ego would have to be subdued oI must become an impartial diagnostician, who does not identify himself with any theory or stock oI cannot merely take chances. First, I have to reduce my risks as far as humanly possible · I decided to give “on-stop” orders to buy at a certain figure with an automatic “stop-loss” order on them in case stock went down; this way, I figured, I would never sleep with a loss ·Because of commissions my profits had to be bigger than my losses ·I always sold too quickly because I am a coward; I knew right thing to do but I invariably did opposite ·Since I could not train myself not to get scared, I decided to hold on to a rising stock but, at same time, keep raising my stop-loss order parallel with its rise. I would keep it at such a distance that a meaningless swing in price would not touch it off. If, however, stock really turned around and began to drop, I would be sold out immediately—this way market would never be able to get more than a fraction of my profits away ·I realized I would never be able to sell at top, and I would be a fool to sell an advancing stock, so when boxes started to go into reverse, when pyramids started to crumble—that was when I would sell…automatically! ·I knew I had to adopt a cool, unemotional attitude toward stocks; that I must not fall in love with them when they rose, and I must not get angry with them when they fell ·There are no such animals as good or bad stocks—only rising or falling stocks. I should hold rising ones and sell ones that fall ·I felt like a man who knew a room could be lit up and was fumbling for switches
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