April 23rd Meeting Notes

• The Importance of Compounding
• The issue that was brought up was that investing really doesn't work until a person has a lot of money otherwise investing can't possibly worth it until that time comes. Actually, the critical element to any wealth is the ability to compound small amounts of money now far into the future. One example was demonstrated on MoneyChimp.com where we used the compound interest calculator to determine what the impact would be if a person had money compounded at 8.5% for 30 years or 50%. Using $50,000 as the starting point we found that the difference was astronomical. $50,000 at 8.5% grows to $2,954,315.78 after 50 years. The same principal amount at the same rate of interest grows to $577,912.58 after 30 years. While $50,000 seemed like a lot, the amount is easily achievable. Using a smaller amount will have an equally large difference. Get started now so that you have no excuse.

• Making Easy Money isn't Easy
• While the idea of compounding income makes sense, it is very hard to resist investing in a company that has gone up 400% in a month. However, companies like Citigroup are able to go up so much because the fell to extremely low levels based on the fact that the company is in such dire condition. For anyone who has managed to get in at the bottom, getting out is almost impossible. The dilemma that a trader faces it the possibility that the stock might go up another 500%. A trader might want to hold on to such a stock in hopes of getting more. Another problem exists for those who are able to get out and lose money trading in and out of stocks trying to replicate their Citigroup trade. As time goes on the trader eventually gives back all the profits in the fruitless pursuit of "easy" money.

• History is our guide
• History is our guide in the financial markets because markets have clear cycles. In our meeting we reviewed how the stock market experiences bull and bear market cycles. Within each cycle we reviewed how bear markets have periods of significant gains. Bear markets of 1906, 1937, and 1966 have exhibited the ability to trade in a range for almost 18 years. While in a bull market there can be periods of large losses.

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