THE 4 PILLARS OF INVESTING Cash Flow: Module 4 · Everyone is in a different level and having ... we ought to know the date it expires, ... we ought to know the strike price, how

Cash Flow: Module 4THE 4 PILLARS OF INVESTING

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The 4 Pillars of Investing | Cash Flow : Module 4

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So with these options, I know there’s a lot to learn and a lot coming at your quick and I kind of, again had to make the decision do I just make this kind of wimpy and throw out a couple of ideas or do I really try to take them through as much as I can. Everyone is in a different level and having taught all over the world, I just know that most people are not familiar with this, most people are beginners. So if you are a beginner, understand it’s worth learning, stick with it.

Right now, the best way I think is to stay in the continuum and go for awareness instead of competency. You just become aware of a few things, ok I know there is a such thing as an option now, I don’t know how they work completely but I do know there is more cash available, more risk, more reward to manage. So, rather than worrying about the Greeks and Delta Gamma and the rate of change and all this type of stuff, just keep it simple for our first exposure to options.

There’s three things that I like my beginner students to kind of think about with an option. First of all, we ought to know the date it expires, so it has an expiration date. Number two, we ought to know the strike price, how much are we going to buy a stock at. And third, we got to know the premium.

So when this guy has a choice to buy the stock, the money he is handing over to receive this option is premium money, right? The strike price is what’s inside the contract, it’s what’s saying hey, I’m going to sell you this stock or buy this stock at $100 a share and I’m going to pay you a premium of $2 over here. So, let’s get this down straight, let’s look at several here of how this works.

Let’s do Apple first. Really cool right there I think, here we got Apple, it’s August now so let’s look at October, always find two months out or more, at least that’s good rule of thumb. I see the last trade of Apple for the day was at $383 so here we got $383. Imagine this; imagine being able to control this type of stock. Let’s say you wanted to do 100 shares of this, well that’s going to be $38,000 isn’t it? But if I look here for the next couple of months I can see a $380, which is $3.00 cheaper than it is now. I can have the choice to have to buy Apple at $380 in October before the 3rd

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A transcription of

The 4 Pillars of Investing

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week is over and I come up here, I see they’re only asking $24.50. So if I want to do 100 shares of that, that’s only $2,000.

$2,415, imagine being able to control $38,000 worth of Apple and you’re only going to risk $2400, that can get appealing in a hurry, that can be really fun. So let’s label our stuff though. So there’s three things I said to worry about. Number 1 is the premium. The premium is how much they’re asking for the option, notice that’s not what we’re going to be buying Apple at. We’re going to be buying Apple at $300 so the premium we pay is this $24.15, we’re paying $24.15 for the contract, that’s that money right there.

Next, we’re going to have the choice to buy, so what are we buying or selling at? We can buy it at $380, that’s this one right here, that’s called the strike price. So we paid a premium of $24 for the right to strike a deal at $380, so this is what we pay for the contract, this is what we will eventually pay maybe; it’s our choice for the stock. The easy one, of course is going to be our expiration and that’s right here, expiration is in every one of these expires when you can see it, October 2011. So those are the three things I want you to remember, this is called the premium, this is called the strike price and this is called the expiration right here. Very simple.

Now, there’s not only these things called call options, but there are also these things called put options. And a call option gives someone the right to buy something, and that’s all of these over here. So if I want the right to buy Apple, I want to be able to be a buyer of Apple, I’m going to chose one of these contracts here and generally we do what’s called at the money, we find where it is now and they even highlight these, we put on layaway right where it is now. Hey, I can put on layaway, clear out here and get these pretty cheap because they’re unlikely to come on sale.

On this side over here is called the put option side, the calls are green, these are puts over here. And this gives me the chance to sell, so if I was scared, if I owned some Apple right now, say at $380 and I was scared it was going down and I want to lock down my price and say $380, $385, I could lock in the price at $385 and buy insurance and they’re asking $22.00 for that.

So I can share that for two months, August, September, October, basically 2 ½ months for $22 I can predict $300 and that’s what puts are. So, let’s take a look at these puts. If I think a stock is going down I can make money 2 ways. We’ve already talked about shorting the stocks, so let’s review that quick. It’s at $100 now, what direction do I think it’s going? Down. SO what do I do? I borrow 100 shares and I sell them on the market, they give me $10,000.

Now I’m going to have to have some money in my account to back this, use the equal to what we’re getting here. So I get $10,000 sold to stock, what am I looking to do, buy it back.

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Remember? When we shorted, we sell first and we buy second. And so when the stock falls down to 50, I got to get those 100 shares back the brokerage, right? Because I borrowed 100 shares and sold them on the market.

Well I owe them 100 shares, what do I need to do? I need to buy that 100 shares so I can return these 100 shares to the brokerage and I buy those at $50. So I had $10,000, I’m only spending $5 to buy them back which leaves me a reward of $5,000. Now my risks are infinite because it could have gone through the roof. If those thing goes to $100,000 I got to buy it back at $100,000 because I borrowed the stocks, so we always want to do that exit I talked about it. But not shorting stock. Now, or I can buy one of these put options, which is the right to what? It’s the right to sell, isn’t it?

So let’s say I don’t borrow any stock, I borrow nothing, I just say, “look, I want to be able to sell this at some point, I don’t even need to own the stock.” I just say, “I want to be able to sell.” That’s the agreement, cut and dry, I just want to be able to sell this if I ever wanted to go out and buy it I want to be able to sell it at $100 if I ever decide to buy it. And so I have that option and that might cost be $3 for a couple of months.

So, here I have $300 at risk, that’s the most I can lose. See I didn’t sell anything, I don’t have an infinite risk, I don’t care how it goes up because it’s a what? It’s a choice, I don’t have to do anything, I can walk away if I want. The most I can risk is $300, that’s pretty cool stuff, isn’t it? So, I spend $300 for the right to sell at $100 and I see the stock falls down to $50. That means I can buy it today and sell it for $100. Why? Because I have the option to do so. I can sell this at $100, that’s what my strike was. So falls the $50, I can buy at $50, but I don’t need to do that. Why? There’s an option exchange which means this option is worth $5,000. Think about it. If I can buy 100 shares of 50, and sell at 100 shares at 100, that’s $5,000 profit right there. Take out what it costs me to buy the option, that’s a $4700 deal, risk was only $300 over here. Risk was infinite, so very cool on the put.

Hey, don’t expect you to know this immediately, but we’ll get into puts, in one of the advanced classes I’m going to show you one more thing. I don’t care if you [inaudible], I’m more concerned that you understand what a premium is, you’ll see why. So this leverage strategy comparison, lot’s of money if we want to short the stock, got to have at least that much in your requirement usually, at least half that. Over here you only have to have $300.

Down here your returns are massive, down here your return is still good but not massive. So again, I don’t care that you understand auctions perfectly. Bird’s eye view, what do we want to know? We do a fundamental analysis, we do a technical analysis, we get a stock opinion, we get

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what’s likely. Once we get what’s likely with our fundamental and technical analysis, we choose a strategy along this continuum; I’ve shown you two. This one would be shorting the stock, which takes a little bit of money to do. This one is buying the option, which takes less money to do, but they will both make money on the same movement. This stock went from $100 a share down to $50. The guy that chose this route made 50% of his money, the person that chose this route made 1500% of his money.

The profit are similar, aren’t they? Very similar profit within $300 of each other in this case. So it’s just all about how much leverage do you need. And it goes back to your goals, what are the goals? Is your goal to just do little or is it to do big? If it’s to do big, you got to manage the additional risks in these types of things. It’s kind of nice to be able to get going for less money though, kind of fun.

Here’s your put option chain; remember the calls are on this side, the puts are on this side here. And here’s your expiration. So, here we are in August, let’s say we want to do it for one month, you got some P&G at 6188, you’d like to ensure that 6250, in other words you’d like the ability to sell this. So let’s say P&G goes bankrupt to 0, well you can still sell it, you have a choice or you have a contract called a put option he promised you that he will buy it from you, you have the ability to sell, anytime before September anyway.

So, if this thing tanks to 0, you can still sell your P&G at 6250. Still has the same things; I want you to check it out. The premiums what? The premium they’re asking how much for this option? They’re asking $1.71 for the option, that again is you’re paying $1.71 for the choice, that’s this money right here that he’s handing over. The next thing we have is we have the strike price. In this case it’s $62.50. If you want to do it $60, you’d pay the premium, right? So the $62.50 is going to be the strike in this case and then finally what we have, we got our expiration, which is September. These are all expiring in September. So there you go.

Expiration, premium, strike price, at this level that’s what I want you to have down. Always opportunities for income. It’s more for learning, it really is, it’s a fun medium and if a person keeps work at it it clicks, it’s like anything else that’s worth learning.

If we learn all 3 it’s huge, so so far we have been talking about upward movement so what could we do? Well, in an upward movement we can go long or in other words we could buy 2 things. We could buy stock, I’ll try to write this fairly neatly, I can buy stock or I could buy the call, couldn’t’ I? Call option, if it’s going up. If it’s going down, what could I do? I could short the stock or what could I do? See if you can guess before I write it. I could buy, what kind of option could I buy? I could buy put option.

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So there’s 4 alternatives and there’s many more than just these. But, in the upward movement, that’s two choices I can do. The call has greater leverage. In a downward market, these are the choice I can do. My favorite market of all time though is this one, this is my favorite way to make money in the market of all the ways I make money in the market this is my favorite. I’m going to show you some basics to this because this has to do with cash flow investing and the other two I could do with capital gain investing so I’m going to show you my favorite, I think you’re going to love it, I think you’re going to want to learn more about it.

This is a process called time decay. It really is one of the secrets to making money off the movement of time. What’s interesting is this should be easy for you to understand if you understand agreements, and we’ll start with an agreement outside of the stock market called a lease contract. When we have some real estate perhaps, we have this guy right here offering you can lease my building for this lease contract. This guy over here is handling money for that lease, so what’s this guy buying? Well he doesn’t get the building, it still stays with the owner, he’s buying time, right? He gets to use the building for time, he doesn’t own the building, he just owns some time in it.

And this guy promises he can live in the building or in the house or lease the office space. Well look how this works on their fundamentals here, on their balance sheet. This guy over here, this lease agreement is a liability, much like a mortgage and that’s going to cause him to pay monthly rent or monthly lease as an expense. So when this guy bought this, it became a liability to him, right? But the guy who sold the contract, that lease agreement is a source of income every month. So, this is true in almost every instance. One guy’s asset is another guy’s liability.

Well you have to understand what is this guy making money on? He’s making money on the moment of time. Notice that he’s building these lease tier could go up in value or his building could go down in value, but that has nothing to do with this time this guy is buying. He signed this contract; he’s going to pay rent, which is income. So one of the things that is cool about time decay, it can often become independent of the value of the underlying asset where this really doesn’t matter, it’s the income that this guy is after. So that’s what I really want you to understand here is there is an agreement where one guy is buying time, the other guy is making a promise and it’s very very simple. And this guy can leave anytime he wants, he can pay off the lease and go so he has rent that’s going out and that is simply income to this guy right here. Very very cool, I think you understand that.

I’m going to learn how to erase if it takes me the last thing I do. Well, options are made up of time, just as this lease agreement might be 6 months or 2 months or month to month or a year. Just as the lease agreement has an expiration date on it, so do options. It’s usually the 3rd Friday of every

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month, so I’ll circle this one. 1,2,3, so in this case if this were September, this would be September 17, right? And that would be the 3rd Friday of the month, that’s how it would work.

So look at this, let’s say I have a 3 month option, this is the amount of money I would pay for 1 month, this is the amount of money I would pay for 2 months and this is the amount I would pay for 3. So you notice something, if I buy, the more time I buy, the slower my option loses value. The less time I buy the faster my option loses value. So if I’m a buyer of an option, I want to buy I would say at least 2 months or more. But if I want to be the person that is the seller, like this guy up here, this guy right here is the seller. If I want to be the seller, then I want to have two months or less. This guy would want to be a seller here because there is two months or less and over here we’d want to be a buyer because we have tow months or more.

Notice the time would decay slower if I own it. If I own it, I do, I want that time to decay slow, I want that price to stay high for the option if I own it given plenty of time for intrinsic to kick in. If I’m the seller, boy I’d like to have it done so I can book the profit. So let’s talk about being a buyer to the seller. In the stock market you can be a buyer or a seller. In the options market, you can be a buyer or a seller. I want you to notice again, the amount of time decay that occurs from here to here. From month two to month one, this is the amount of money that’s lost in time decay. Here a little bit more for month two, but this last month, bam it’s all gone.

So just even if you don’t understand the math behind it, and this gets in the black shoals model and all this, see this is called the front month. Two months or less, you lose a lot of time value. Two months or more, not bad at all, not bad at all. So let’s check this out, let’s say someone wants Netflix which is $246 a share. Here’s August options, it might be very appealing to buy an August option. See how these are in August? Notice how the other ones I have been doing have been September, October, I’ve been out here. Well those September and October options are going to be higher priced.

Here is October, here is September, here’s August right here. So if you look at the August one, they’re only asking $5 for this man. Is that nuts? That’s nuts! This is how people get sucked into making mistake here. Check this out, this is very important to understand. Let’s draw a line right here; let’s draw it in blue. Let’s draw a line right here. So, right here you buy the front month through this, they’re only asking $5 for it. But look how fast that $5 is going to disappear and you only have until the 3rd Friday of August for this thing to work out. Well look at this, let’s say you buy this stock, $246 a share and lets say you buy 1,000 shares, that’s a quarter of a million dollars you got to fork out there. But you can control it for what? $5700, so for $5000 you can lock Netflix in $245 instead of spending $246,000, that’s an amazing temptation to do.

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You say, “Gee, I can control a quarter of a million with only $5000?” What if this goes, imagine this, what if this goes, it’s a juggernaut anyway, what if this goes to like $260,000 this month? Well, that would be $14,000 you make selling it on a $5,000 investment? Well you want to spend a quarter million to make $14,000 or you want to spend $5,000 to make $14,000? You can see the appeal, the problem is like I say man, you want to draw a line here and if you buy you want to get them plenty of time, and if you sell, if you’re the seller then you want to be over here. Remember, you can be either the buyer or the seller in these agreements. You can be either the buyer or the seller, remember? This guy, you can choose to buy and buy a lease agreement or you can choose to sell a lease agreement, doesn’t really matter.

So there’s your premium. Now, call options work the same way. This guy has a choice to buy for a certain amount of time. So he’s bought this option and this option can go up or down in value but his premium is an expense going to the guy that makes them the promise. So this guy has made a promise to sell this stock, this call option, he’s made a promise to sell the stock and this guy now has the choice to buy it if he wants. So if this guy right here says I want to buy this stock, this guy has made a promise to sell. But the premium, this cash that he’s handing him, his income, premiums income, this guy takes expense to this guy.

So you can be either one in this deal. If you have some stock, you can promise to sell your stock and you can receive money for selling your stock. Or, if you want to buy an option to buy someone else’s stock, you can spend money and have the chance to buy the guys stock at the price you want, that’s what the options market is about.

It’s a lot like understanding the difference between houses going up and down in value and stocks going up and down in value. For example, if I buy a house and I rent the house for income, I buy the house, I got a mortgage here and my payments are $1500, my rent is $2000 so I got a cash flow of $500. It doesn’t matter to me if the house goes down $50,000, houses will go up and down $50,000, I’m not selling the house, I just want this cash flow every month.

So, check out what can happen. You buy a house for cash flow during the real estate bust, KABAAM, falls down. Who cares? Look at this, your mortgage is locked in, that’s not changing, your payments locked in, that’s not changing if you got the right renter he’ll want to stay if he gets value, that’s not changing. So your cash flow is not changing. This thing here is changed big time with the market and your net worth has changed, but your cash flow has been consistent, that’s why I love cash flow investing.

Here, you’re always trying to predict the market, up or down, buy the house, flip the house, force appreciation, got a rehab the darn thing to make it go up. Here, we have a new worth going up and

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down like a 401k but what you need to live on, cash flow, that’s what you can live on. And so we want the cash flow to be consistent even if the value of the asset is not.

So look what happens here. There’s two sides to each investment. There’s the capital gain side or what we call speculation where the house flipper carries the burden of hoping the house goes up or avoiding it going down. That’s called capital gain or speculation, right? Hoping you can buy low and sell high. A renter doesn’t concern himself with too much, he wants to get a solid rent that is larger than the payment and now he’s got a $500 cash flow so I’ve got an error going down here because that time will decay and run out, won’t it? And soon we’ll move from January to February, what do we have to do? They’ll have to pay the rent again. And then this one will decay and be gone. What does he have to do? He’s got to pay the rent again. Pays off the house payment, leaves you with $500. Got to pay the rent, oh that ones gone now, what are you going to do? Got to pay the rent again, pay the house payment. What have you got left over? $500 and then this one runs out of time. What do you have to do? You have to pay the rent again, that pays the house payment, what do you have left over? Another $500. And then this months gone.

So you see how this is really making, not this is so important, we’re not making money based on whether the house goes up or down in value, like some people want a stock to go up or down in value. We’re making money based on the movement of time, which is very consistent. I can make a prediction after May comes June, see I can predict that. I can’t predict whether this is going to be worth $300 or $200. Market I can’t predict, but I can predict that June comes after May, that’s why my favorite is making money off the movement of the clock, movement of time, that’s one of my favorites.

So, when I deal in real estate, I no longer flip houses. I used to get in the house flipping thing, flipped a couple of houses in my day but I’ll tell you, my favorite income that I like comes from my renters. Love that rental income because it comes month after month after months and it’s based on the movement of time. Now, what would you compare stock to on this? Well most people invest in the stock market this way is they want to buy a stock low and they want to hope the stock goes high.

Very few people know how to make the time work for them and that’s why this is my favorite part of the cash flow class is the part we’re doing right now. It’s called speculation, it’s called time decay and I like making my money on time decay. I’ll give you some examples of how that’s done. I do a pretty elaborate nowadays in ways that are little beyond the scope of this class, but I tell you what, you take the advanced courses if we can get not that. You can see how it’s kind of heavy, there’s a lot of stuff going on here, even in the basic class we’re teaching a lot of stuff here that

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isn’t worth learning yet. Is it fun to learn? Yes. Is it cumbersome? Not really, not when you have good teachers. So here we go.

You got the capital gain side and you got the cash flow side and that’s the key. Here’s your capital gain, can’t control that, cash flow you can. So, this is what is amazing about this type of investing. This right here is called the IYR and it’s a real estate index, you can get it in the stock chart form. So, this right here is 2007 and 2008ish and you can see in the sub prime meltdown in 2008, the market just went from an index of around 70 to 30. And this is in the sub prime meltdown in 2008. Well what’s interesting is that if we go back here, notice this, that then what would have happened in 2008 is maybe our house used to be worth $300,000, now it’s only worth $200,000.

But, we didn’t care why because we still kept getting the rent, the rent still made the house payment and we still have cash flow. Well let’s say I build a bank account and in January I make $500 and I stick that $500 in here so now I’m at $500. Then in February I stick another $500 in, so now that would account as $1,000. In March I stick another $500, now that account is at $1500. Well if I keep doing this every single month, what is happening to my wealth in the account? It’s going up. Now my house is going down in value but who cares? It has time to come back up, I can hold it indefinitely I can hold it. What I really want is this cash flow to keep going. So what I think one of the best examples of being a true investor is is when you can do this. When the underlying value of your assets stinks but the amount of money that is gone into your account has stayed consistent, you made $500 here, $500 here, $500 here, you make $500 for 12 months, you got $6,000 sitting in your account that was generated from a house that was losing value. This is investing, this is why I hate 401K’s and you think about it, a 401k is tied to this. A 401k is not tied to the moment of time, it’s tied to the moment of the market.

What happened in October, this is a housing index. What happened in October to all the 401K’s? Well the S&P did the same thing, didn’t it, it fell to pieces in October and everyone’s retirement got cut in half, they lost half of it. Why? Because they had no cash flow from it, it was all capital gain, it was all here, it was all about having the thing go up and down, all of it was right here. This is what a 401K does, it goes up and down and up and down and there’s no time decay element, there’s no cash flow element to it.

So check this out, so I get a call from my friends Robert and Kim Kiysaki [sp] and they say, “Hey, Andy, let’s go to Singapore.” And I says, “Really?” And they says, “Yeah, we’ll go next summer, you got one year to get ready.” I said, “Cool.” And it’s kind of funny, they speak Mandarin Chinese, I said I’ll brush up. But basically they like me to teach how to do this with stock. How can you have a stock market that is absolutely getting killed but still see an increase in your cash flow?

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I’m going to try to show you a couple of examples of how this can be done. Especially when you get into more advanced course with me, you’ll be doing fine. So this is an example of how I might do this. Remember that in an option one guy makes a promise and when he promises to sell his stock he receives a premium as income. Well, that is not based on the movement of stock, that’s based on the movement of time, right? Because he has the choice to buy this stock only certain time before it expires. So what I did is I went out, I never do this, in fact I did this just as an example because I believe in exit strategy and fundamentals, technicals, all this, but I needed an example to teach this. So I did this for a year just for you, this is a year of work just for you.

I hate buying stuff that goes down, but I wanted to prove that this could be done, so I did it for a year. So I bought this thing called the Spyder Trust and all it is is the S&P 500, it mimics it, it’s called the SPY, in fact if we look at it right here, it would be worth taking time to do I think. Let’s find this baby right here, let’s look at the SPY and we’ll I think we ought to shorten this up a little bit. Here’s the SPY, you can see this is the SPPER S&P 500 Trust Daily and then maybe on this one we’ll put in the actual S&P 500 index, the ESPX and we’ll bring that up here.

You can see these are identical, aren’t they? Can you see that? I think you can. These are completely similar right here; they do the same thing day for day. Big ugly candle here, big ugly candle, see how the crossers fall, massive ugliness here in August. A little bump, little run, spinning top here, spinning top here, it’s just identical. So I decided to do this for a year and watch it up down or sideways. Well I bought 5 contracts which is only 500 shares so a few thousand dollars.

And notice what I did here , instead of being the buyer I made a promise. I sold it, which means this guy right here is going to pay me $2.15, there’s the premium for the option, $2.15. Yes I’ve covered up my address; I’ve covered up this brokerage so I don’t get in trouble for using their logo. Look at this, $2.15, now notice this, this was made at the end of July, it’s going to expire the 3rd week of August. So this has got about a month, a little less than a month of time. SO in other words, this guy right here has the right to buy this SPY, he has the chance to buy it and he can buy it at $1.54. I think if I remember right, I think I bought it like in the high $1.40’s somewhere around in there.

What’s cool is this, if the stock goes up and he wants to buy it at $1.54, I made money because I bought it in the $1.40 so you’re going to sell it in the $1.50’s, that’s cool. If the stock goes sideways and it stays below $1.54, then it expires worthless and I keep my $2.15 in cash flow, just like a house that stayed the same amount, you still get the rent. If it goes down like a house would lose value, I would still get the money for my time.

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So again, if it goes up, I get the $2.15. If it goes sideways, I get the $2.15, if it goes down, I still get the $2,15, it’s got nothing to do with anything but time here. It has nothing to do with anything but time. So, that’s pretty cool deal because sometimes stocks go down, people hold them anyway.

Now this is what’s cool, I got 5 contracts, so 5 contracts times how many shares for contract? 100 shares equals what? 500 shares and I’m getting $2.15 a piece so times $2.15 is $1,075. And I told you; I’m not going to do big trades in this training so people freak out. Minus I get $1,075 minus a commission of the brokerage, which means I net $1,061. So the way that would look, would be this. If I have a house, which I’ve done this before, I had a house that was worth $285, my mortgage on it was about $215.

Well if that were a fond value, I’d lose $50,000, but my payment on the house was $1500,I think it was $1535 and the rent was $2000 so my wife and I got a cash flow off this house. We wanted to this guy named Laybum, for about $500 a month. Well I wasn’t worried about the house going up and down, I was worried about whether Laybum was going to pay the rent, that’s what I want is the cash flow.

Well look at this, I can do the same thing here with this call. I buy 500 shares of stock, I sell a call for $1,000 so I don’t have any debt on this so the option that I sold for $1,000 I get the whole cash flow and let’s say that stock falls over the next year from $72 to $61.50, what do I care? If I can crank this out every month, I can wait for this to come back and I can learn the skill of where this strikes. So here my house goes $50,000 in value but I still have $500 a month cash flow. And my stock goes down $11,000 in value, I can still get $800-$1000 in cash flow. So I did this for a year, watch what happens. You do this for a year, I get the same graph. How killer is this?

You have the stock market falling to pieces right here and yet I’m making, well I made almost $10,000 so we’ll call it $800 a month while the stock was falling, my account is rising and I still can own the stock and let it come back. Notice this, here’s your real estate index, it’s beautiful. Here’s your real estate index, real estate is falling in value, but you’re going to keep your what? You’re going to keep your house so it can recover, but the whole time what are you collecting? Rent.

And so your account gets $500 a month put in and at the end of the year you’ve made $6,000 renting a house that was what? Losing value. Watch this. Same thing here, the only difference here is instead of having a house I have what? I have 500 shares of stock and the number of shares never gets lower, the value of the shares got lower just like the house did but I’m cranking out money from those calls every month so there’s $9,000 on a stock that went down, that’s awesome so kind of a cool story.

13



Oh, we’re not finished yet. That’s a very basic trade, I never trade like that, I do more elaborate stuff now, but I did it for a year, just so people could see an example of what cash flow investing is and that’s true cash flow investing when the underlying asset, whether it’s a house or stock can go down but your cash flow is fairly consistent to fill up your account to the tune of $9,000, $10,000, $12,000, $15,000, $20,000 a year, whatever it is you want.

END OF CASH FLOW – MODULE 4

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THE 4 PILLARS OF INVESTING Cash Flow: Module 4 · Everyone is in a different level and having ... we ought to know the date it expires, ... we ought to know the strike price, how