Your book mentions that you spend lots of time on due diligence before investing. Could you tell us more about that process?
The due diligence process that I discuss in my book is unique in that it doesn't involve any fundamental analysis or technical analysis. So someone with zero financial literacy can easily follow my due diligence process. The due diligence process is mostly about one figuring out, "is the information that you found going to have a real impact on a publicly traded company?" So if the company is small, there's a higher degree of impact that the information you found might impact that company's stock. If the company is large, then the information has to be really big and monumental for it to impact a publically traded company's stock. That's the first phase of the due diligence process.
The second phase is determining if Wall Street and the investing public is already aware of the information that you've uncovered. And that is simply sifting through many, many articles, any publically released information about that company. If you determine that they do not yet see that information as fact, then you move on to a third step which is actually placing your trades.
Readers may be concerned about amateur stock investors losing money. Any thoughts on the risks involved?
People are generally risk-adverse with their money. I think all humans have a hard-wired aversion to losing money, and there's a large psychological barrier to overcome with risking your money on a stock trade or a leverage options trade. So one of the things that I teach prior to even thinking about finding the next big thing is learning how to compartmentalize your finances.
Most of us have a spending account. Many of us have a savings account, which could include a retirement account. And that's money that we count on to retire with, and to get rich slowly over the course of our life. But what few of us have is what I call a big money account. So I encourage all people to view every dollar in their life as a potential hundred dollars for its full future potential investment value. And when you start to look at everything in your life, every dollar bill as a hundred dollars, it uncovers all types of money that all of a sudden you might be willing to put into your big money account. For example, you might really appreciate getting all the sleep you can on the weekends, so you might hire someone to mow your lawn. However, if you view that $20 as a potential $2,000 for its full investment potential, that might persuade you to go out and mow your own lawn, to take that $20 and put it into your big money account. Now you have an account that you're willing to take risks with, that you're willing to make leverage investments with.