Over the years, Charles Biderman has led courses on money and success for hundreds of people, and nearly everyone he's worked with through these courses expressed feeling less capable and knowledgeable about money than they were in the other parts of their life that they cared about. And they didn't just feel incompetence when it comes to money - they're scared about it, he says.
"But that fear of incompetence is a myth," Charles says. "For those of you who think you are less competent in the area of money, consider that if you spent anywhere near the same amount of time learning about money as you have spent in the areas that you care about, you would be just as capable about money as you are in the rest of your life!"
The CEO of TrimTabs recently checked in with us to share the steps we should all take to begin managing our money more competently, to offer insight on using financial advisers to make investment decisions, and to give tips on DIY investing.
Can you tell us about your professional background and about TrimTabs?
TrimTabs Investment Research clients have included many of the world's largest hedge funds. Goldman Sachs prior to the Volker Rule in 2010 was a minority shareholder.
October 5, 2011, we launched TrimTabs Float Shrink ETF, TTFS, listed on the NYSE. Over its first three years through October 5, 2014, TTFS was up 96 percent. Over that same time frame the S&P 500 ETF rose 83 percent.
The key to our success at TrimTabs, in my opinion, is our emphasis on the supply and demand of shares of stock and money.
What we have discovered is that the best single number investors should follow is free cash flow, not earnings and not sales.
Free cash flow is, in reality, very simple. Free cash flow is the amount of cash a public company has left after paying all bills, including interest, taxes, capital expenditures, research and development.
Those companies who grow free cash flow the most historically have tended to outperform the rest of the market.
What steps do you recommend everyone take when setting out to improve their finances?
First, write down all of your assets and all of your obligations.
Second, determine your average monthly take-home pay. Then figure out how much, if anything, you will have left on a monthly basis - averaging in annual costs such as insurance, real estate taxes, etc.
Then, only after you have at least a three-month cash cushion in the bank, invest the extra money on a monthly dollar cost average basis.
What do you think we can take away from the biggest money mistakes?
Most investors give their money away to be managed and as a result almost universally under-perform the overall market - and usually by more then the fees. In reality, if we spend the time required longingly to understand our investments, we have a much better chance of outperforming.
When should we enlist help to come up with an investment strategy? When do you think it's fine to take a DIY approach?
I have a rule about money management. Never give your money to someone who asks for it. If you must work with a financial advisor, find those that are too busy and don't want your money. Absolutely make sure you not only check references but also actual past performance. If an advisor will not give you verifiable past performance data, walk away - fast.
How should we determine what to invest in?
All of us have some area we are more knowledgeable about. Whether video games, apps, fashion, biotech, whatever. We all care more about some area then another.
What I recommend to beginning investors is investigate those companies doing the best in the areas you are interested. I would not recommend investing in startups or pie-in-the-sky dreams. Almost all bust - at least the deals that you would be invited to participate in. Remember, the good deals never get down to your level.
What I do recommend using as a key investment metric is free cash flow. Follow via Google or Yahoo all the news about those companies doing the best in the area you are following. After you think you actually can understand what is going on in a company, invest in that company monthly going forward, until you discover you might have been wrong.
Key point: No one only invests in winners. We all have duds. The key is that our winners significantly outperform the losers.
What are your favorite types of investments right now? Why do you like them?
My favorite investment is obviously my fund and other companies growing free cash flow rapidly, whether U.S. or global.
What excites you? What worries you?
What worries me the most is the fact that the U.S. economy is barely growing, but the overall stock market continues to do well. Why? Ever since 2012, the number of shares in the entire U.S. stock market has been shrinking. Companies are giving shareholders cash in exchange for stock. The end result is that there has been more money chasing fewer shares. For as long as all the U.S. public companies keep reducing the share count, the stock market will keep going up.
How else can people follow you?
I have a blog site, CharlesBiderman.com, where I post clips of my appearances on CNBC's the Santelli Exchange and with Joe Kernen on Squawk Box. I also have posted the first four lessons from my course, Biderman's Practices of Success on Curious.com/CharlesBiderman.