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THE ULTIMATE BOOK FOR
UNDERSTANDING AND CONTROLLING
THE MANY RISKS TO YOUR WEALTH
The
completechickens
guide tofnancialsecurity
HOW TO AVOID MAJOR MONEYLOSING RISKS THAT WILL
MAKE YOU POOR
John YamamotoB.Comm. MBA, CIM, FCSI, PFP
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Copyright, 2005 John Saburo Yamamoto
All rights reserved. No part of this book may be reproducedin any form or by any electronic or mechanical means including
recording, photocopying, or any information storage and retrieval
system, without written permission from the publisher.
Although the author has exhaustively researched all sources
to ensure the accuracy and completeness of the information
contained in this book, we assume no responsibility for errors,inaccuracies, omissions, or any inconsistency herein. Any slights
of people or organizations are not intended. Readers must use
their own judgment and should consult a nancial expert for
specic applications to their individual situations.
All characters are ctitious. Any resemblance to actual
people, living or dead, is purely coincidental.
The views are of the author and do not reect the views of
any company associated with the author.
Although the Author strives to keep the information in
this book current and accurate, changes in the world economic
conditions can make even recent information outdated. Charts,
tables and examples are accurate only to the dates indicated. They
are given to illustrate general concepts and need not be completely
up-to- date for this purpose.
DESIGNED & DIGITALLY PRINTED BY ISBN 0-9687886-4-5
Printed in Canada
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S p e c i a l
Thanks goesout to my wife
Yvonne Yamamoto and
my daughter Jillian for
patiently waiting for me to
write and research this book,
Adrienne Duffy, my Strategic
Coach, for giving me theinspiration to never quit my
dreams, and Gary Coskey
C.A., my friend.
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Contents
Part I: Introduction to investment risksIntroduction: ................................................................................4
Why this book is unique?
Chapter 1 .....................................................................................9
Why should you care about managing investment risk?
Chapter 2 ...................................................................................11
What is investment risk?
Chapter 3 ...................................................................................15The rst method for managing risks to avoid severe
nancial losses to your wealth
Chapter 4 ...................................................................................18
The second method for managing risk to avoid severe
nancial losses to your wealth
Chapter 5 ...................................................................................22
The third method for managing risk to avoid severe
nancial losses to your wealth
Chapter 6 ...................................................................................25
The fourth method for managing risk to avoid severe
nancial losses to your wealth
Chapter 7 ...................................................................................27
Where do the risks to my wealth come from?
Part II: Environmental or external risks
Chapter 8 ...................................................................................33External risks to your wealth 101
Part III: Emotional risksChapter 9 ...................................................................................61
Not being able to control our feelings of fear and
greed can cost us our wealth
Part IV: Financial planning risksChapter 10 .................................................................................89
Wealth building nancial planning tips
Tips .........................................................................................113
Appendix .................................................................................117
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PART I:
INTRODUCTION TOINVESTMENT RISKS
How to Nurture and
Protect Your Golden
Goose
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THE COMPLETE CHICKENS GUIDETO FINANCIAL SECURITY2
The Tale of the Financial
Golden Goose
One day a farmer noticed something glitteringunderneath his favorite goose. Upon lifting the goose
he noticed a small, pure gold egg. He took the egg to
his local bank and found that the egg was indeed pure
gold. He took the cash from the egg and paid off some
bills that were over due. Since he was a struggling
farmer the cash from the sale of the golden egg was
well appreciated.
The next day the farmer woke up early to check
on his golden goose. To his pleasure and surprise he
found another golden egg underneath his favorite
goose. He again took the egg to his local bank and took
the cash and paid off some more bills. Each day the
farmer would nd another golden egg. This continued
for months and soon the farmer found himself in a
solid nancial position. He had started to invest most
of the proceeds and had paid off many of his bills. He
also made some major improvements to his home.
Over time the farmer started to become
dissatised with his slow nancial progress. Although
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PART I: INTRODUCTIONTO INVESTMENT RISKS 3
the egg-a-day nd was consistent, the farmer felt it
would take too long for one small golden egg to make
him rich. Rather than waiting for a single egg each
day he decided to kill the golden goose and get all the
eggs at once. Upon killing the golden goose the farmer
found no eggs were in the goose. Within a few years
the farmer was again on hard nancial times and had
to work just to survive for the rest of his life. He had
to live with the fact that his own greed and impatience
had led him to kill his golden goose. He gave up steady
nancial progress for a quick dollar and had in fact
destroyed his main asset (or principal).
MOTTO:
Protect your golden goose.
This book is designed to provide you with
concrete strategies for protecting your
golden goose or wealth from harm.
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INTRODUCTION:
Why this book is unique?
There are three types of investors:
There are people that make things happen.
Then there are people that watch things happen.
And there are people who wondered what happened
Anonymous
Investment risks are anything that permanentlytake away your principal. People plan for themore obvious and imminent risks to their livesand, as a result, will fail to plug the holes wherewealth drains away. Most people fail to plan
financially and lack the financial knowledge toavoid financial risk resulting in a loss of theirmoney and a poor investment strategy. Thisbook is invaluable as it covers the largest numberof risks possible. By identifying and plugging
the holes where money drains away, this book isan invaluable guide to your lifetime investment
planning.
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PART I: INTRODUCTIONTO INVESTMENT RISKS 5
This will be a life-changing book for you. You are rst
provided with a clear summary of the entire universe of risks.
I have broken them into three clear categories: behavioral,
environmental, and planning risks. You also receive a scientic
model for building risk-efcient investment portfolios to reduce
risks while increasing returns. I am excited to provide you with
a comprehensive and scientic way to invest. I have replaced
the emotional-based, often gut-wrenching, trendy, or hot stock
investment strategy with a scientic and unemotional one.
I nd that most investment books are written on how to
become rich from the stock market, mutual fund market, bond
market, real estate with no money down, and the commodities
market. Few books had any focus on managing investment risks.
Other than the occasional University textbook with pages of math
proving the authors PH.D. thesis, few books covered the universe
of investment risks like this book does.
Gathering all the investment risks into a single book turn out
to be a painfully slow process, because I had to research so manybooks to put together a comprehensive risk management book.
I have been an investment advisor since 1988 and wrote this
book to help dispel many of the myths that people believe about
investment risk. Ever since Internet trading arrived, I have become
concerned with the recklessness of trading that is happening in the
stock markets. People have lost track of the reality of the dangers
of speculation. Short-term greed will lead people to long-termruin.
People often discuss their investment portfolio using
incorrect risk management theory. Many investment advisors
view risk from a one-dimensional perspective, and various books
that I have bought or read to research this book had very limited
views on investment risks. Some investment books did not even
have one page on risk management. Other risk management bookswere too academic and theoretical. These books were useful in the
classroom but were impractical for any benet in real life stock
and bond trading. Some risk books were written by a Ph.D. in
mathematics for otherPH.D.s in mathematics. These were of little
use as well.
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THE COMPLETE CHICKENS GUIDETO FINANCIAL SECURITY6
Im a practical person, since I have to manage millions of
dollars of clients hard-earned cash on a daily basis. This book
was written to give you useful antidotes to the potential risks and
dangers to your hard-earned wealth. We need smart ways to dealwith the chaos of the microchip-based world. Only the investors
with the best knowledge of risk management will prosper and
survive in the future. Because an event in Asia, Europe, the Middle
East, or the U.S. can instantly send shock waves throughout
the stock markets of the world globalization risk management
solutions have to be included in our investment designs,.
Like a well-trained doctor or pilot, you need an investmentprofessional who can build a scientic risk strategy to deal with
uncertain times or emergency situations, such as 9/11 or the
1987 stock market crash. To rely solely on intuition, emotions or
outdated investment risk theory is dangerous to both advisors and
clients.
This book is different because it combines the investment
theories of many books. It is much more comprehensive as itcombines the risks from the economy, human psychology, and
nancial planning.
This book has integrated the best risk techniques of
the academic world with the practical needs of real money
management. To properly manage risk today, you need to be part
economist, part accountant, and part psychologist.
The chicken indicates an investmentsolution or tip.
The piggybank represents an investment
risk to be concerned about.
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PART I: INTRODUCTIONTO INVESTMENT RISKS 7
I have searched the entire world of investment risks to
compile this book as one of the most comprehensive and practical
guides to investment risk management in the 21st century. I wrotethis book in a simple readable format so that anyone can read and
benet from it. Everyone can benet from avoiding unnecessary
loss of his or her money.
The majority of this book will be devoted to providing you
with some key solutions to minimizing the impact of both internal
and external threats to your wealth. You can benet from the
systematic plan for dealing with risks provided in this book.I wish to start by identifying the risks to your wealth. Most
investors and even many investment advisors have not taken
the time to identify the major risks to their wealth. This list of
investment risks to your wealth is perhaps the most comprehensive
in any book I have read. The complete listing and identication
of the risks in this book is a combination of over $30,000 in
investment courses and books, and over 11 years of research.I wish the world of investing were simple. You cant have one
group of investments called risky and another group called risk-
free. This is the common mistake of untrained investors. Instead,
we need to re-label investments as those resistant to certain types
of risks while being vulnerable to other types of risks. Just as
Superman is vulnerable to Kryptonite, certain investments that
seem solid are vulnerable to certain types of risks.
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THE COMPLETE CHICKENS GUIDETO FINANCIAL SECURITY8
CHAPTER SUMMARY:
I sincerely want to help you gain nancial success
and retire with security. I have witnessed so many
people lose or waste their money using poor risk
management., If this book can help one person realize
their mistakes and have a prosperous retirement, then
the efforts I took to write and publish this book have
been worth it. I also hope to permanently replace the
poor or incomplete books and theories on investment
risk with a more comprehensive and holistic risk
approach.
Good reading ahead.
John Yamamoto, MBA, CIM, FSCI, PFP
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CHAPTER1
WHY SHOULD YOU CARE
ABOUT MANAGINGINVESTMENT RISK?
If you fail to manage the risks to your wealth, you will be
working much longer and much harder than is necessary. By
stopping the places where your wealth is leaking away, you can
achieve your wealth targets with less stress and worry. Also,the more money you have the more important risk management
becomes to maintaining your wealth.
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THE COMPLETE CHICKENS GUIDETO FINANCIAL SECURITY10
Here is a list of some of the consequences you may
suffer by not managing the risks to your wealth:
The possibility of facing a bankruptcy. These areexploding in number and frequency. In 2003, people had a
greater chance of going bankrupt than having a divorce.
(Source: US data on bankruptcies in America,
Elizabeth Warren and Amelia Warren Tyagi, The
Two-Income Trap)
Losing your home
Divorce or marital problems due to arguments aboutmoney
Feeling like you will never be able to retire
Stress from job loss
Not being able to educate your children or grandchildren
Having to be dependent on your children
Having to worry constantly about money
Not being able to travel Not being able to pursue your hobbies
Having to work all of the time
Working at a job you no longer enjoy
Driving an old, dangerous or unreliable car
Not being able to help out your children
Not ever being able to consider retiring
Feeling that you always have to count your pennies
Worrying constantly about your future
Not being sure you are doing the right things
Feeling frustrated by your current portfolio
Feeling vulnerable to wars, recessions, terrorism etc.
Feeling like you are paying too much in taxes than are
necessary
And so on, and so on.
John Yamamoto
If you answered yes to at least one of the
statements above, this is the right book for you. For
nancial security, you need to learn and implement
the investment strategies outlined herein.
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