The Cynic's Guide to Investing

The Cynic's Guide to Investing

by Bradley Garrone & Alex Karidis

ISBN: 9781478752295

Publisher Outskirts Press

Published in Business & Investing/Investing, Business & Investing/Reference, Nonfiction, Business & Investing/Processes & Infrastructure, Business & Money

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Book Description

The Cynic’s Guide to Investing is a hybrid analysis of economic policy, trends and demographics, and investment strategies, Written in a concise manner, The Cynic’s Guide to Investing covers a vast array of topics from fiscal and monetary policy, to healthcare, energy markets, lobbying efforts, and of course investment strategies and much more. With money comes power and with power comes the ability to influence markets (think big government-big business). This power structure has invoked passionate dissent from both the right and the left (think Tea Party and Occupy Wall Street).

Sample Chapter


Welcome to The Cynic’s Guide to Investing! We hope you find the content informative, insightful, compelling, and even humorous— or perhaps tragic in some instances. It is our goal to lay the groundwork for why you should be thinking like a cynic when it comes to your investment strategies. We will introduce you to the Rules of the Cynic, which is nothing more than a checklist that we would recommend you consult before entering the markets. We believe that a key strength of our investment strategies and perspective on the status quo lies in our flexibility. What we mean by this is that we are big-picture investors and we do not think it prudent to get caught up in the countless investment metrics that exist. Every time you turn your head, there is another book out telling you about the next big thing or the secret of the top players on Wall Street. This book is not about fads and secret formulas, nor are we reinventing the wheel. What we are providing is a new perspective on investing: one that focuses on observation and logical connections. This does not mean that you ignore the P/E ratio or the current ratio of a company. Indeed, these metrics do serve a purpose, but they do not tell the whole story.

You must also understand that we are all economic agents. On one side of the ledger we are consumers, seeking goods and services at the best price possible. On the other side, we are producers, trading our time and labor for wages so we can consume those goods and services. Lastly, we are voters and citizens concerned with our well-being and that of future generations. All of this comes together in a complex world of interconnectedness. In understanding these connections, you evolve into an unfettered investor, free to construct a lasting portfolio through the exploitation of these connections, thus realizing investment success. Despite the complex nature of the global economy, you will find throughout this book that we like to keep things as simple as possible, and you may even see that things are not as complex as they appear on the surface. Thinking like a cynic allows you to cut through the headlines and the noise of the day and get right to the fundamentals of the story. We intend to equip you with the tools you need to get straight to the heart of the problem by asking the right questions. Remember that in any climate there are always opportunities to make money. As cynics, we have the skills necessary to identify those opportunities, and more importantly, we understand why they are opportunities.

For the simple purpose of making sure that we are all on the same page, we want to take a moment to provide our thought process, our definitions of terms, and to describe the layout of this book. First, this is not a political book; this is a book about investing. However, we feel it prudent to inform you of our line of thinking; in today’s modern world, it is difficult for some people to separate politics from everything else.

We are proponents of the freedom philosophy. We believe in individual liberty, personal responsibility, non-interventionism in personal, domestic, and foreign affairs, small and limited government, and free-market capitalism. In short, we just like to call ourselves Americans. Please note this next point because we cannot stress this enough, and in fact, you will see this point being made through the entirety of this book. We are not happy with nor are we proponents of the status quo of the United States, with respect to the socioeconomic and political landscape. We are firm believers that we, as a nation, have deviated much too far from the freedom philosophy. We find government at all levels to be too large, too powerful, and too intrusive. We believe that there is very little sunlight between government and big business. Further discussion will take place throughout this text, highlighting these points. However, the main point we seek to drive home is that while the status quo is far from being satisfactory in our view, this is, nevertheless, the environment in which we live. In keeping with investment strategies, we find this an indispensable attitude that must be vigilantly maintained. We must remove ourselves from emotions and from our views on what the world should look like. In order to change the world and for it to adhere to the freedom philosophy, a great shift, and we would even term it to be an intellectual awakening, must occur.

We will show you the trends of government and business, and the demographics that give shape to those trends. We feel it will become evident to you, upon analyzing such trends, why we are not satisfied with the status quo. At the same time, it should also be evident where investment opportunities exist. Some of you may agree with us on our views of society and others may disagree, and either is completely fine. The purpose of this book, first and foremost, is to offer a new perspective on investing. We simply provide our personal views so that you understand our logic and reasoning, as they serve as the foundation for our investment strategies. We want you to walk away with new skills, a new way of thinking, and ultimately a new perspective, so that you may become better investors. Should you become proponents of the freedom philosophy along the way, then great; if not, believe us, we will not be heartbroken. The important thing to remember is that we want you to be able to make observations and then make the necessary connections to capitalize on opportunities wherever they exist.

Next, allow us to discuss some terms and their definitions, as defined in this book. Let us start with free-market capitalism. To reiterate, we believe that the United States has deviated from this economic system, much to our detriment. Yet free-market capitalism needs to be explained further, so let us do that. Free-market economics is minimal involvement from government regulation and intrusion. It provides for an open economy, thus espousing a belief in free trade. Further, it allows people to allocate their skills where best utilized. In short, it permits the individual to live his life how he sees fit, constrained only by his skill level, the demand for it, and his work ethic. Yet we can also elaborate further on freemarkets. Freedom or being free is the absence of force and/or coercion; while the term markets describes individuals coming together to exchange goods and services at an agreed upon price. To understand capitalism, we look to the root of the word: capital. Capital comes into existence when you trade your time and labor for wages. From these wages you have the ability to spend your money on the goods, services, and investments that you desire. Hopefully, some of your wages are saved and from these savings, banks are then able to lend that money to grow and support the economy.

These definitions are rather clear-cut, and there is not anything fancy about free-market capitalism. It is a simple system that allows people to do what they want with their resources of labor, time, and capital. It is a system that we find rather beautiful because it embraces the human spirit. There is no other system in the world that has elevated more people from the depths of poverty, sickness, and tyranny than has free-market capitalism. We believe in the human spirit. From this, we see ourselves as unique individuals capable of accomplishing nearly any feat, constrained only by our collective consciousness and imagination. Free-market capitalism is simply a system that allows for the human spirit to take root, planted by individual passions and ventures and harvested by the collective society.

Now that you have the definition of free-market capitalism, we now ask that you take a moment and ask yourself if the United States is truly a free-market capitalistic system. We say no. With the degree of government involvement in the economy, one would be challenged to argue that this is a free-market society. We will discuss the Federal Reserve System in subsequent sections, but suffice to say that fractional reserve banking is not capitalism, when money can be created from nothing. We believe that what we are currently experiencing more closely resembles a corporate state, which by definition is fascism. We will offer our definition on this in a moment. We do not want to dwell for too long on free-market capitalism, but we would challenge you to find a system that has transformed the world for the better to the degree that free-market capitalism has.

When we use the terms fascism or corporatism, what we are referring to is the close relationship between big government and big business. Some may use the terms quasi-capitalism or crony-capitalism. Whichever you prefer is fine, but for the purpose of this book, just recall that it pertains to the cozy big government and big business relationship. Is it any wonder why some of the wealthiest counties in the US are in close proximity to Washington DC? Lastly on this point, please understand the function of the marketplace is to find equilibrium, which is accomplished through price discovery. When the government and Federal Reserve intervene in the markets, which is a perpetual occurrence, prices, and thus markets, become distorted. Such distortions can yield many opportunities, and in turn profits, for those who know where to look. We will talk more about this in subsequent sections, but note that these distortions give rise to the business cycle, or the booms and busts that we have come to experience.

The final definition that we wish to discuss pertains to Too Big to Fail (TBTF). This goes hand-in-hand with our definition of the corporate state. The State has basically made a proclamation that these entities that fit the State’s definition of TBTF (which of course they can change as the wind changes direction) are too important to fail and to succumb to market forces. Instead, the State will inject itself into the matter, even more than it already has, to “save the day.” We too will conduct a further analysis in subsequent sections, but the important point to take away is that TBTF is not just a catchphrase; it is the attitude and model of today’s economy.

Allow us to move on to the layout of the book. The Cynic's Guide to Investing is broken down into the following four sections: Follow the Money, Trends and Demographics, Know the Players, and Connecting the Dots. The first three sections will support our belief that if you are going to enter the markets, then it will behoove you to become a cynical investor. In these earlier sections, we will provide you with in-depth research, focusing on what we believe to be the most important pieces of information. Please note that each section discusses topics worthy of their own books. We are confident that you will be able to come up with additional examples that have been omitted. However, we feel confident that you will understand our point with the research and data provided herein, to arrive at our desired conclusion: that being a cynic does in fact, pay!

Throughout the book, you will also see what we term “Asides.” The Asides are nothing more than our personal opinions of the topic at hand, and more generally they account for our beliefs about the status quo...

Remember, we are average guys here, not academics in ivory towers describing a utopian vision. We make observations, make connections, and make money and sense. In the process, we like to joke around and laugh at some of these observations and we hope you will too. Also throughout the book, you will see the Greek symbol Sigma, ∑. For those of you who are not familiar with it, this is an operator used in mathematics to denote summation. We find it appropriate to utilize it here to remind you that the research and data herein represents a summation of investment ideas. We also use the symbol as a means to reducing any redundancies that may occur from the early sections and the Investment Strategies section. Lastly, when you see ∑, we want you to take a moment to ponder about what investment opportunities you can think of and then see how they align with our recommendations.

The last portion of the book, Part IV, pertains to Connecting the Dots, which describes our Investment Strategies. While we focus primarily on equities in this section, please note that the Rules of the Cynic can be applied to any asset class. We also provide different strategies that will correspond to the varying degrees of your investing expertise. It is worth mentioning that even though a great focus is given to equities, this is not meant to imply that this our “favorite” asset class or the only asset class worth investing in. We are at the end of the day “cynical-cycle investors.” This simply means that differing asset classes fall in and out of favor and there is no reason to hang on to investments when they are out of favor, especially after profits have been made. However, there are many nuances involved and exceptions may occur. With cycle investing, we would take our profits from those asset classes falling out of favor and invest in the sectors and asset classes that we believe will prove profitable. We believe that by adhering to the Rules of the Cynic and becoming a vigilant investor, we will be able to time well, but not perfectly, when to exit some markets and enter new ones.

The name of the game is investing and profitability is the goal. We believe the contents herein will provide you with a different and new perspective that if used appropriately will result in your becoming a successful investor. The Cynic’s Guide to Investing, we hope, will prove to be an invaluable tool that you can rely on time and time again. Remember that it is about making observations, making connections, and making money. We thank you for your time in reading our book and are confident that you will learn something new and informative. And by the time you have finished, you will have gained a new perspective on investing. After all, it is not a bad thing to be a cynic, especially when you are making money. Enjoy!

The Circle of Life Sucks

As cynical investors, we are naturally inquisitive regarding why humans behave the way that they do. Through understanding the wants, needs, aspirations, etc. of individuals, it is then possible to forecast spending patterns, at least in a big-picture sense. We believe that thinking through the wants and needs of the average individual, from cradle to grave, will shed much light on these motivations. These motivations impact spending, and ultimately corporate profits, which in turn contribute to the formulation of investment strategies.

Ponder back as far as you can. Yes, recall what life was like as a child. For those of us who were fortunate enough to have had a memorable childhood, the world in which you lived was an endless expanse of possibilities, patiently awaiting your discovery. Loved ones were larger than life. There was no feat that your father could not accomplish. No other person could feasibly love you to the degree that your mother loved you. Stop for a moment and ask “What happened from then to now?” One wishing to provide a simple answer might just say “You grew up,” but this response is unsatisfactory, particularly for us cynics seeking to parlay our view of the world into investment know-how. During the time that “you grew up,” countless lessons were learned, many experiences had, truths as you perceived them were eventually unseated; the real truth was unsettling, if not devastating. The 1970s band Supertramp puts it well in “The Logical Song.” The song paints a vivid, heartfelt picture of the loss of innocence that most (if not all) of us eventually experience. As this innocence is lost, a hardness creeps into our psyche, eventually maturing and temporarily filling various voids. The messages in the song itself are shockingly congruent to overarching themes running throughout this book. The song implies a realization that individuals fall prey to the pressures of society. These pressures inevitably precipitate a defeatist mentality. Folks instinctively know that something is not right. Yet, they are still discerning enough to admit that they cannot figure it out; they throw their hands up. At the end of the day, it is pretty simple: do not disrupt the status quo...

Nevertheless, life marches on, still acutely aware and envious of this childlike and blissful state. Yet this hardness still fails to satisfy our yearning hearts; true contentment eludes the masses. Saturating one’s life with temporary escapes from permanent problems is all too familiar. Case in point, consider comedian Denis Leary.

Comedian Denis Leary sums up this notion best in his Showtime special “No Cure for Cancer.” Mocking an overly-sensitive individual, he condescendingly and annoyingly quips how unhappy he is. He continues ranting about his frustrations because his picture-perfect life did not materialize as anticipated. Mr. Leary then snaps back to himself in character, derides the sensitive individual, and sarcastically reminds the audience how unfair life is. Continuing, he bestows his “wisdom” on the audience by contending that happiness is to be found only in sex, alcohol, cigarettes, and indulgent consumption. Temporary escapes from permanent problems might be an understatement! If you found yourself chuckling, we imagine it is because Mr. Leary’s “wisdom” resonates all too well. Welcome to the club!

Getting to the Circle of Life Sucks, we are now able to analyze the industries that have sprouted up to satiate this demand for temporary blissful escapes. Having sex, maintaining a poor diet, drinking and smoking, and then passing out, getting up to drive to work, just to do it all over again – this embodies the circle, and also completes it. Enter the industries of entertainment, fast food, alcohol/ tobacco, gambling, hospitality, energy, and pharmaceuticals (∑). This backdrop reveals the interconnectedness of these industries. We can now move on to our discussion of the mutual fund business.


Excerpted from "The Cynic's Guide to Investing" by Bradley Garrone & Alex Karidis. Copyright © 2015 by Bradley Garrone & Alex Karidis. Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher. Excerpts are provided solely for the personal use of visitors to this web site.
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Author Profile

Bradley Garrone & Alex Karidis

Bradley Garrone & Alex Karidis

Having both grown up in blue-collar towns of western Pennsylvania, authors Alex Karidis and Bradley Garrone know all too well the value placed on hard work – both having had their fair share of it. Whether pouring concrete in the August heat or roofing in the dead of winter, the Rust-Belt mentality and work ethic is forever ingrained in their character. Witnessing how hard work does not necessarily translate into wealth led Alex and Brad into the study of economics, finance, mathematics, history and politics.

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