Marjan Stojanovski - Dont Lose Your Money or Your Mind: Simple Strategies to Invest with Confidence and Never Lose Your Principal

When people talk about investments or the stock market, what thoughts come to mind? Do you immediately wonder what tip you might garner from the conversation or presentation, or does your mind jump to the last time you took a chance on an investment, only for it not to live up to your expectations? Maybe you even lost your principalor several principal investmentsand now youre reluctant to try again.

If youve picked up this book, youre most likely excited about the topic of investment, even if youve been burned by past decisions or market downturn. The prospect of hitting it right in the stock market is undeniably appealing for a variety of reasons. Earning money and financial security is probably the number one reason, but being right about something is a close, often subconscious, second.

The stock market, though, is complex. Its easy to overcomplicate the act of investing to compensate for our nerves and the markets volatility. Rather than forming a plan and sticking to it, we monitor and adjust, follow the crowd, and react to trends and emotions. We choose to play it safe with conservative investment choices, but its impossible to reach our full potential when we never take a chance.

Taking a chance doesnt mean you have to gamble, or accept a high level of market risk. Despite what many believe, you dont have to have a degree in finance, a trust fund, the right connections, or years of experience to be successful in investing. I certainly had none of these when I started down this road. I did, however, know my answer to what turned out to be a very important question in my careerone that I ask my clients, and that Im asking you now: do you think its possible to invest in the stock market and protect your principal investment?

In the summer of 1984, I had just completed my mandatory year of military service with the Yugoslavian army after graduating from high school the prior year. Like many teenagers, I was still trying to figure out my next steps and what the future might hold. The world was harshly divided by western capitalism and eastern socialism, and Yugoslaviamy country at the timewas somewhere in the middle. Private property was permitted, but private business was not.

For a college - bound high school graduate passionate about economics, the social and economic world stage was not ideal. I was determined to follow my interest, but my father had other, smarter ideas. The world is starting to open up, he said, so you need a degree that is recognized throughout the world. Our economics are different than the economics in the west and in the east. Practicing economics, right now, means staying in Yugoslavia your whole life.

My father made sense. Instead of pursuing economics, my first love, I studied computer science. It was a new field in the early 1980s, and I was good at it. I knew, however, that I would one day follow my early ambition and find a career in economics when the timing was right.

Just three years later, the movie Wall Street was released, and I instantly connected to it. The world of stocks, hedge funds, and investment strategies captivated me. I finished my studies and found a job that allowed me to bridge the fields of computer engineering and economics so that I could make the transition and devote all my energy into what I knew was my destiny.

Years later, my dream came true. I had worked for eight years as an independent consultant when I was offered a position with a major hedge fund as the general manager. Accepting the role without hesitation, I finally felt at home in my career.

I was older than most when I started out in the world of investment. At the time, Merrill Lynch was at the top of their game as an independent wealth management firm. They were strong and respected, and they impressed me because they were pioneers.

In the late 1990s, Merrill Lynch came up with a revolutionary product called Market Index Target - Term Securities or MITTS, for short. They were publicly traded securities created for investors seeking capital appreciation and complete principal protection. They allowed investors to maintain a minimum ending value, guaranteeing, at least, the current index value at the end of the fixed MITTS term, which was often six years. If the initial price of the MITTS was $10, $7 might go into a zero - coupon bond to guarantee the full value of $10 at maturity. The remaining $3 would then go into a derivative, like S&P futures or stock options.

The return of the index, however, was locked over the life of the MITTS. If this MITTS worth $10 reached maturity and the market rose 100 percent, the MITTS owner earned $20. If the market dropped over the MITTS lifetime, and the index was lower than where the initial security was issued, the owner was still guaranteed their $10. MITTS investors locked in 100 percent of the index increase, but 0 percent of the downside market risk.

MITTS were not stocks or mutual funds, but rather the debt obligations of Merrill Lynch tied to the value of a particular index. In the early 2000s, Merrill Lynch issued MITTS on the S&P 500 and Dow Jones for many parts of the market. There were MITTS for almost anything, from foreign stocks and the oil and gas industry, to semiconductors and healthcare. There were small caps and large caps. It seemed the options were endless. And anyone, at any level of experience, could use MITTS to invest in the stock market. From amateur investors who didnt want to lose their precious first investment principal, to skilled investors who had played the stock market for years, all could equally benefit from MITTS.