Empirical research on the microstructure of exchanges ordinarily uses intraday price and trade data. However, the format and quality of the data differ greatly by exchange and data source. For measuring quoted spreads, a record of simultaneous bid and ask quotes is needed. In dealership or hybrid markets (with a designated specialist or market-makers with quote obligations), such data are sometimes available. However, one needs to be careful because the quotes may only be indicative (as they are, for example, in the foreign exchange markets) or there may be better prices available from a competing order book.

For the other measures discussed, prices of actual transactions are needed, and typically one also needs to know whether the transaction was initiated by the buyer (‘buy’) or by the seller (‘sell’). For some markets, this classification into buys and sells is easy to establish, since trading is at best quotes or the best prices available in the limit order book (LOB). An important exception is the NYSE, where trading can be within the specialist’s quotes, because either the specialist improves on his quoted price, or trading is with the LOB. Moreover, the NYSE data sources (notably the TAQ database) have two separate files for trades and quotes and the timing is not exactly simultaneous.

This sometimes makes it difficult to classify a trade as buy or sell. Lee and Ready (1991) developed a classification method that has become the standard measure for the TAQ data. In recent years, many high-quality data sets have become available from electronic limit order book markets, where all trades are cleared against the limit order book. This permits unambiguous classification of trades as buys or sells.

You will notice that in this second stage there are no stocks, options, futures, metals, rare coins, or derivatives in the portfolio. And there is a good reason for that. When you have less than $100,000 to invest and less than a long time to get rich, you should focus on only two things:

1. Continuing to increase your income by continuing to perfect a financially valued skill such as selling, marketing, product development, or profit management

2. Investing the surplus in high-return equity ventures If you focus on this for a few years, chances are that you’ll end up with a surfeit of cash—that is, more cash than you need for your side business and real estate ventures. This extra cash should be kept safe. Extra safe. Remember, this is the beginning of your retirement nest egg. So place this surplus cash in bonds, and reinvest the interest in bonds, too. Make it a primary objective to have this safety reserve grow substantially every year. Once your bond savings become significant, you’ll start to appreciate what a valuable, comforting investment bonds can be.

You could, for example, create a side business selling a skill you currently have (accounting, legal, writing, editing, purchasing, etc.) or could develop (graphic design, copywriting, resume writing, etc.). Or you could turn a hobby or passion (stamp collecting, gardening, pets) into a profitable, Internetbased direct-marketing business.

As your side business grows, it will require that you reinvest some of the profits into creating new products, hiring employees, and developing new advertising campaigns. You should allow for growth, but limit it to avoid growing so fast that you end up losing control and getting into trouble.

Equity-building real estate. Buying equity-building real estate means buying rental properties. The trick to making this work for you at this second stage of wealth is to buy conservatively— that is, to make sure that the rent you’ll get will at least meet (but should really exceed) your cost of maintaining the property. I recommend duplexes, triplexes, and quadruplexes to start. They’ll give you the best chance to achieve zero or positive monthly cash flow. How much equity-building real estate should you develop? If you have a net worth of $100,000, I’d recommend a little more than half. Let’s say $60,000.

Fixed-income instruments. The rest of your money should be in Treasuries, municipal bonds, or quality corporate paper. Fixedincome instruments like these don’t provide a high return, but they are safe.

When you get to the next stage—that is, when you have between $25,000 and $100,000 to invest—you can take a multilayered approach to your investing. I like the following simple five-part formula.

1. Cash. The first money you save should be marked for emergencies. This needs to be put someplace that is secure but easy to access, such as a home safe or a safe-deposit box. The amount you should keep for emergencies depends on your personal situation: how much you typically spend, how reliable your income is, and so on. As a rule of thumb, though, I’d recommend about 10 percent of your investable net worth. If you have $100,000, that would be $10,000.

2. Income-generating real estate. I recommend buying and flipping real estate for everyone, even beginners. If you start when you have less than $25,000 to invest and make a few deals, by the time your investable net worth hits $100,000, you should have a pretty active, nicely profitable second stream of income.

3. Side business(es). If you didn’t want to get involved in a side business when you had less than $25,000 to invest, you should consider it at this stage. You don’t have to risk a ton of money. Invest $10,000 conservatively in a business you understand and see where that takes you.

If your scope is seven years or less, there is only one answer: Start a business. You can’t start a capital-intensive business with $18,000. You can’t, for example, open a restaurant or create a new line of pharmaceuticals. But you don’t want to be in those businesses anyway. (The risk/reward ratio isn’t working for you.) Much better to start a business selling something you know about—such as gardening or collecting beer steins or taking care of pets. You can start a little business like this for a few thousand dollars if you start small and go slowly—at first.

It’s true. And you will probably never hear this from any other wealth-building “expert.” Unless you have more than $25,000 to invest, you probably shouldn’t be investing in individual stocks—and you definitely shouldn’t be trading options and futures.

The reason is simple: You want to get wealthy in 7 to 15 years— preferably in less than 7. There is no way that $25,000 can turn into something that even sounds like wealth in that amount of time— hough there are a lot of professional investment gurus who will tell you otherwise. In fact, there is a huge, multi-billion-dollar business that is determined to snow you on this issue.