I have to admit that it’s very exciting seeing my two real-estate development projects coming to fruition [AJC: this is the architect’s rendition of just one of my two condo projects … click on the image to enlarge it … go ahead … do it … I’ll love you for it].
I’ll get back to that in a sec’ …
… first, let me tell you about a conversation that I just had with a friend, while we were playing poker today:
FRIEND: Do you find any parallels between business and poker?
AJC: It’s uncanny, but yes I do … and, it’s caused me to totally rethink the way that I think about money
Well, not so much ‘totally rethink’ as remind me about some important Making Money 301 lessons that I seem to have forgotten …
…. but, I keep getting side-tracked; back to the poker:
Case in point: I had quickly tripled my starting stack in a cash game but, just as quickly lost it on a series of bad beats; bad calls (by them, not me); and bad luck.
When you’re running hot, you feel invincible.
When you’re running cold, nothing that you do turns out right.
… and, your poker bankroll quickly slips away.
Well, it’s pretty much the same thing in business and personal finance:
Your investments and/or businesses are ‘on fire’ … the market’s running hot, and – if you’re smart – you cash out at the peak, building up quite a bankroll.
Maybe you even reach your Number.
What should you do then? STOP and smell the roses!
But, the trouble is, greed and the adrenalin kicks in … you believe that you’ve got the Midas Touch. And, you push for the next project.
… and, that’s the one that gets you.
You know, market downturn, bad luck, bad advisers, etc., etc. sob, sob, sob.
Which is, perhaps, why Ill Liquidity asked me:
I don’t get it. You make a tidy sum and retire from the rat race, paying yourself a salary… why go forth and try new money making ventures?
Given my own ‘stop and smell the roses’ advice in that regard, I agree, it’s hard to understand. Sometimes, it’s even hard for me to understand 😉
So, let me take a stab at explaining it; the story so far:
I made my $7 million in 7 years (mainly through reinvesting the profits of my businesses into buy/hold real-estate), and then made a heap more (by selling those businesses just before the 2008 crash), but ….
… then the crash hit, and here’s where my money went:
1. $1.5 million cash into my house in the US (you know I can’t sell that, right?)
2. $5 million cash into my house in Australia
3. 25% of what I sold the businesses for in taxes [AJC: sheesh!]
4. Lost 100% of my $3 million bonus on company stock price crash + taxes paid on the full $3 million [AJC: double sheesh! … but, it’s nice to know that I have a heap of capital gains tax credits to use for the rest of my life]
5. Gave my accountant $1 million to invest in the Aussie stock market for me … he promptly lost 75% in about 6 weeks. My fault for trying to time the market, not his 🙁
Don’t feel too sorry for me: when others try to get to sleep by counting sheep, I count millions!
My problem is this:
All of this bad luck and bad management has left me with assets – not including my $5 million primary residence – that I consider just enough to live my Life’s Purpose.
But, I am an über-pessimist and I really want a large margin for error.
Now, in my rational moments, I realize that my house provides me that i.e. as soon as the kids move out, in approx. 10 to 15 years, we will sell down into a, say, $2 million apartment, which would free up another $3 million (all in today’s dollars, but the price differential should still hold true).
But, even that’s not good enough for me.
So the question that I am wresting with – and, have decided to put off answering until I have building permits for both projects in my hands:
Will I take my own advice and sell both development sites (with permits) for a tidy profit (if all goes well), or will I pull the trigger and dump most of my net worth into these developments to get the Really Big Bucks?
Only time will tell … but, you will be amongst the first to know 🙂
In the meantime, have you suffered any ‘bad beats’ lately?
Portfolio! Split the difference – sell one, invest in the other.
@ Jake – Timing! The one I want to sell won’t have its building permit until well after the other should be ready to start 🙁
But, yours is a VERY good idea: in fact, I have drawn up a list of assets (including that one) to ‘ditch’ just in case I need the cash …
Lots of people lost a lot, especially those who had some!-)-)
I think real estate will go down further on, just as the stock markets, for 5 more years. Governement will pay the check with increased taxes, so consumers will have to pay and keep their wallets closed. In your view on money making I think the best strategy for the next years is to look for some real underpriced small businesses beeing bought when really underpriced, so you are at the first row when things get better.
@ Jan – Perhaps small businesses … perhaps real-estate while prices AND interest rates are low – provided those undervalued small businesses STAY in business and KEEP paying you rent 😉
Wait for the next Euro country instability like what happened with Greece in May and you can buy a 2 year government bond for 17%…
The bad beat I took was going short on the market at the wrong time over a series of trades that lost a total of 50% of the $170k I put it, I am writing it off as capital losses for offset against future gains one day…
mlm attempt using google adwords to get sign-ups = FAIL!
From your “I’m a money hacker” post:
What is some financial advice you could give our readers?
Most people don’t really know how much house they can afford, so let me give your readers some very specific advice that will help them through every stage of their own financial journey: never have more than 20% of your Net Worth invested in your own house…
Do I understand from this post that $5M of your $7M net worth is in your own house?
@ Bob – Like Ill Liquidity’s question that helped to inspire this post, this is a GREAT question; one that I will have to answer later 😉
Adrian – are you doing the developments to make money or because you enjoy doing developments?
@ TraineeInvestor – I’ll let you know if I enjoy doing developments AFTER (if) I do these two … I’ve never done any before! 😛
Perhaps the answer is to diversify into areas at a distance from the property markets to give yourself a more balanced asset portfolio. Who knows where property will end up in the foreseable future. Is it wise to keep all your investment in it?
Government bonds and the like can be inextricably linked to the housing market. Why not invest in things like gold or small business start-ups (best money to be had coming out of a recession)?
@ Sasha – I particularly like the ‘small business’ suggestion; in fact, part of my financial plan is a $500k fund for business start-ups. My initial plan was to invest in around 10 purely online ‘plays’, but I had ended up with about $300k (so far) in 2 technology start-ups and one much more traditional business.
As to gold: I consider that to be pure speculation (produces no income) and I intend to be almost 100% invested in buy-to-hold real-estate, once I divest myself of these projects.
My diversification will come from buying 5 to 10 quality rental properties … my gains will come from rents and any capital appreciation will be for charity and my kids [ssshh…don’t tell them!].
You seem to breaking your own 20% rule and you also seem to have problems focusing on one area where you could excel.
I am not very impressed. Seems very scatterbrained and thus your losing a lot of value.
@ Mike – Did I mention that the 20% Rule no longer applies when you reach your Number?
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