Business for sale?

Posted on April 28, 2008 by Adrian

As you know, I’m a member of Networth IQ – and quite an active member, at that! I love reading and answering questions …

[AJC: you’ve probably already seen that from the detailed responses that I try and give commenters on my posts on this blog … try me, if you have a question … I just won’t give direct personal advice, because I am not a qualified professional, but I will give general advice if I think it will benefit all of our readers]

… and this unique site provides a great platform (as does Tickerhound, which provides a great Q&A forum on everything from stocks to real-estate).

For those of you who aren’t members of Networth IQ, here is an exerpt of a great question:

I found a business for sale that has generated the following free cash flows since 1998.

1998 – $3,426.0 Mil
1999 – $3,949.0 Mil
2000 – $4,917.0 Mil
2001 – $7,133.0 Mil
2002 – $6,077.0 Mil
2003 – $8,333.0 Mil
2004 – $8,956.0 Mil
2005 – $9,245.0 Mil
2006 – $11,582.0 Mil
2007 – $12,307.0 Mil

The current owners are asking $183.49 Bil, …. I don’t have $183.49 Bil, but they said that they would sell me a smaller portion of the business if I wanted … Should I buy?

I like this question on two levels:

1. It’s a neat reminder that when we buy stocks, we’re not just buying ‘bits of paper’ … we’re buying a small piece of a real, live business!

And,

2. It gives me an opportunity to show you the sorts of questions that I would ask – and the types of information that I would be looking at before buying into this – or any – business.

According to Warren Buffet (or sources who purport to know how he works) the intrinsic value of a business is in its discounted cashflow.

That is, a business is – or should be – a cash machine … what’s the reason for owning it, if not to get some cash out?

So, in the above example, we should be able to decide if the business is worth $183.49 Billion (not knowing the company in the above excerpt, I am assuming that this number represents the entire current market capitalization of the business) by discounting the cash-flows shown above …

… a quick look at the most recent cash-flow figure shows that it is currently producing $12 Bill. cash per year (probably growing, if history is any guide); that would mean about 15 years to get our money back … yuk.

Now you know why the stock market is generally a fool’s game … I would by far prefer to invest in my own business, or buy a private one at ‘only’ 3 to 5 years free cash-flow (better yet, Net Income), and grow it … then float it myself!

Or, at least sell it to a public company who can immediately ‘claim’ 15 times my Net Profit (hence, give me 7 to 12 times my Net Profit).

But, if we are going to play ‘the stock market’ game, what would we need to know before we can make an informed decision about ‘investing’ in this stock?

Hmmm …

As I pointed out, the free cash-flows on their own say nothing …

For example, I recently sold two similar businesses: one had been going for many years and generated ‘free cash flows’ [now that’s an oxymoron!] of $1 mill. and the other was less than 2 years old and had yet to make a dime.

Yet, I sold them both (separately) for about the same price! So, there must be more to the valuation of a business than Free Cash-flows, right? Absolutely!Let’s start with Return on Invested Capital:

I’d like to know what it has been for this company (and, the industry) over the past 5 years? I’d like to see an improving trend in excess of 15%, please.

Then, is the company growing?

Cash Flow is just one measure (but, what about operating cash-flow … have they made any strategic purchases / major capital expenditures /etc.), so what about the 10 years trends in: Earnings? Book Value? And, what about plain, old Sales?

I’d like to see a history of growth (min. 10%) in all of these …Now, how is there debt situation?

How long will it take them to cover their long-term liabilities from ‘Free Cash Flow’?

I’d like to see no more than 2 to 3 years.

Do the people who run the company own stock? Are they buying or selling?

Tell me about the company: do they have a ‘sustainable competitive advantage’ (what Warren Buffet calls a ‘Moat’ … but, that’s too much water for me!).

Do I believe this company will be around for the next 100 years … do I really want to buy THIS business in THIS industry?

Lastly, if I like the answers to all of the above (unlikely … so far I’ve only liked the answers to similar questions for 7 companies out of the 5,000+ that I can currently buy a ‘piece’ of) …

…. then how CHEAP can I get this thing!?

PS I made the ‘other’ category … waaaayyyyyy down at the bottom of the 150th Carnival of Personal Finance … whoo hoo!

How much interest do you earn on one million dollars?

Posted on April 19, 2008 by Adrian

Welcome new readers!

Here are three of my favorite posts to get you started; if you want to find out:

1. If $1 million will be enough to retire with, then click here, or

2. How much house you can afford, then click here, or

3. Why buying a new car is such a losing proposition, then click here.

Otherwise, please enjoy this article, then bookmark my home page (click here) and come back often …

____________________________________________________________________________________________

“How much interest do you earn on one million dollars?”

This was the question that Clint at Accumulating Money asked in a ‘classic’ post – I commented on it earlier this year and still receive click-through’s two or three months later. It must be a very popular question!

I’m not sure why, because it implies that people are happy to just have their life savings ‘sit’ in CD’s …

… but, here’s the answer to the “million dollar” question courtesty of Accumulating Money anyway:

So, to answer the question, how much interest do you earn on One Million Dollars (assuming a 4% interest rate, compounded monthly)?

One Day – $109.59

One Month – $3,333.33

One Year – $40,741.54

Five Years – $220,996.59

Ten Years – $490,832.68

Twenty Years – $1,222,582.09

I think this related question asked by Afroblanco at Ask Metafilter – repeated on Get Rich Slowly (which is where I picked it up) – really goes to show how The Savers (as opposed to The Investors) think:

“What’s the safest possible thing that I can do with my money?” :

I take bearishness to an extreme. Having witnessed the 2000 tech crash, I have no faith in the stock market or the US economy. I keep all of my money (USD) in a savings account. However, with the recent financial turmoil, I have a few questions:

Is it conceivable for the FDIC to fail?

If so, is there a place where I can put my money that will be safer than a savings account?

What’s the safest, most risk-free way for me to save money and not get killed by inflation and the tanking US dollar?

If there is a safe way for me to save money and not be punished by inflation and the depreciating dollar, is there a way that I can do this without having to stress out and micromanage my finances? I don’t want to be checking the finance page and making adjustments every day.

Even though I follow finance news, I’ve never done any investing or money management other than socking money away in my savings account. I’m a n00b, I admit it.

OK … I confess …. I am like our friend, Afroblanco … very risk-averse; yet I have become rich by understanding that it is actually safer to invest than not.

The GREATEST RISK that our friend can take is NOT TO INVEST … inflation will just eat up any bank deposit/CD strategy.

Take Accumulating Money’s example above:

One million dollars approximately doubles in 20 years … but, inflation will halve its buying power!

Think about it, if the average bank interest rate is 4% (pushing the value of your savings UP) and inflation averages 4% (pushing the buying power or value of your savings DOWN), what have you gained in 20 years?

Nothing …

Now, if you just push your savings into a low cost Index Fund that averages, say, an 8% return over the 20 years, then the same 4% inflation means that you should effectively DOUBLE the value (or ‘buying power’) of your million dollars over 20 years.

But, Afroblanco is even better off BUYING The Bank [i.e. investing in the Bank’s stock] than putting his money in The Bank. The risk of failure is about the same (if the bank fails you will lose the money that you have IN the bank’s vault as well as the money IN the bank’s stock), yet, as long as he has a long-term view (minimum 20 to 30 years), the former strategy will make him rich and the latter broke.

If the bank stock averages just 12% average growth over 20 years – as any well-picked Value Stock, can easily do – then Afroblanco won’t just double the buying power of his money ONCE, he will get to double it TWICE … that’s $4 million AFTER the effect of inflation (or, the $1 million grows to $10 million in ‘raw’ dollars).

What about risk? Aren’t bank deposits FDIC Insured?

[AJC: Well, yeah … up to a paltry $100k – of course, you could open up 4 bank accounts at 4 different banks … but, $400k is hardly what I hope my readers are aiming at!]

But, inflation is a much bigger risk: 100% certain to eat up your money … and, would the Federal Government (the same entity backing the FDIC) allow a Major US Retail Bank to fail?

I guess we’ll find out in the next few months!

If you don’t believe that’s likely, then isn’t your money just as safe in The Bank as it is in the bank?

[AJC: think about it 😉 ]

And, doesn’t The Bank’s stock at least meet the overall market returns which averaged 8% p.a. for the past 100 years … what have bank deposits averaged in that time? 3%? 5%?

The point here is not necessarily to buy stock in The Bank … rather it’s to think about Investing rather than Saving …

Before suggesting WHAT to invest in, we need to know HOW long is our friend is expecting his money to last? Assuming that our friend is a hands-off investor, here’s what I suggest as the lowest-risk strategies possible:

If less than 30 years, then TIPS are a an option – PROVIDED that he can live off the inflation-adjusted interest (unfortunately, very unlikely in the current low interest environment – but, in 5/10 years, who knows?).

If 30 years or more, then a low-cost Index Fund is ideal for a hands-off investor. There has been NO 30 year period since the recording of the stock market indices where the market has not produced a positive return well above inflation.

If he is more hands on and/or more knowledgeable, then I would recommend no more than 4 or 5 well-selected individual stocks and direct investment in real-estate, for any time period 10 years or greater.

Inflation forces us to invest … because of this, inflation is our friend!

… 7million7years doesn't even know how much is in his Retirement Accounts!

Posted on April 17, 2008 by Adrian

[continued from yesterday]

Now, I’m not particularly proud of this … but, it is true … I have no idea how much is in my retirement accounts; and, I didn’t even bother opening my own 401k account as CEO of my last company!

Why?

Yesterday, I wrote about the costs that can build up in the ‘food chain’ of the investing world, showing that merely accounting for the cost-differential between a typical mutual fund and a typical low-cost index fund can account for 20% of the performance of your entire investment portfolio after just 10 years.

I also, mentioned that I don’t like any of these products (even low-cost index funds, even though I will recommend them to lay-investors), primarily because of lack of control and too much diversification (who ever got rich from diversifying?!) …

So, the second part of this post will, hopefully, tell you why I don’t worry about 401k’s and Roth IRA’s as well as address a question that I recently received from a reader who asked:

Any suggestions on a strategy to use for retirement accounts if you earn beyond the limit for a 401k and Roth Ira? I have no company match for a 401k … get hit hard in taxes and have discovered that there is an income limit to a 401k and Roth IRA. Any suggestions?

Well my simple suggestion is: don’t …

The only time that I invest in a retirement account is when my accountant says:

“AJC, you have too much income flowing in, we had better plonk some into your [401k; Roth IRA, Superannuation Plan, whatever]”.

Yet, using a tax shelter is saving money, and as yesterday’s post showed, even a small difference in cost can add to a big difference in outcome … so, what do I really recommend and why?

If you still have plenty of working years left, I don’t recommend that anybody invests inside their company 401k except to get the ‘company match’ (who can argue with ‘free money’… yee hah!)

I also don’t recommend that anybody – who still has 10+ years of working/investing ‘life’ left – invests inside any tax-vehicles (such as a Roth IRA) etc. UNLESS they can:

(a) Choose their investments, and

(b) leverage those investments.

By choosing, I mean the whole gamut of what we want to be investing in: e.g. businesses, stocks, real-estate, and ???.

Now, in practice, these 401k/IRA’s are limited, so if you don’t intend to invest in some/all of these classes of investment or you have so little money to invest that you can ‘fit’ the whole or part of your intended, say, stock purchase strategy into one of these vehicles then, absolutely … knock yourself out!

Therefore, for most people, it’s still possible that a 401k or Roth IRA can provide an important place in their investing strategy … simply because the amount that they have to invest is so small …

… even so, they should go ahead only if it doesn’t limit the scope of their overall investing strategy, hence returns!

And, we should all know by now that primary importance of your investing strategy should be set on maximizing growth unless:

i) You are within a few years of retirement, when you no longer have time to take risks and recover from mistakes), or

ii) Have such a long-term, low-value outlook that simply saving in a 401k will do the trick (in which case, invest to the max.).

Just remember, this blog and my advice isn’t for everyone … it’s only for those who need to become rich …

… which usually means getting into investments that:

1. You understand and love, and

2. You can grow over time, and

3. You can leverage through borrowings.

If it doesn’t meet all three of these criteria, I simply don’t invest!

Direct investments in businesses and real-estate are the investment choices of the rich because of these three criteria… stocks to a lesser degree (you can only ‘margin borrow’ up to 100% of these, so the amount of ‘leverage’ that you can apply is lower than for, say, real-estate) … and, Managed Funds even less so (you can margin-borrow only on some of these, and only from limited sources).

For me, the limits that tax-effective vehicles place on me, and the maximums that I am allowed to invest in them, automatically reduce these typical ‘tax shelters’ to a very minor position in my portfolio … so minor, that I allow my accountant to manage them for me, totally.

Remember, though, that they only became a minor portion of my portfolio because I followed the advice that I am giving you here when I was still early into my working/investing career!

Now, I hope that (eventually) you, too, will have so much money OUTSIDE your 401K that whatever is INSIDE will be insignificant for you … in the meantime, at least invest for the full company match.

Pretty controversial? Let me know what you think?

Why 7million7years doesn't buy 'packaged' products …

Posted on April 16, 2008 by Adrian

I left a somewhat tongue-in-cheek footnote to a recent post on the differences between Index Funds and ETFs (if you didn’t read it, I favor the former over the latter for neophyte investors, and neither for serious investors):

Important Note: 7million7dollars does NOT currently invest in any Index Funds, Mutual Funds, or other “Packaged Investment Products” … apparently, he is just a (rich) product of the Stone Age

It seems to me that the wave of packaged products has increased over the past 20 years.

No longer do you tend to hear those stories of people like the reclusive and grumpy Old Man Miller who fell off a ladder and died leaving no heirs and a box of dusty old stock-certificates that now just happens to be worth $900,000 (not to mention a pile of gold just sitting under some lumber in the old wood-yard)!

It’s not just stocks … it seems that you can’t buy L’il Jon a toy without taking out your industrial grade laser to burn through 15 layers of impossible-to-open plastic ‘bubble’ packaging.

Think about the cost-differential between a typical consumer product at manufacture (the price it cost the guy who made it in: raw materials, labor, tooling, bulk packaging, and bulk shipping) and the eventual end consumer who buys it at retail: the price can inflate by 5 to 7 times … or even more.

The more hands, the more cost … simple.

Similarly, with ‘investment products’ …

… in my perhaps archaic way of looking at things, the further removed that I am from the investment, the less control I have, the more people who want to add cost (including their profit) into it, and less I like it.

That’s one of the reasons that businesses (my own) are my favorite form of investment … followed by direct investment in real-estate … followed by direct investments in company stock.

Now, if you do decide to invest in a fund, why would you choose a Low Cost Index Fund over the typical well-diversified Mutual Fund?

Unless, you can guarantee to find me a Mutual Fund that will outperform the market over the next 10 years (considering that 85% of fund managers don’t beat the market, that’s an easy bet for me to take), I would choose the lower cost option, simply because of cost.

If the Index Fund charged you only 0.25% of your total investment amount to enter the fund and another 0.25% a year to manage it for you, but the mutual fund charged you 1.0% and 1.0% [BTW: in this example, the Index Fund fees are too high and the Mutual Fund fees are too low] …

… over just 10 years (assuming an average 8% return for each), you would have paid the Index Fund just over $43,000 in fees … but, the Mutual Fund $157,000.

Why so much?

Because, you also need to factor in the foregone earnings on the amount that you could have had invested, if those fees weren’t there …

On the other hand, if you invested directly in some stocks and just managed to meet the market, with little to no fees (it costs just $7 to buy, say, $25,000 of stock using an on-line broker) …

… now you know why I don’t like packaged products!

I encourage you to run some numbers for yourself …

[To be Continued]

Index Funds or ETF's … you choose …

Posted on March 22, 2008 by Adrian

For those of you trying to ramp up your long-term savings plans, Index Funds and ETF’s offer two great alternatives to CD’s and savings accounts … and a MUCH better alternative than typical Mutual Funds (due to lower costs and similar or even better results).

But, don’t kid yourself, these are savings plans, not Investment plans (there is a difference) …

But, if you are committed to saving rather than investing, you have CHOICES.

Specifically, you can now choose between two very low cost options: Vanguard Index Fund (or similar) or ‘Spider’ ETF (or similar).

There was a great post on The Simple Dollar that I think summarized the differences very neatly:

An ETF is an exchange traded fund … a specific example is the Spider ETF, which matches the S&P 500 in much the same way that the Vanguard 500 does.However, in the end, they’re still not the best deal, as pointed out by this Forbes article.

The Simple Dollar post also talks about what to do while you are saving for your entry fee (unlike a bank, you can’t just plonk down $50 every time you want to buy a few shares in the fund) ….

…. if you are in serious saving mode, why don’t you take a read?

But, why Index Funds or whole-of-market ETF’s in the first place, why not mutual funds?

For answers to these questions, I usually try and go straight to the ‘top’ …

… to the greatest expert in that field that I can find. And, in the field of stock investing there is no better advice than that given by the World’s Greatest Investor himself, Warren Buffet, who once said:

The “know-nothing investor” should both own a large number of equities and space out his purchases. By periodically investing in an index fund, for example, the know-nothing investor can actually out-perform most investment professionals. [W. E. Buffett – 1993]

Who would argue with the World’s Richest Man?

Important Note: 7million7dollars does NOT currently invest in any Index Funds, Mutual Funds, or other “Packaged Investment Products” … apparently, he is just a (rich) product of the Stone Age 😉

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The greatest advice from the Oracle of Omaha

Posted on March 2, 2008 by Adrian

As the latest in my ‘videos on sundays’ series, I offer some advice from the man billed as the ‘greatest investor who ever lived’.

In 7 minutes you will have ALL of Warren Buffet’s secrets 😉

… maybe not, but you WILL have some insights into his life (the first three minutes) followed by some of the best investing advice that I have seen.

Warning: some of these slides flash across your screen so fast that you will have trouble following them, so pay attention to the very last two slides if you are not an expert investor:

http://youtube.com/watch?v=iW1eg9p5wq4

BUT …

If you are a student of investing, have a long-term view and are willing to dedicate some time and effort, take note that Warren offers exactly the opposite advice for you …

Wide diversification is only required when investors do not understand what they are doing.
Warren Buffett

… he also points to this time in history as being possibly a great time to make your fortune:

We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Warren Buffett

I see a lot of doom and gloom … I bet that Warren Buffet is gearing up for something big …

What are you doing right now?

The 4-step, never-fail plan to making a fortune in real estate …

Posted on February 29, 2008 by Adrian

There is a lot of BAD stuff written about real estate and a little bit of GOOD stuff … start by finding and reading some of these good books (google “John T Reed” and see which books he recommends and which ones he pans).

The truth is that most people MAKE money through a business, then KEEP money by investing in real estate.

If you can’t (or won’t) start a business (even on the side) then you can at least accelerate your LIFE SAVINGS PLAN by buying and holding income-producing real-estate.

Right now, it’s very simple:

1. If you don’t yet own your own home (but would like to) BUY one now and LOCK in the interest for 30 years.

Why?

Home prices are relatively cheap (if you think they will get cheaper then wait a little longer … if you’re not SURE they will get cheaper, buy now).

Money is cheap – mortgage rates are probably 2% lower than they will be by 2009 or 2010.

You want to keep buying that cheap money for as long as possible …

… but, only IF you are prepared to take the next step, which is to …

2. Assess the increased / excess equity (what your house is worth – what you still owe) in your house yearly and use that excess equity to buy another as soon as you can scrape up a reasonable deposit (20% if you are conservative).

3. Lock in the interest rates for 30 years; rent the property out; keep raising rents; reassess the value of all of your properties yearly.

4. Repeat until Rich!

Now, this will take 10 to 30 years … to accelerate: start that little (or big) side-business and use the excess cash-flow to buy more investment properties rather than Porsches!

Simple … and, you couldn’t be starting at a better time in history.

Will low interest rates and inflation eat up the interest the bank pays you on your CD's?

Posted on February 27, 2008 by Adrian

Absolutely!

Here’s how to think about banks and cash … consider your time-frame first:

SHORT TERM

If you are keeping your money in the bank to save for something important (hopefully, for a deposit on an income-producing property?) over the next few months or two or three years, then don’t be overly-concerned about the interest rate or inflation. I keep a HUGE amount in the bank right now because I sold out of some investments and am staying ‘in cash’ for a short time through the current market.

MEDIUM TERM

If you have a large’ish sum that you are building up for something major in say 3 to 5 years, then a better ‘savings account’ would be a low cost Index Fund … as you save enough to meet the minimum investment criteria, drop it in … just be prepared to hold for at least the MEDIUM TERM

LONG TERM

If you are, say, 7 to 70 years before retirement, you in the investment mode of your life, and (a) are unlikely to have your cash in the bank, and (b) are crazy if you do! Over 7 or more years, yes, ridiculously low investment returns (and, to a lesser extent inflation) will eat your future alive! Put your money into any mix of Index Funds, Business Opportunities, Real-Estate Investments, Direct Stock Investments – keep away from Mutual Funds – as suits your personality profile and desire to get rich vs merely keep up with the Middle Class Joneses.

SUPER LONG-TERM (a.ka. Retirement)

Here is where that low interest / inflation combo (even if inflation is just 2% or 3%) will eat you alive … be prepared to be retired for a long time, say 30 – 50 years (even if you die young, at least your spouse and kids will be happy with their nest egg!) … you do NOT want your money running out before you do.

If you have a lump-sum, there’s only a few choices:

– Put it all into an Index Fund and only draw down 2.5% – 3.5% each year to live on.
– Put it all into income-producing real-estate and spend no more than 75% of the rent (after paying down mortgages and building up a suitable buffer to guard against ‘problems’)
– Put it all into TIPS (inflation-protected Treasury Bonds) and happily live off all the interest that they pay you every 6 months
– Implement a Bond laddering strategy, such as the Grangaard Strategy, which claim to be able to let you live off 6.6% of your lump sum at retirement every year
– Any combination of the above that suits your needs and ‘investment personality’

Each of these strategies is relatively “inflation-proof”, in that you get to increase the amount that you take out every year as a ‘wage’ to live off, and pays more interest typically than the bank will give you (expect maybe, the bonds … you pay a ‘price’ for the inflation-hedge).

Hope this helps?

Dumb Money!

Posted on February 26, 2008 by Adrian

I take issue with the seemingly interchangeable use of the words ‘saving’ and ‘investing’ …

Let’s not confuse buying Index Funds or typical diversified ordinay stock Mutual Funds with INVESTING …

… when you buy a Fund you are SAVING – consider it a long-term savings vehicle, no different to ordinary bank savings accounts, CD’s, and Bonds.

The difference? Effort.

Buying a packaged financial product is no different to buying any other product: you send away for some information; if you like what you see you fill in the appropriate sales form; you pay your money and receive your ‘product’.

Hopefully, when it comes to Funds, you make some money when you eventually cash out.

Contrast that with INVESTING:

You do your research; you look for an underpriced item (in this case, a stock); you purchase the item; you watch the market carefully … and, when the price goes back up … you sell (this could be sooner = trading; or later = long-term-buy-and-hold).

Of course, you could just keep holding for dividends. In either case, you are aiming to MANAGE your holding to MAXIMIZE your RETURN.

Some people call the former Passive Investing and the latter Active Investing … but, if it walks like a duck …

… it is a duck!

BTW: there’s nothing wrong with SAVING … go ahead and buy some Index Funds if you’re not up to the task of INVESTING, even Warren says it’s OK …

“Another situation requiring wide diversification occurs when an investor who does not understand the economics of specific businesses nevertheless believes it in his interest to be a long-term owner of American industry. That investor should both own a large number of equities and space out his purchases. By periodically investing in an index fund, for example, the know-nothing investor can actually out-perform most investment professionals. Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.”W. E. Buffett – 1993

When is investing gambling?

Posted on February 23, 2008 by Adrian

I was browsing a new finance forum the other day and came across a great question from a self-confessed ‘beginner investor’.

He asked:

“Where can I learn how to trade with a few thou for the short term (<3mo) with greater than 20% return. I’ve never invested anything. I know that long term investing seems much easier from what i’ve read ie. value investing with stock screens, but what is another good strategy? I am looking for a strategy, teacher, website, anything to start learning, but with a goal of putting money in the market. I’m not interested in funds or managers.”

That, my friends, is called ‘gambling’ not ‘investing’!

You see, when evaluating ANY so-called ‘investment strategy’ you have to consider the return that you can make against ‘market norms’ …

… which is a very simple way of saying “if I can do it … and I don’t have any SPECIAL INSIDER KNOWLEDGE that makes me SPECIAL … then why isn’t EVERYBODY doing it?”

The answer is, of course, is: it’s simply NOT possible … otherwise EVERYBODY would be doing it, already!

… unless you get extremely lucky (which is why what you want to achieve is called ‘speculating = gambling’).

A friend and I had a similar conversation the other day …

He is becoming a professional speaker and consultant; he has already made a great start by writing and self-publishing a book and already has some paid speaking engagements.

BUT, his target is to earn $200k next year … just from speaking/consulting, as a near-beginner!

So I asked him: “How many corporate executives, with expertise in your specific area [customer service] earn anything close to your $200k target right now?”

He said: “Not many … that’s a BIG corporate salary …”

Next, I asked him: “How many of them could write and speak about customer service?”

He answered: “Probably a lot more than you’d expect, especially if they knew that was $200k on the line …”

“Exactly!” I said, almost jumping out of my chair: “So, why would any of them work for somebody else, if they could simply write a book then earn $200k … with the added benefit of lots of travel, flexible hours, and no boss?”

“Hmmmm” he said, his brain obviously (finally) ticking over: “They wouldn’t!”

Which was exactly the point that I was trying to get across:

It simply CAN’T be DONE, by the average person … otherwise, they would all be doing it!

Of course, there are PLENTY of speakers and consultants earning $200k or way more – as there are plenty of people in all areas of ‘investment’ (stocks, options, currencies, futures, real-estate, business, etc, etc) earning outstanding returns even in a crappy market – but …

… they generally have SPECIAL INSIDER KNOWLEDGE that makes them SPECIAL … or, they work MUCH harder than anybody else and/or they get extremely LUCKY …

So, what would you tell our ‘Beginner Investor’?

I would say, when evaluating any opportunity or even your own investing goals and strategy consider:

1. Are you investing – in which case, you should expect ‘normal’ rates of return over the long haul, or

2. Are you really gambling – in which case, the sky is the limit … but, the ground could equally rush up to meet you …

depending upon how lucky you get.

BOTH have a place in your journey towards $7million in 7 years (or whatever target you set for yourself) … it’s how I did it …

But, always be very clear on when and why you are investing and when and why you are gambling.

I’d like to hear your views …

7million7years

How to make 7 million in 7 years …

Category Archives: Investing