Tag Archives: millionaire

Good spam or bad spam? You decide …

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spamLike you, I receive a lot of spam … fortunately Google’s g-mail picks most of it up and automatically dumps it into the ‘trash’ folder for me.

Most of the spam that I receive is of the “congratulations you have won the Dutch lottery” or the “Mr Nagambi, a senior official in the Uganda government needs your help” varieties. It seems that most spammers are happy with my current vitality and physical dimensions 😉

The problem is, this kind of spam receives no attention, because it takes more than it gives: “give me your credit card number and I will give you some purple tablets” [AJC: either that, or steal your money … spam ‘n scam!].

Good marketing, whilst often bordering on spam (be very careful not to cross the line, though!) gives in order to get: this could be free products (i.e. give me your e-mail address and I will send you my free report … followed by 7 carefully worded and timed sales letters), or simply some free information, like this unsolicited e-mail that I recently received:

Hi Adrian,

Only 43% of consumers will cut back on holiday spending this year, compared to 55% in 2008, according to a Consumer Federation of America survey. While increased consumer optimism spells good news for retailers, for Americans planning to “stretch” the budget, the New Year could bring falling credit scores, and with it, serious consequences.

Here are some fail-safe tips from FICO Credit Guru Shon Dellinger to help enthusiastic shoppers stay financially sound:

1. Be Smart with Credit. Using a credit card is ok – experts agree having 3-5 credit cards helps your credit, if used responsibly. But carrying a balance on your credit card leaves you (1) stuck paying interest that could cost you, in some cases, double or triple the cost of those gifts in the long run and (2) with a much lower credit score, which could jack up interest rates on your credit cards and jeopardize your chance of getting lines of credit elsewhere (buying a house, a car, etc.). Services like FICO Score Watch combat this by providing emails or texts alerting you to any changes in your FICO score (either positive or negative), and notifying you when you’ve qualified for a better interest rate. A credit score increase of 30 points will save the average consumer $105 per year.

For more information on FICO Score Watch, go to: www.myfico.com/Products/ScoreWatch/Description.aspx.

2. Resist “Short Savings.” The salesperson at your favorite department store offers you an instant 20% savings just for opening up a credit card in their name. While that $20 seems tempting at the time, it can quickly put you in debt if you’re not careful. The temptation of the deal is also one reason why the average consumer has a total of 13 credit cards. Opening new lines of credit can also hurt your credit score, so make sure the card meets your overall needs and not just your desire for quick savings.

3. Don’t Wait Till April! Many holiday shoppers use their Tax refund to pay off credit card balances left over from the holidays, which can be incredibly expensive, not to mention detrimental to your credit standing. A credit card balance of $500 dollars from January until April will cost you $237 dollars based on today’s average credit card interest rate.

Please let me know if you are interested in speaking with FICO credit guru Shon Dellinger about these credit saving holiday tips and what else consumers can do this year to assure that their 2011 New Year’s resolution isn’t fixing the damage they did to their credit in 2010. Also, the myFICO Forums can offer your readers helpful tips.

Cheers,

Ashley Kleinstein

Access PR for FICO

Now, I didn’t mind receiving this e-mail because it seems to offer useful information and isn’t directly asking for a sale, although I only gave it a cursory scan because my FICO score is just fine [AJC: and, thank you very much for asking 🙂 ].

Also, I know why this was sent to me: since it was sent under a PR agency’s moniker and I am a blogger, I surmise that they are really hoping that I (or the other personal finance ‘media’ people out there) will publish their content as an article [AJC: as I have ‘cleverly’ done here …. for all you new and aspiring bloggers out there, see how I just lifted some random content and made a post out of it? 😛 ]

What do you think? Is this an automatic delete? If you are not vehemently opposed to it, how would you improve the e-mail?

[Hint: I would present it as a free sample of an online newsletter and ‘click here if you would like to continue receiving it monthly …. usual price $79 for a year’s subscription, but free to you and no credit card required!’ to make it seem valuable]

What’s wrong with this ad?

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Forex

Aside from the obvious [AJC: Believing that you can turn $1k into nearly $6k in just 2 weeks is obviously stupid, right?] …

… there’s a basic reason why you are doomed to failure with FOREX (i.e. foreign exchange) trading activities. First, though, let me explain what FOREX is for those who don’t yet know:

The foreign exchange market (currency, forex, or FX) trades currencies. It lets banks and other institutions easily buy and sell currencies. The purpose of the foreign exchange market is to help international trade and investment. A foreign exchange market helps businesses convert one currency to another. For example, it permits a U.S. business to import European goods and pay Euros, even though the business’s income is in U.S. dollars.

In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency. The foreign exchange market is unique because of … the extreme liquidity of the market [and] the variety of factors that affect exchange rates. As such, it has been referred to as the market closest to the ideal [i.e.] perfect competition.

My dire ‘doomed to failure’ prediction comes about because of that last sentence: FOREX “has been referred to as the market closest to the ideal [i.e.] perfect competition”.

Think about it: for every dollar, drachma, or rupee that you buy … somebody has to be on the other side selling. And, since you are ‘betting’ on the relative strength of one currency versus another, you are effectively betting opposing arguments.

You have the same points spread on the ball game, but you are betting on opposing teams … one winner, one loser.

Now, who do you suppose has better information? You, or the other guy?

Who do you suppose has better FOREX training and more experience? You or the other guy?

You are the amateur, the other guy is (probably) the professional who does this for a living …

Now, you can argue that people are trading currency because they are moving country, so the ‘relative strength’ argument doesn’t apply … or, that they are government agencies moving in and out of foreign positions for stability and political reasons … or, that they are corporates moving funds between various international subsidiaries …

Which all be true and yet another reason why you are gambling and they are expertly managing their portfolios.

The same double-sided coin argument applies to options trading … indeed, most other forms of trading: you bet one way and the person on the other end of the transaction has bet the other way. And, they probably know what they are doing …

… best case is that they are equally naive as you 😉

One winner, one loser.

So, that means that 50% of the traders out there must be winning and the other 50% losing?

Well, the stats – somewhat surprisingly – tell a different story; cast your mind back a few weeks, where taloudellinenriippumattomuus  mentioned a Taiwanese study that found that (after costs) only 0.16% (or 1.6 per thousand) of traders [AJC: in this specific case, Day Traders, but I doubt whether FOREX or stock option traders fare much better] actually made a profit!

I’m sure that plenty of our readers have made – and lost – relative fortunes trading; if so, I’d love to read your comments …

Be rich? Or, appear rich?

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overspendingTrent at A Simple Dollar poses an equally simple question: Do You Want to Appear Rich? Or Do You Want to Be Rich?

Now, if this were a frugal-living blog, I think you know what my answer would be, but – like Trent – I have some personal experience of living beyond your means to keep up with appearances:  I grew up in a house where my family clearly lived beyond its means.

But, my father confided our true financial position to me – and, only to me – so, I became financially self-sufficient at a very young age. Others saw this as me having a strong sense of responsibility; however, if they knew my dark financial secret, they would see it as merely as the early manifestation of a strong survival instinct.

Whatever the fiscal lessons that I learned at a young age, they have clearly been to my long-term financial benefit …

Having said that, by nature, I like the good things in life … being rich suits me 🙂

However, even before I made $7 million in 7 years, I knew how to appear rich by being clever with the money that I had.

For example, when my friends were buying new Australian or Japanese cars (hence riding the depreciation roller-coaster to the tune of 15% to 30% per year), I bought a ten year old 911 Porsche.

Not only did I have a ton of fun racing it – and, rolling it on and off tow trucks whenever it had mechanical problems 😉 – I made money when I sold it.

Clearly, buying used is one way to appear rich (and, enjoying some of the fruits of your labor now) without actually holding yourself back from becoming rich by overspending.

Another way is to avoid the fiscal habits of either the Debt Wealthy or the Buy Wealthy: don’t buy or borrow-to-buy ‘stuff’ i.e. depreciating assets like cars, boats, and vacation homes.

If you must have some of these things, then take a leaf out of the book of the Rent Wealthy: rent whenever you can afford to, otherwise go without.

For example, it’s been said that you can charter a boat that is one size larger than you could afford to buy five times a year for about the cost of owning that smaller dinghy that you were about to buy. Similar logic applies to vacation homes, etc.

Use this rule of thumb (i.e. at least 5 weekends a year – every year – of use) to help you decide when you should buy or rent … assuming that you could afford to buy according to the 5% rule 😉

I want to sell my business …

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sell_a_businessA week or two ago, a reader – who shall remain nameless as they are currently in negotiations – asked for some advice on selling their business:

I have a software company with a new proprietary software technology.  The company is considered for buyout due to the new technology (currently there are no revenues and no debt). The projected total revenues over the next three years is $1.55m (First year: $0.15m, 2nd year $0.4m & Third year: $1m) and total over six years is $4.55m (with 4th, 5th, 6th years at $1m each). What is the right valuation for this company if the company were to be acquired now.

This is a common request that I receive and I always have a soft spot for entrepreneurs, having been down this path a number of times, and I will give you some guidelines in a future post …

… but, in this case Mr X (as I will refer to him) has NO business to sell right now, so the usual formulas simply won’t work!

Why no business?

Well, as Mr X admits, the company has “no revenues” right now: no revenues, no business … no business, no business valuation.

But, Mr X does have a new proprietary software technology; apparently, one that at least one major company wants to acquire.

So, the first step is to recognize that we are selling a product (the “proprietary” rights to a new software technology), but we first need to find out what it would cost to duplicate the technology.

Mr X says: “4-6 months with 2 people on the job”

That puts a ‘lowball price’ on the software of $20k to $100k depending upon whether it is developed onshore or offshore.

Now, that’s assuming that it can be duplicated, but Mr X assures me that it cannot:

All major companies in this area have been trying to figure out an equivalent technology for the last 5-6 years or so, but with no success.

Given that Mr X’s software can’t be copied (6+ years development effort, with NO guarantee of success), then his company is worth whatever he can negotiate 🙂

Since he wanted a better estimate of potential selling price than that, I told him that it’s time to look at potential revenue, which Mr X projects over the next three years as: $1.55m (First year: $0.15m, 2nd year $0.4m & 3rd year: $1m).

If the company generates < $1 mill per year over the next three years, then I think that Mr X would be struggling to get $500k – $1 mill. for it …

… if he is offered less – and, he probably will be as the market is quite small for any major corporate (at the numbers provided above) then, if it were my software, I would be tempted to go ahead and get those revenues for myself then sell in 18 months to 3 years time.

Here’s my reasoning:

1. Development effort on Mr X’s side is tiny, but he feels strongly that his technology can’t be easily copied,

2. Mr X has a market that he feels can generate revenues of, say $1.5m+ over three years (discounted to today’s value), which are relatively small numbers for any substantive corporation.

In fact, if Mr X is offered more that that $500k to $1 mill. that I suggested, it will probably be as a result of a combination of how badly one of these companies wants (needs?) his technology and how big THEY think the market will be for them.

That’s why the next step, if Mr X hasn’t already done so, is to assess what revenues the purchaser believes they can make over the same period (better marketing/sales than Mr X?); better yet, what profitability.

If he doesn’t already have a good feel for these numbers, then he will need to try and get close to somebody on the inside of the company and carefully ask them …

… after all, the price that you set should always be as close to whatever the company that you are hoping to sell to can make, minus a fair margin for their trouble. Anything less, and you are being a little too generous 😉

The Money Guy is not for me!

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 MoneyGuyVote

Wow!

It seems that I don’t need to teach you anything about the value of mentors … you overwhelmingly voted against me asking the Money Guy to manage my $7 million.

Although, some did question why I need a financial advisor at all; for example Trainee Investor said:

Question: why do you need a financial adviser? Preserving wealth is largely a matter of common sense – at least I think so (but I’m only a trainee so it would be a brave man who listens to me). It’s making it that’s hard.

It’s exactly because preserving wealth SEEMS easier than making money and SEEMS like common sense that I may need an ‘advisor’ …

… after all, $7 million is a lot of money and I am finding it harder to preserve than I expected [AJC: some of the reasons: bad markets; bad advice; and, bad management … and, who can I blame for the latter two except me?!].

So, isn’t that the point?

Find somebody who has made – and preserved – at least 10 times as much as me, and ask them to advise (more mentor) me, just as I have advised each of you on so many occasions?

After all, isn’t the impact on me at least 10 times what the impact is to you?

Cars and radiation …

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half_lifeWhat do cars and radioactive material have in common?

Well, besides each being a potential environmental disaster if not managed well … they both have a half-life:

– For radioactive material, it’s the period of time for a substance undergoing decay to decrease by half,

– For your car, it’s the time it takes for you to lose half your money!

This is because the largest cost of auto ownership is not the finance charges, the taxes, the gas that you put in the tank, or even the tires or repair costs … it’s a largely ‘hidden’ cost called depreciation.

Picture 1

You see ‘depreciation’ when you sell the car as The Amount You Paid less The Amount That You Get Back.

Even the amount that you get back helps to hide the true depreciation cost because you will often trade in the vehicle and the dealer might ‘sweeten’ his offer by giving you a higher trade-in figure than the car is really worth … but, what he is really doing is giving you a discount on the purchase price of the new car (a discount that you may well have received – or exceeded – even if you didn’t offer a trade-in).

Even if the 15% to 20% p.a. depreciation claimed by Debt Free Bible is true, what effect does that have on the value of the vehicle?

Picture 2

The chart shows if you paid $25k for your new car, you can only get $12,800 if you sell it after 3 years, even if you decide to hang on to the car, it has cost you $25,000 – $12,800  = $12,200 …

… or, $4,067 a year!

[ AJC: And, don’t forget all of those other costs that we mentioned: “the finance charges, the taxes, the gas that you put in the tank, or even the tires or repair costs” 😉 ]

So, how accurate is that “15% to 20% p.a. depreciation claimed by Debt Free Bible”?

Well, a paper published by the IAES, which evaluated the depreciation rate of 15 automobile brands available in the USA for the years 2000-2004, yielded 5 tiers of depreciation rates:

Tier One: Honda and Lexus with an average annual depreciation rate of 13.4-14.1%.

Tier Two: Volkswagen and Toyota with an average annual depreciation rate of 16.5-16.8%.

Tier Three: Nissan, Mercedes, BMW, Hyundai, and Mercury with an average depreciation rate of 18.9-21.2%.

Tier Four: Chevrolet, Chrysler, and Saturn with average annual depreciation rates of 25.4-27.5%.

Tier Five: Dodge, Ford, and Buick with an average annual depreciation rate of 31.1-32.6%.

Now, using these rates, I have calculated the Half-Life of each brand for you, simply by using the Rule of 72 [AJC: divide the depreciation rate into 72; the answer is the number of years it will take to halve the purchase price] ….

Use this table to find 7 Million 7 Years Patented Half-Life For Your Next Car:

Honda / Lexus: 5 Years 3 Months.

Volkswagen / Toyota: 4 Years 4 months

Nissan / Mercedes / BMW / Hyundai / Mercury: 3 years 7 Months.

Chevrolet / Chrysler / Saturn: 2 Years 9 Months.

Dodge / Ford / Buick: 2 Years 3 Months.

Using this information, you could do some very fancy tables about the break-even point of spending more to buy a new (say) Lexus instead of a new (say) Nissan – factoring all the other costs of ownership, if you want to get real fancy – given that you have a couple of years worth of depreciation to play with …

… rather, I would like you to see that you are far better off buying a second-hand vehicle of the type that you are after, so that you can pay half-price 😉

You do this, simply by buying a 4 year, 4 month old Volkswagen, or a 3 year, 3 month old Buick, etc.

Get it?

And, even if you were determined to buy new, you are still probably better off buying a slightly ‘better’ brand used – even if it means going up a tier or two – than you are in buying a new ‘standard’ brand auto.

Sorry GM and Ford, but you are in DEEP trouble, because you simply aren’t competitive!

Betting on the lottery …

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megamillions

Ill Liquidity candidly (yet, I am sure, at least a little tongue-in-cheek) shares his plan to make $7 million:

That’s the problem with most retirement plans. I figure I’ll be lucky to still want to be able to do the things I want to do now if I can make it to retirement. That’s why I, and everyone else, would like to have a 7million7year plan of my own. Right now it’s betting on the lottery.

Coincidentally, on the same day that I settled on one of my development sites (it was the $3 mill. one) I was offered a lottery ticket by a vendor … I declined, to which he said “it’s only $7 and you can win $15 mill.”

If anybody can afford $7 it’s me … yet, $15 mill. would offer a huge benefit to me, too … my blog would become $21 mill in 9 years, for example 😉

However, I still politely declined and the look on his face was one of clear non-belief i.e. “who in their right mind would turn down $15 mill. for $7”.

You see, most people’s only plan to make $7 mill. is “betting on the lottery” …

… but, that’s NEVER been my plan.

I wonder if that’s one reason why I’m rich today?

The rule of 70 …

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Other than a tenuous link to my previous video on compounding, the only reason that I am showing this video is because of this guy’s uncanny similarity to a famous physicist, Julius Sumner Miller, who graced our television screens with his quirky mix of science and entertainment when I was still growing up [AJC: yes, we did have televisions, even when I was a child 🙂 ] …

… not the only reason, because this video also shows you the power of the rule of 70.

Before you get too excited with the power of compounding, just remember that each doubling (at the 7% compounding rate that he is talking about) takes approx. 10 years:

– in 40 years, you double your money 4 times; so if you start with $100k, you end up with $1.6 million,

– if inflation runs at 4%, this also means your $1.6 million is only ‘worth’  (because this causes your money’s value to halve every 70 / 4 = 17.5 years) a bit less than $400k

… sorry, but when you’re working in 10 year chunks, time really begins to get the best of a single human being’s working life 😉

PS the very first computer program that I ever wrote – on paper tape, with holes punched in it – was to calculate the grain of rice-on-chessboard story that is mentioned here 🙂

PPS I know of this rule as the Rule of 72 … perhaps 70 is easier to remember? In any event, it makes not a great deal of difference over a decade …